Loan Types | SCV Home Loans

Conventional Loans

A conventional home loan is a type of mortgage that is not insured or guaranteed by the federal government. Unlike FHA, VA, or USDA loans, which are backed by government agencies, conventional loans are backed solely by private lenders and investors. Here are the key characteristics of conventional home loans:

Lender's Risk: Because conventional loans are not insured by the government, lenders bear more risk if the borrower defaults on the loan. As a result, lenders typically require stricter credit and income qualifications compared to government-backed loans.
Down Payment: Conventional loans often require a higher down payment compared to FHA loans. While FHA loans may require as little as 3.5% down, conventional loans typically require at least 5% to 20% down, depending on the lender's requirements and the borrower's credit profile.
Private Mortgage Insurance (PMI): If a borrower puts down less than 20% on a conventional loan, they are usually required to pay for private mortgage insurance (PMI). PMI protects the lender in case the borrower defaults on the loan. Once the borrower's equity in the home reaches 20% (through payments or appreciation), they can typically request to cancel PMI.
Credit Requirements: Conventional loans generally have stricter credit score requirements compared to FHA loans. While FHA loans may accept borrowers with credit scores as low as 500 in some cases, conventional loans typically require a minimum credit score of 620 or higher.
Loan Limits: Conventional loans have higher loan limits compared to FHA loans in most areas. These limits are set annually by the Federal Housing Finance Agency (FHFA) and vary by county.
Flexibility: Conventional loans offer more flexibility in terms of loan terms and options compared to government-backed loans. Borrowers can choose from various fixed-rate and adjustable-rate mortgage (ARM) options, as well as different loan terms (e.g., 15-year, 30-year).

Conventional loans are popular among borrowers who have strong credit profiles and sufficient funds for a down payment. They are also suitable for those who want to avoid the upfront mortgage insurance premiums required by FHA loans or the funding fee required by VA loans.

FHA Loans

An FHA mortgage is a home loan that is insured by the Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development (HUD). FHA loans are designed to make homeownership more accessible to low to moderate-income borrowers who may not qualify for conventional mortgages due to stricter requirements.

Key features of FHA mortgages include:

Insurance: FHA loans are insured by the FHA, which means if the borrower defaults on the loan, the FHA will pay the lender for the losses incurred. This insurance encourages lenders to offer loans with more flexible qualification requirements and lower down payment options.
Down Payment: FHA loans typically require a lower down payment compared to conventional mortgages. As of recent guidelines, borrowers may be required to put down as little as 3.5% of the home's purchase price.
Credit Requirements: FHA loans may be more forgiving of lower credit scores than conventional loans. Borrowers with credit scores as low as 620 may qualify for an FHA loan, although a higher credit score will generally result in better terms.
Loan Limits: FHA loan limits vary by county and are adjusted annually based on median home prices. These limits cap the amount of money that can be borrowed through an FHA loan, ensuring that the program serves borrowers seeking affordable housing options.
Mortgage Insurance Premiums (MIP): FHA loans require both an upfront mortgage insurance premium (UFMIP), which can be financed into the loan amount, and an annual mortgage insurance premium (MIP) paid monthly. The purpose of MIP is to protect the lender in case of default.
Property Standards: FHA loans require the home being purchased to meet certain minimum property standards to ensure it is safe and livable.

FHA loans are popular among first-time homebuyers and those with limited financial resources because of their lower down payment requirements and more lenient credit qualifications. However, borrowers should consider the added cost of mortgage insurance premiums when evaluating the overall affordability of an FHA loan compared to a conventional mortgage.

It's important to note that FHA loans are only available through FHA-approved lenders, and condos/townhouses must be located in FHA approved HOA communities.

A VA loan is a mortgage loan program designed specifically for eligible veterans, active duty service members, certain members of the National Guard and Reserves, and some surviving spouses of veterans. VA loans are guaranteed by the U.S. Department of Veterans Affairs (VA), which allows qualified borrowers to obtain favorable terms and conditions for home loans.

VA Loans

Here are the key features of VA loans:

No Down Payment: One of the most significant benefits of a VA loan is that eligible borrowers can finance up to 100% of the home's purchase price without requiring a down payment. This feature makes homeownership more accessible to veterans and service members who may not have substantial savings for a down payment.
No Private Mortgage Insurance (PMI): VA loans do not require borrowers to pay private mortgage insurance (PMI), even with no down payment. This can result in lower monthly payments compared to conventional and FHA loans, which typically require PMI if the down payment is less than 20%.
Competitive Interest Rates: VA loans often have competitive interest rates compared to conventional loans, which can save borrowers money over the life of the loan.
Flexible Credit Requirements: While VA loans do have credit score requirements, they may be more flexible compared to conventional loans. The VA does not set a minimum credit score requirement, but lenders may have their own standards.
Funding Fee: VA loans typically require a one-time funding fee paid at closing, which helps offset the cost of the program to taxpayers. The amount of the funding fee can vary based on factors such as the borrower's military service, down payment amount (if any), and whether it's the borrower's first VA loan or subsequent use.
Assumption of Loan: VA loans are assumable, meaning that if the borrower sells the home, the buyer may be able to take over the VA loan under certain conditions. This feature can be advantageous in a rising interest rate environment.
Limits on Closing Costs: The VA limits the types of closing costs that veterans are allowed to pay, which can help reduce the upfront costs associated with obtaining a mortgage.

To qualify for a VA loan, borrowers must meet certain eligibility requirements based on their military service, discharge status, and other criteria set by the VA. VA loans are available through VA-approved lenders, such as banks and mortgage companies.

Overall, VA loans are a valuable benefit offered to veterans and service members, providing them with opportunities for affordable homeownership and financial stability.

Non-QM Loans

A Non-QM (Non-Qualified Mortgage) loan is a type of mortgage that does not meet the standards set by the Consumer Financial Protection Bureau's (CFPB) Qualified Mortgage (QM) rule. The QM rule was created in response to the 2008 financial crisis to ensure that borrowers are offered loans that they can reasonably be expected to repay.

Here are the key characteristics of Non-QM loans:

Alternative Documentation: Non-QM loans may allow alternative forms of documentation for income verification, such as bank statements or asset depletion, instead of traditional W-2 forms or tax returns. This flexibility can be useful for self-employed borrowers or those with non-traditional income sources.
Debt-to-Income (DTI) Ratios: Non-QM loans may allow higher DTI ratios compared to QM loans. QM loans typically have a DTI cap of 43%, but Non-QM loans can exceed this threshold, sometimes allowing DTI ratios up to 50% or higher depending on the lender's guidelines.
Interest-Only Payments: Some Non-QM loans may offer interest-only payment options, where borrowers pay only the interest on the loan for a certain period (e.g., 5-10 years), after which they begin to pay down the principal.
Non-Traditional Property Types: Non-QM loans may finance non-traditional properties such as investment properties, vacation homes, or properties with unique characteristics that do not conform to standard underwriting guidelines.
Credit History Flexibility: Non-QM loans may be more flexible with respect to credit history, accepting borrowers with lower credit scores or those with past credit events (like bankruptcy or foreclosure) that disqualify them from QM loans.
Jumbo Loans: Non-QM loans can be used for jumbo mortgages that exceed the conforming loan limits set by Fannie Mae and Freddie Mac, providing options for borrowers seeking larger loan amounts.

Non-QM loans are typically offered by specialized lenders and may carry higher interest rates and fees compared to QM loans, reflecting the higher risk associated with non-standard underwriting criteria.

It's important to note that Non-QM loans do not have the same level of regulatory protection as QM loans. Borrowers considering Non-QM loans should carefully review and understand the terms and conditions, as well as the potential risks involved. They should also ensure that they have a clear plan for repayment and consider seeking advice from a qualified mortgage advisor or financial counselor before proceeding.

Jumbo Loans

A jumbo home loan, also known simply as a jumbo loan, is a type of mortgage that exceeds the conforming loan limits set by the Federal Housing Finance Agency (FHFA). These loan limits are established annually and vary by county, reflecting the average home prices in the area.

Here are the key characteristics of a jumbo home loan:

Loan Amount: Jumbo loans are used to finance properties that require loan amounts higher than the conforming loan limits. As of 2024, the conforming loan limit is set at $647,200 for most areas in the contiguous United States. Loan amounts above this limit typically qualify as jumbo loans. Counties in higher priced demographics may have higher loan limits.
Higher Loan Limits: Jumbo loans allow borrowers to finance properties that exceed the maximum loan limits set for conventional or government-backed loans, such as FHA, VA, or USDA loans.
Credit Requirements: Because of the larger loan amounts involved, jumbo loans often require higher credit scores and more stringent underwriting criteria compared to conforming loans. Lenders may also require larger down payments to mitigate risk.
Interest Rates: Jumbo loans typically have higher interest rates than conforming loans, reflecting the increased risk to the lender due to the larger loan amount and potentially higher default risk.
Down Payment: Jumbo loan requirements for down payments can vary widely by lender and borrower profile. While some lenders may require as little as 10% down, others may require 20% or more, depending on the borrower's creditworthiness and financial situation.
Property Types: Jumbo loans can be used to finance a variety of property types, including primary residences, second homes, and investment properties.
Additional Requirements: Lenders offering jumbo loans may impose additional requirements such as reserves (cash reserves held in savings or investment accounts after closing), stricter income verification, and specific appraisal standards.

Jumbo loans are typically used by borrowers seeking to finance high-end properties or homes in expensive real estate markets where home prices exceed the conforming loan limits.

USDA Loans

A USDA loan, also known as a USDA Rural Development Guaranteed Housing Loan, is a mortgage loan program offered by the United States Department of Agriculture (USDA). It is designed to encourage homeownership in rural and suburban areas by providing affordable financing options to low-to-moderate income households who may not qualify for traditional mortgages.

Here are the key features of USDA loans:

Location Eligibility: USDA loans are available for properties located in designated rural and suburban areas as defined by the USDA. These areas are typically outside of major metropolitan areas and have populations below a certain threshold.
Income Eligibility: USDA loans are intended for borrowers with low-to-moderate incomes. The specific income limits vary by location and household size. Generally, the borrower's income must not exceed 115% of the median household income for the area.
No Down Payment Required: One of the main benefits of USDA loans is that they do not require a down payment. Borrowers can finance 100% of the home's purchase price, making homeownership more accessible for those who may not have substantial savings for a down payment.
Mortgage Insurance: USDA loans require an upfront guarantee fee and an annual fee for mortgage insurance. The upfront fee can be financed into the loan amount, while the annual fee is paid as part of the monthly mortgage payment. This mortgage insurance protects the lender in case the borrower defaults on the loan.
Property Eligibility: In addition to location requirements, properties financed with USDA loans must meet certain eligibility criteria regarding size, safety, and condition. Homes must be modest in size, design, and cost relative to the area.
Fixed-Rate Loans: USDA loans typically offer fixed-rate mortgages with terms ranging from 15 to 30 years, providing borrowers with predictable monthly payments over the life of the loan.

USDA loans are administered by approved lenders such as banks and mortgage companies. Borrowers interested in a USDA loan should check the USDA's eligibility maps to determine if the property they are interested in qualifies, and they should verify their income eligibility based on the area's limits. USDA loans can be a valuable option for eligible borrowers seeking affordable homeownership opportunities in rural and suburban communities.

CalHFA Loans

A CalHFA loan refers to a mortgage loan program offered by the California Housing Finance Agency (CalHFA), which is a state agency dedicated to expanding affordable housing opportunities for low and moderate-income Californians. CalHFA offers a variety of loan programs and down payment assistance programs to help eligible borrowers purchase their first homes.

Here are some key features of CalHFA loans:

First-Time Homebuyer Programs: CalHFA offers several programs specifically designed for first-time homebuyers, including low down payment options and down payment assistance (DPA) programs.
Down Payment Assistance (DPA): CalHFA provides assistance in the form of loans or grants to help cover the down payment and/or closing costs. These programs can significantly reduce the upfront costs associated with buying a home.
Low Interest Rates: CalHFA typically offers competitive interest rates on its mortgage loans, making homeownership more affordable for qualified borrowers.
Income and Purchase Price Limits: CalHFA loans have income limits and purchase price limits, which vary depending on the county in California where the property is located. Borrowers must meet these criteria to qualify for CalHFA financing.
Homebuyer Education: CalHFA requires borrowers to complete a homebuyer education course before closing on their loan. This course helps educate borrowers about the responsibilities of homeownership and financial management.
Fixed-Rate Mortgages: CalHFA loans usually offer fixed-rate mortgages with terms ranging from 15 to 30 years, providing borrowers with stable monthly payments throughout the life of the loan.
Loan Programs: CalHFA offers various loan programs, including conventional loans, FHA-insured loans, and VA loans, depending on the borrower's eligibility and preferences.

CalHFA works with approved lenders throughout California to originate and service these loans. These loans are particularly beneficial for first-time homebuyers in California seeking affordable housing options and financial assistance to achieve homeownership.

Reverse Mortgage Loans

A reverse mortgage is a type of loan available to homeowners who are typically 62 years of age or older, allowing them to convert part of the equity in their home into cash. Unlike a traditional mortgage where the homeowner makes monthly payments to the lender, a reverse mortgage pays the homeowner, either through a lump sum, monthly payments, or a line of credit.

Key features of a reverse mortgage include:

No Monthly Payments: The borrower does not make monthly payments to the lender. Instead, the loan balance increases over time as interest and fees accumulate.
Repayment: The loan is typically repaid when the borrower moves out of the home, sells the property, or passes away. At that point, the proceeds from the sale of the home are used to repay the reverse mortgage loan. Any remaining equity after repayment belongs to the homeowner or their heirs.
Requirements: To qualify for a reverse mortgage, homeowners must generally be 62 years of age or older, own their home outright or have a low mortgage balance, and live in the home as their primary residence.
Loan Amount: The amount of money that can be borrowed through a reverse mortgage depends on factors such as the borrower's age, the home's appraised value, and current interest rates.
Types of Reverse Mortgages: There are several types of reverse mortgages, including federally-insured Home Equity Conversion Mortgages (HECMs) which are regulated by the U.S. Department of Housing and Urban Development (HUD), and proprietary reverse mortgages offered by private lenders.

Reverse mortgages can be a way for older homeowners to access the equity in their homes without selling the property. However, it's important for borrowers to understand the associated costs, risks, and potential impact on their heirs' inheritance. Therefore, anyone considering a reverse mortgage should carefully weigh their options and seek advice from a qualified financial advisor or counselor specializing in reverse mortgages.