Mortgages, or loans secured by real estate/real property, come in many different shapes and sizes, but all can be simplified by measuring risk vs reward. There are countless umbrella terms & financial jargon, and the misuse of words by Realtors & loan officers alike in everyday business can make understanding difficult.

THE COMMON ONES:

  • Conventional (aka “standard” or “normal”): Perhaps the most confusing of all the lingo is the use of the word “Conventional”. This is the standard 30yr fixed mortgage everyone’s familiar with. For reasons, this product often has the lowest rates, lowest fees, and most flexibility. In exchange, a conventional loan must conform to rigid guidelines w/ little room for exceptions. Outside of creative tricks, if a brw, property, or scenario deviates too far from the universal checklist, lenders won’t approve the loan.

  • FHA: A conventional loan that the government promises to be responsible for if the borrower fails to make payments. They often—but not always—have lower rates than a conventional loan, BUT should only be recommended for those who are “credit challenged” (aka your credit score is bad or you have bankruptcy/foreclosure on your record). The lower rates are almost always offset by hidden fees or inflexibilities the consumer doesn’t see until the damage has been done.

    • A common misconception is FHA is the only program that will allow down pmts as low as 3.5%. This is false. Conventional loans also allow as low as 3.5%.

  • VA

The OTHER ONES:

  • Jumbo

  • DSCR

  • Bank Stmt Loans

  • Asset Depletion

  • Commercial

  • Construction

It can be helpful to approach loans the same way you would building an ice cream sundae- there’s the underlying ice cream (e.g. vanilla, chocolate), plus a variety of toppings, add-on’s, or container combinations. We’ll start w/ the common ice cream flavors:

  • Standard, Conventional Conforming (Vanilla): The most common AND affordable loan products out there. They’re cheap because a process called securitization allows huge pools of capital (e.g. pensions, your 401k funds, life insurance firms, the Fed, foreign entities, etc) to buy, sell, and hold pieces of these loans in a smooth & efficient way.

  • Min LTV: 3.5%

    1. Min FICO: 680

    2. Max DTI: 57%

  • FHA: One of three “govt-supported’ loan types. Designed to expand homeownership opportunity to those who’s credit or debt ratios aren’t good enough to qualify for the standard option above. Though they typically come w/ lower interest rates, the additional hidden expenses are often not worth the tradeoff.

  • FHA loans are govt loans named after their sponsoring entity- the Federal Housing Authority. There are many subtypes of FHA loans, but all of them are designed to allow those w/ worse credit or income qualification

This page will attempt to oversimplify so you, the diligent consumer, can get a real grasp of your options to do what’s best for you. The following are in order from most common to least commonly used:

  • Standard, conventional conforming loan.

• Conventional vs FHA vs VA vs Non-QM
• FNMA vs GNMA vs Non-QM Investors
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