CONVENTIONAL
A conventional mortgage is the most common mortgage to obtain. They can come in all sorts of sizes, durations, and special features. A common misconception is that a conventional loan requires a large down payment. This commonly held belief is inaccurate. Some special conventional loan programs offer very low down payment options.
Conventional mortgages which are defined by Fannie Mae and Freddie Mac as being large, fall into a special category of conventional mortgages called a “Jumbo” mortgage.
FHA
The FHA (Federal Housing Administration) loan is a popular loan program for first time home buyers. One reason is this mortgage type carries a small down payment requirement. In addition, these loans are available for borrowers with new or sometimes weak credit profiles and liberal allowances are often made for higher than normal debt accumulation.
FHA loans nearly always require FHA mortgage insurance which does not fall off during the loan’s duration. Removing FHA mortgage insurance usually requires a refinance to a different loan product.
VA
A VA mortgage is a loan program which is offered through the U.S. Department of Veterans Affairs and is available to qualifying Veterans with VA eligibility. Some key benefits of a VA mortgage might include no mortgage insurance even when the down payment is very low, and additional allowances are often made for individual circumstances regarding credit rating and/or debt structure.
USDA
A USDA Rural Housing loan is offered through the United States Department of Agriculture. This loan is offered only in specifically designated geographic areas defined by the U.S. Department of Agriculture as being in a “rural” area. Utah has many such places scattered throughout the State.
All USDA Rural Housing loans are subject to income restrictions. In other words, family households who make too much money are not eligible for a USDA Rural Housing loan.
Benefits of a USDA Rural Housing loan might include a very low down payment requirement, as well as monthly payments which are often lower than on a conventional or FHA mortgage.
JUMBO
A Jumbo mortgage is a unique and special conventional mortgage which is defined by Fannie Mae and Freddie Mac as being large. Jumbo mortgages generally have larger down payment requirements and carry higher interest rates than many other standard loan programs.
NON-QM
In the mortgage industry QM stands for Qualified Mortgage. By definition, a Non-QM loan is a loan which falls outside of standard underwriting and income verification guidelines defined by the CFPB (Consumer Financial Protection Bureau). There are many types of residential mortgages which can be underwritten and approved which fall outside of these standard underwriting guidelines. Examples of mortgages of this nature might include some of the following:
- A self employed borrower who does not show sufficient net income on his or her federal income tax return to qualify for a standard mortgage loan.
- A borrower who wishes to finance a rental property but does not wish for his or her personal income to be considered for loan qualification.
- An individual who desires a mortgage but does not yet have a Social Security Number. These individuals might be classified by the federal government as a resident or non-resident alien, and as such they have an ITIN (Individual Taxpayer Identification Number), but not yet a Social Security Number.
- A borrower who desires a nontraditional mortgage product such as a very long loan term, or a loan with interest only repayment features.
- Borrowers who are unable to verify employment or income using traditional mortgage verification methods.
- Loans when the specific property is unique or does not fit within standard underwriting guidelines.
A Non-QM loan is not the “Sub Prime” loan which some economists and government officials attribute as the cause of the mortgage crisis of 2008. Non-QM loans are still desirable loans which are originated using nontraditional underwriting methods. As a result, Non-QM loans understandably carry higher interest rates, larger down payment requirements, or more rigid restrictions than traditional mortgages. However, these loan types may mean that borrowers with circumstances which are unique, can still obtain access to affordable mortgage financing.