Conventional Mortgage Loan:
A conventional loan is a mortgage loan that's not backed by a government agency. These loans come in all shapes and sizes, and while they don't provide some of the benefits as FHA, VA and USDA loans, conventional loans remain the most common type of mortgage loan.
Conventional loans are originated, backed and serviced by private mortgage lenders like banks, credit unions and other financial institutions. Conventional loans are broken down into conforming and nonconforming loans, depending on whether or not they conform to guidelines set by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), the two government-backed mortgage companies that own many mortgages in the U.S.
Federal Housing Administration:
An FHA loan is a government-backed mortgage. FHA home loans require lower minimum credit scores and down payments than many conventional loans, which makes them especially popular with first-time homebuyers. In fact, according to FHA’s 2021 Annual Report, more than 84.6 percent of all FHA loan originations were for borrowers purchasing their first homes.
FHA loans come in 15-year and 30-year terms with fixed interest rates. The agency’s flexible underwriting standards are designed to help give borrowers who might not qualify for private mortgages a chance to become homeowners.
Veterans Administration Loans:
A VA loan is a mortgage loan available through a program established by the U.S. Department of Veterans Affairs (VA) (previously the Veterans Administration). With VA loans, veterans, service members, and their surviving spouses can purchase homes with little to no down payment and no private mortgage insurance and generally get a competitive interest rate.
They provide up to 100% financing on the value of a home. Eligible borrowers can use a VA loan to purchase or build a home, improve and repair a home, or refinance a mortgage.
The VA sets the qualifying standards, dictates the terms of the mortgages offered, and backs the loan, but doesn’t actually offer the financing. Instead, VA home loans are provided by private lenders, such as banks and mortgage companies.
Non-Qualified Mortgage:
A Non-QM loan, or a non-qualified mortgage, is a type of mortgage loan that allows you to qualify based on alternative methods, instead of the traditional income verification required for most loans. Common examples include bank statements or using your assets as income. Because of the more flexible qualification requirements, Non-QM loans open up real estate investment opportunities to a broader group of individuals.
Debt-Service Coverage Ratio:
The debt-service coverage ratio applies to corporate, government, and personal finance. In the context of corporate finance, the debt-service coverage ratio (DSCR) is a measurement of a firm's available cash flow to pay current debt obligations. The DSCR shows investors whether a company has enough income to pay its debts.
Let's say a real estate developer is looking to obtain a mortgage loan from a local bank. The lender will want to calculate the DSCR to determine the ability of the developer to borrow and pay off their loan as the rental properties they build generate income.
Mortgage Refinancing:
Mortgage refinancing pays off an existing mortgage loan with a new loan. The new loan should have better terms or features that improve your financial situation. People typically refinance their mortgages to lower their interest rate and monthly payments.
Reasons for Refinancing
• Lower your interest rate
• Lower your monthly payment
• Shorten the length of your mortgage
• Switch from Adjustable Rate Mortgage to Fixed Rate Mortgage
Do not sell to an investor
