Purchasing Loans
Conventional Loans
A conventional mortgage loan is a type of home loan that is not insured or guaranteed by a government agency, such as the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), or the U.S. Department of Agriculture (USDA).
Key Features:
- Private Lending: Issued by private lenders (banks, credit unions, mortgage companies) and often sold to Fannie Mae or Freddie Mac.
- Credit Requirements: Typically requires a higher credit score (often 620 or above).
- Down Payment: Usually starts as low as 3% to 5%, though a 20% down payment avoids private mortgage insurance (PMI).
- PMI: If the down payment is less than 20%, borrowers generally must pay PMI until they reach 20% equity.
- Loan Limits: Subject to conforming loan limits set annually by the Federal Housing Finance Agency (FHFA). Loans exceeding this limit are called jumbo loans.
- Flexibility: Can be used for primary residences, second homes, or investment properties.
Conventional Loans
Summary
A conventional mortgage is the most common type of home loan, appealing to borrowers with strong credit, stable income, and savings for a down payment, offering flexible terms and competitive interest rates without government backing.
FHA Mortgage
Popular option for many homebuyers, an FHA mortgage is a federally insurance mortgage that is offered by FHA approved lenders. Many first-time homebuyers take advantage of the low-down payment, 3.5% minimum requirement, along with more forgiving credit guidelines.
Key Features:
- Low Down Payment Requirement: FHA loans allow buyers to put down as little as 3.5% of the purchase price, helping more people achieve homeownership with minimal upfront costs.
- Flexible Credit Standards: FHA loans are designed for buyers with less-than-perfect credit, making it easier to qualify compared to conventional loan programs.
- Competitive Interest Rates: With government backing, FHA loans typically offer competitive interest rates, helping keep monthly payments affordable.
- Higher Debt-to-Income (DTI) Allowance: FHA guidelines are more forgiving with DTI ratios, allowing buyers to qualify even if they have existing debt obligations.
FHA Mortgage
Summary
FHA purchase mortgages are designed to make homeownership more accessible with low down payments, flexible credit requirements, and borrower-friendly guidelines, making them a popular choice for first-time and repeat homebuyers.
USDA/Rural Development Mortgage
A USDA loan is a government-backed mortgage program offered through the U.S. Department of Agriculture’s Rural Development initiative. It’s designed to help low-to-moderate income homebuyers purchase homes in eligible rural and suburban areas, promoting affordable homeownership in less densely populated communities.
Key Features:
- No Down Payment – Eligible buyers can purchase a home with zero down payment, preserving savings.
- Lower Mortgage Insurance Costs – USDA loans have reduced monthly mortgage insurance fees compared to FHA loans.
- Competitive Interest Rates – Backed by the government, USDA loans offer low, fixed rates, making homeownership more affordable.
- Flexible Credit Guidelines – Allows buyers with limited credit history to qualify under relaxed underwriting standards.
USDA/Rural Development Mortgage
Summary
USDA/RD purchase mortgages make homeownership possible for rural and suburban buyers by offering zero down payment, low mortgage insurance, and competitive rates, helping families achieve affordable living outside city limits.
VA Purchase Mortgage
A VA loan is a government-backed mortgage program offered through the U.S. Department of Veterans Affairs. It’s designed to help Veterans, active-duty service members, and eligible surviving spouses achieve homeownership with unique benefits not available in other loan programs.
Key Features:
- No Down Payment – Qualified Veterans and active-duty service members can purchase a home with zero down payment.
- No Private Mortgage Insurance (PMI) – Save money monthly since VA loans don’t require PMI, unlike many other loan types.
- Competitive Interest Rates – VA loans often feature lower rates, helping keep payments affordable.
- Flexible Credit & Income Guidelines – Designed to help more service members and Veterans qualify for homeownership.
VA Mortgage
Summary
VA purchase mortgages honor Veterans and active-duty service members by offering no down payment, no PMI, and competitive rates, making it one of the most affordable paths to homeownership for those who have served.
Down Payment Solutions
Many buyers qualify for low or even no down payment options.
Non-QM Mortgage
Many homebuyers do not have the standard or consistent forms of income that are typically required by mortgage lenders. Yet, while they may not be able to qualify for conventional loans for various reasons, these buyers may still have enough income or assets to afford homeownership. In these situations, a non-qualified mortgage (non-QM) may be the solution.
What is a Non-QM loan?
In order reduce risk of loss after the mortgage meltdown in 2008, federal regulators tightened borrower requirements on mortgage loans that could be backed and bought by government agencies. Loans that meet all the new criteria are called “qualified mortgages.” Any loan that falls outside of those qualifications is called a “non-qualified mortgage” or non-QM.
A non-QM is a mortgage loan that uses alternate methods to verify income to qualify borrowers. Even though these loans do not meet the standard requirements, they are not necessarily riskier loans. All borrowers are still required to prove their ability to repay the loan. Because there is more work required to process non-QM loans, the interest rates tend to be anywhere from 0.5% to 5% higher, depending on the loan terms.
Why Do
Non-QM Loans Help?
Non-QM loans are often a good fit for those who have unique income situations:
- Self-Employed Borrowers
Self-employed individuals often have irregular income that may come from several sources. They can often qualify for a non-QM loan using bank statements rather than tax returns. - Borrowers with Considerable Assets
Some buyers who can buy a home with cash prefer to take out a non-QM loan to finance their purchase in order to maintain a positive cash flow. - Real Estate Investors
Those who buy homes expressly to flip them for profit or turn them into rental properties often use non-QM loans. This is because of the quick turnaround or because the qualifying income will come from the projected rent.
- Foreign Buyers
Borrowers from other countries may not have a U.S. credit score to help them qualify for a traditional loan. As long as these foreign buyers have high income, substantial assets and down payments, they can usually obtain a non-QM loan. - Buyers with Blemished Credit Histories
Non-QM loans can also be helpful for those with sufficient income but credit issues like prior bankruptcy, foreclosures or not enough credit history.