Conventional Loan: Conventional loans are a popular choice for homebuyers, not insured by the government, which allows lenders to set terms more flexibly. With typically lower interest rates, these loans can come in fixed or adjustable-rate options. They’re best suited for borrowers with solid credit, stable income, and a down payment of at least 3-5%, though 20% is ideal to avoid private mortgage insurance (PMI).
FHA Loan: Backed by the Federal Housing Administration, FHA loans are ideal for first-time homebuyers and those with moderate or lower credit scores. With a low down payment requirement of as little as 3.5% and more lenient qualification criteria, FHA loans make homeownership accessible for more people. Mortgage insurance is required to protect lenders, and loan amounts are capped based on geographic location.
VA Loan: VA loans are offered to eligible veterans, active-duty military members, and surviving spouses, providing a range of benefits like no down payment, competitive interest rates, and no private mortgage insurance (PMI). Guaranteed by the Department of Veterans Affairs, VA loans aim to make homeownership more attainable for those who have served in the military.
Stated Income Loan: A good option for self-employed individuals or those with irregular incomes, stated income loans allow borrowers to qualify by declaring their income rather than providing traditional tax returns or pay stubs. Lenders may require additional verification through bank statements or asset documentation, making these loans a flexible solution for non-traditional earners.
Bank Statement Only Loan: This loan program enables self-employed borrowers to qualify for a mortgage based on bank statements, rather than traditional income documentation like tax returns. Lenders analyze deposits over 12-24 months to assess income, making this an ideal choice for those whose tax returns may not fully reflect their earning power.
Profit & Loss Statement Only Loan: This program is tailored for business owners who want to document their income through a profit and loss statement rather than tax returns. Typically, lenders will request a P&L statement prepared by a licensed accountant. This loan type is suitable for entrepreneurs and business owners with complex financials who want an alternative to traditional income verification.
DSCR Loan (Debt Service Coverage Ratio): Designed for real estate investors, DSCR loans focus on the property’s income rather than the borrower’s personal income. These loans use the rental income of the investment property to determine loan eligibility, allowing investors to expand their real estate portfolio without needing to meet traditional income qualifications.
Reverse Mortgage: Reverse mortgages allow homeowners aged 62 or older to convert part of their home equity into cash without monthly mortgage payments. Borrowers maintain ownership, and the loan is typically repaid when the homeowner sells the home, moves out permanently, or passes away. This program can offer financial flexibility for retirees needing to supplement retirement income.
Jumbo Loans: For those looking to finance high-value properties, jumbo loans allow borrowers to exceed conventional loan limits. They’re often used for luxury homes in competitive real estate markets. Lenders generally require high credit scores, strong income, and significant assets, making them an option for high-net-worth individuals.
Interest-Only Loans: With interest-only loans, borrowers pay only the interest on the loan for a set period, typically 5-10 years, resulting in lower monthly payments initially. After this period, monthly payments increase as both principal and interest payments begin. This loan is often used by investors or those expecting a future increase in income.
Bridge Loans: Bridge loans are short-term financing solutions that help buyers purchase a new property while awaiting the sale of their current home. They provide temporary access to funds, allowing buyers to “bridge” the gap between buying and selling. These loans typically have higher interest rates and shorter terms but are effective for time-sensitive purchases.
HELOC (Home Equity Line of Credit): A home equity line of credit (HELOC) lets homeowners borrow against their home equity as needed, rather than receiving a lump sum. HELOCs offer flexibility and function much like credit cards, with funds available during a “draw period” (often 5-10 years) and interest-only payments during that time. Afterward, borrowers repay the balance over a set period.
HEA (Home Equity Agreement): A Home Equity Agreement (HEA) provides cash based on a share of future appreciation of a home’s value, without adding monthly payments. The homeowner can use the funds as needed, and the investor gains a percentage of the home’s value upon sale. This alternative to traditional financing is often suitable for those looking to access equity without increasing debt.
Second Mortgages: A second mortgage is an additional loan taken out on a home with an existing mortgage, allowing homeowners to access their equity for other expenses. Unlike a HELOC, a second mortgage provides a lump sum upfront and is repaid over a fixed term. Second mortgages are commonly used for home improvements or debt consolidation.
Investment Property Loans: Specifically, for purchasing or refinancing income-generating properties, these loans cater to investors seeking to build rental property portfolios. Approval often depends on the rental income generated by the property rather than the borrower’s personal income, making it ideal for real estate investment.
Doctor Loans: Aimed at medical professionals, doctor loans offer unique terms that consider the high debt-to-income ratios associated with medical school loans. They often require little or no down payment, do not require PMI, and offer flexible credit terms, making them a popular option for doctors early in their careers.
Lawyer Loans: Lawyer loans offer favorable terms for legal professionals, often considering their high earning potential and student debt. These loans may feature competitive rates, low down payment requirements, and no PMI, recognizing the unique financial position of attorneys, especially new graduates.
Shared Equity Loan: In a shared equity loan, an investor provides a down payment or reduces the borrower’s monthly payments in exchange for a share in the property’s future appreciation. This structure reduces the borrower’s monthly financial obligation without increasing debt, allowing both parties to benefit if the property value rises.
Down Payment Assistance: Many down payment assistance programs exist to help qualified buyers cover upfront costs. These programs often come from government or nonprofit organizations and can include grants, forgivable loans, or low-interest loans, making homeownership more accessible by reducing the initial financial burden.