There Are Five Basic Types of Colorado Home Loans
For the purpose of understanding how mortgages are broken up, let's say there are five basic types of home loans available (all 850+ fit into one of these groups). Understand that this list is oversimplified for the purpose of getting your arms around all of the options that exist.
Government insured home loans:
- VA
To be eligible for this type of mortgage you must have veteran status with one branch of the U.S. military (the key is a form DD214). You can visit the VA's web site for a complete list of eligibility options. - FHA
To be eligible for this type of mortgage you must have a social security number. The home you are purchasing does not have to your first home, though many refer to this solution as a first time homebuyer's solution.
Conventional home loans:
- Fannie Mae or Freddie Mac - what most people think about when they think about getting a home loan.
- Traditionally the borrower must have good to great credit, although Fannie has recently introduced solutions for borrowers whose credit does not fit this profile.
- Conventional mortgage solutions offer LTV's as high as 97% or 100%.
- Depending on how your home loan is configured, you must have 5% of your own money. There are ways to do as little as 3% of your own money - or a new program recently released allows for as little as $500 of the borrower's own money. Talk with your mortgage consultant about which of these options is available to you.
Jumbo home loans:
- Primary distinguishing feature is that the loan amount exceeds the conventional loan limit.
- These loans tend to have a higher interest rate than a conventional loan - and not all conventional options are available with jumbo mortgages.
"Type Four" home loans:
- This term is my term - not something you'll find elsewhere in the mortgage industry. It refers to niche mortgage solutions for buyers who have good to great credit.
- Some examples of niche solutions:
- A home loan that allows you to roll your closing costs into the new loan amount.
- A home loan that allows you to roll closing costs as well as debt consolidation into the new loan.
- A home loan that does not require the borrower to document the income that is shown on the application (a stated income home loan). This solution can be utilized by self employed buyers or others who have a difficult time documenting actual income in the traditional way with tax returns.
- A home loan that doesn't require the borrower to document the income or assets shown on the application (no income, no asset). This solution might be necessary when the source of funds and income to buy your new home cannot be documented properly.
- A home loan that doesn't require the borrower to disclose a job, income, or assets (a true "no document" loan). Sometimes this option is needed if the borrower has been self-employed for less than the required amount of time (typically two years). Also a good solution for borrowers who have no documentable income, including borrowers who have no job. This solution requires phenomenal credit. Please talk with your mortgage consultant to find out if your credit profile will support this type of home loan.
- In the end, there is a different home loan solution for virtually every home loan need. Talk with your mortgage consultant about your situation and your goals to find out which home loan solutions are available to you.
- Important: These types of loans are very credit score driven. Please talk with your mortgage consultant to find out which, if any, of these are available to you.
"Type Five" home loans:
- This term is my term - not something you'll find elsewhere in the mortgage industry. It refers to niche mortgage solutions for buyers who have less than perfect credit.
- With a few exceptions, the same types of home loans that exist in the "Type Four" section are also available to borrowers in this category.
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