MORTGAGE CHOICES

Types of Loans

The choices of loans merits meditation and conversation as credit terms and your own situation may be unique.

As your fiduciary, I would consider choices from below, the choice to rent or the choice to avoid mortgage brokers with seller finance, knowing its legal risks. Let’s chat!

1. Conventional Loans

Conventional loans are usually standardized private bank or credit union offerings to consumers which typically are packaged into guaranteed mortgage-backed securities and sold through Fannie Mae or Freddie Mac as investments. They can be used for residential purchase, refinance, vacation homes or rentals up to four units. Hefty down payments are 20%, but can drop to 3% with (PMI) private mortgage insurance which can add 0.3 to 1.5% paid until at least 20% equity is attained. Homeowners typically require housing debt to income ratios under 28%, debt to income ratios under 36%, and credit scores above 720 for the better rates, but scores can be as low as 620. Conventional loans work best for home buyers or landlords with good credit and larger deposits.

2. Jumbo Loans

Loans exceeding $766,550 in most areas of California can get no Fannie Mae guarantee, so consumers must apply for Jumbo loans. Applications may be more stringent with interest, down payment and reserve requirements higher because the government issues lenders no guarantees.

3. FHA Loans

FHA loans for primary residences, insured by the Federal Housing Administration, depend less on credit scores (above 580) than conventional loans, but need a 3.5% down payment, tighter FHA appraisals, and FHA mortgage insurance which may last as long as the loan. Applicants with FICO scores of only 500 can apply but often need ten per cent down payments.

4. USDA Loans

USDA loans for primary residences can help applicants in rural or suburban areas with weak credit scores and low or no down payments. Roughly three quarters of Santa Cruz County land is eligible for USDA loans that frequently help first time buyers.

5. VA Guaranteed Loans

VA guaranteed loans for primary residences help serving military personnel, their families and retiring veterans. No down payments or PMI are required and the VA is relatively flexible about credit scores.

6. CalHFA Loans

CalHFA loans for primary residences, starting in 2024, will allow some to buy without down payments in return for sharing 15% of the gain in equity on sale with the state.

7. Hard Money Loans

For a price, private lenders can help you get a loan when otherwise you might not qualify. They may consider equity more than income or credit scores if you still have resources to repay loans.

8. Seller Financing

Seller financing lets fleeing homeowners grant mortgages to buyers who don’t qualify for conventional loans. Seek legal advice for this risky option. Sellers may also keep existing mortgages in place but use “wrap-around mortgages” to get cash from another mortgage paid by the buyer. If your landlord might sell, consider lease to own contracts or options to purchase.

“Even the once simple home mortgage now has so many flavors and styles and variations that it is difficult for people to make a decision.”

-Scott Cook