I received a call this week from a prospective client who was very specific in what he wanted. He wanted rates on a “conventional” loan. That triggered today’s article.
In mortgage lending you have several types of loan products, and it’s a good idea to know the differences between them. In their most simple grouping, there are conventional loans, government loans, Non-QM loans, and reverse mortgage loans.
Conventional loan products are the group everyone is most familiar with. These are the Fannie Mae and Freddie Mac types of loans. They are issued as 30-Year Fixed, 25, 20, 15, and 10-Year Fixed loans. This group also is home to Adjustable-Rate Mortgage (ARM) loans. Jumbo loans are also conventional loans. You can also think of this category of loan products as “Traditional” loans.
Government loans is the group consisting of: VA loans for active-duty military and veterans, FHA loans for those with challenges in obtaining a Fannie/Freddie type loan, and USDA Rural Housing loans that offers 100% financing for those in rural areas and whose income doesn’t exceed area maximum thresholds. All three of these programs have some form of government guaranty in case of default, which is why they are categorized as the Government Loan group.
Non-QM loans is the new name for the group of specialty loan products that offer creative ways for those that can’t qualify for traditional financing. These are not the stated income or no-doc loans that nearly crashed the financial markets in 2008. Non-QM features loans that rely on bank statements or subject property cashflow in order for one to qualify.
Reverse Mortgages are a special program that allows those of retirement age to tap into the equity of their home to eliminate their mortgage payments and gain cashflow.
It is the job of a professional Mortgage Loan Originator to review your qualifications and specific financing goals to recommend the mortgage product that best meets your objectives. I’ve seen too many people tossed into a specific type of mortgage – not because it was the best for the consumer, but it was the easiest and fastest way for the mortgage person to get paid.
You need to do your homework and understand your options. You need to ask a lot of questions, especially if you are unfamiliar with the various types of loans being offered.