Conventional Loans
Conventional loans are the single most common loans that people obtain when buying a home. All conventional loans meet standards set by the Federal Housing Finance Agency and are often purchased on the secondary mortgage market by both Fannie Mae and Freddie Mac. These loans work well for borrowers who fit the standard mold with regard to income, assets, credit, and typical type property
FHA Loans
FHA loans are another common type of loan that people can utilize to purchase primary residences. FHA loans are typically most beneficial to individuals who have less than stellar credit but can under certain circumstances be better regardless of credit profile. There are some additional upfront fees and in certain circumstances, mortgage insurance might never fall off of the loan however there are not many other drawbacks.
VA Loans
VA loans are another common type of loan that only apply to people who are veterans, active-duty service members, or certain branches of the National Guard or Reserves. These loans typically must be utilized for a primary residence purchase however under certain circumstances can be used for 2nd home purchases as well. VA loans provide a variety of benefits often requiring a lot less strict standards to qualify across the board. VA loans try to take a common sense underwriting approach which focuses more on the cash flow of the individual than those of most other types of loans.
Jumbo Loans
Jumbo loans are classified as those whose principal balance is above the conforming loan limit. This limit varies depending on the state and county in which the property is located as well as the number of units. Jumbo loans typically have stricter underwriting requirements and guidelines. This is a result of lenders being more afraid of defaults increasing the risk of their overall portfolio. Individuals who qualify for jumbo loans are typically self-employed or higher-income earners.
Non-Traditional (non-QM) Loans
There are several types of non-traditional loans that are available to help individuals who have unique income scenarios or otherwise would not qualify. The most common types of non-traditional loans are business bank statement loans, debt service coverage ratio loans, Asset-only or Asset depletion loans, foreign investor loans, and 1099 loans. Basically, loan programs that do not require tax returns and can be structured with alternative documentation instead.
Bridge Loans
Bridge loans are exactly what they sound like as they are intended to be used as a short-term financing solution. Bridge loans are most often used for investors who are selling a property and buying another one simultaneously or looking to buy a property and flip/sell it quickly thereafter. These loans often require the borrower to outline an exit strategy as a part of their approval.
The most common application for this type of loan is for 1031 and reverse 1031 exchanges, which may require the borrower to close into a Special Purpose Entity (SPE).
They can also be collateralized against multiple properties, offering better leverage and more creativity, and have no prepayment penalty, allowing the borrower to refinance immediately after the 1031 exchange is satisfied.
Portfolio loans
Some banks and or credit unions will have loan programs that are unique to that institution. The distinction between these loans and others is that they are typically held “in-house” and serviced by the original lender. Portfolio loans are typically specialized and are often designed to help certain sectors of the population. Oftentimes high net worth individuals will be offered a portfolio loan program if they have a lot of money with an institution as an incentive to keep their business with them.
Private Money / Hard Money Loans
Private money loans are loans from individuals willing to extend credit to a borrower based on their own unique set of criteria. These loan terms often vary wildly and often contain unusual or risky features such as interest only, variable rates, negative amortization, and so on. Obtaining private money loans is simple as they are based on equity but are typically more costly as they require minimal/no documentation from the borrower.
