Mortgages, or loans secured by real estate/real property, come in many different shapes and sizes, but all can be simplified by measuring risk vs reward. There are countless umbrella terms & financial jargon, and the misuse of words by Realtors & loan officers alike in everyday business can make understanding difficult.
Loan Types
Classic Loans
Lowest Cost • Strictest Rules
Hard Money & Short-Term
Highest Rates • Easiest to Qualify • Unique Scenarios
Creative Loans
Higher Rates • Easier to Qualify
Alternative & Commercial
Specialized Loans • True Private Money • Commercial Financing
Classics (QM; Qualified Mortgages)
Jumbo (NQM): A Jumbo-sized conventional loan.
USDA:
A conventional loan, but the govt makes an even better promise they'll partially reimburse lenders if the borrower defaults.
Common Requirements:
Max DTI: 50%
Min FICO: 620
Min Down Pmt: 3.5% (Max LTV: 96.5%)
THE COMMON ONES:
Conventional (aka “standard” or “normal”): This is the standard 30yr fixed mortgage everyone’s familiar with.
Perhaps the most confusing of all the lingo is the use of the word “Conventional”. For reasons, this product often has the lowest rates, lowest fees, and most flexibility. In exchange, a conventional loan must conform to rigid guidelines w/ little room for exceptions. Outside of creative tricks, if a brw, property, or scenario deviates too far from the universal checklist, lenders won’t approve the loan.
Common Requirements:
Max DTI: 50%
Min FICO: 620
Min Down Pmt: 3.5% (Max LTV: 96.5%)
For more details, visit the dedicated conventional loan page.
FHA: For those with too little income or too low of credit scores.
A conventional loan the government promises to be partially responsible for if the borrower fails to make payments. They often—but not always—have lower rates than a conventional loan, BUT should only be recommended for those who are “credit challenged” (aka your credit score is bad or you have bankruptcy/foreclosure on your record). The lower rates are almost always offset by hidden fees or inflexibilities the consumer doesn’t see until the damage has been done.
A common misconception is FHA is the only program that will allow down pmts as low as 3.5%. This is false. Conventional loans also allow as low as 3.5%.
Common Requirements:
Max DTI: 55-57%
Min FICO: 500-580
Min Down Pmt: 3.5% (Max LTV: 96.5%)
For more details, visit the dedicated FHA loan page.
VA: Superior loan product. Veterans (or spouses of late vets) only.
A conventional loan, but the govt makes an even better promise they'll partially reimburse lenders if the borrower defaults.
Common Requirements:
Max DTI: 50%
Min FICO: 620
Min Down Pmt: 3.5% (Max LTV: 96.5%)
The OTHER ONES:
Jumbo
A conventional loan, but the govt makes an even better promise they'll partially reimburse lenders if the borrower defaults.
Common Requirements:
Max DTI: 50%
Min FICO: 620
Min Down Pmt: 3.5% (Max LTV: 96.5%)
It can be helpful to approach loans the same way you would building an ice cream sundae- there’s the underlying ice cream (e.g. vanilla, chocolate), plus a variety of toppings, add-on’s, or container combinations. We’ll start w/ the common ice cream flavors:
Standard, Conventional Conforming (Vanilla): The most common AND affordable loan products out there. They’re cheap because a process called securitization allows huge pools of capital (e.g. pensions, your 401k funds, life insurance firms, the Fed, foreign entities, etc) to buy, sell, and hold pieces of these loans in a smooth & efficient way.
Min LTV: 3.5%
Min FICO: 680
Max DTI: 57%
FHA: One of three “govt-supported’ loan types. Designed to expand homeownership opportunity to those who’s credit or debt ratios aren’t good enough to qualify for the standard option above. Though they typically come w/ lower interest rates, the additional hidden expenses are often not worth the tradeoff.
FHA loans are govt loans named after their sponsoring entity- the Federal Housing Authority. There are many subtypes of FHA loans, but all of them are designed to allow those w/ worse credit or income qualification
This page will attempt to oversimplify so you, the diligent consumer, can get a real grasp of your options to do what’s best for you. The following are in order from most common to least commonly used:
Standard, conventional conforming loan.
• Conventional vs FHA vs VA vs Non-QM
• FNMA vs GNMA vs Non-QM Investors
• Value_1
• Value_1
Creatives (Non-QM; Non-Qualified Mortgages)
Higher Rates, Easier to Qualify
Jumbo (NQM): A Jumbo-sized conventional loan.
Jumbo (NQM): A jumbo-sized conventional loan.
Designed for purchases exceeding conventional loan limits (typically over $800k). They require 20% down, with amounts under 10% down becoming prohibitively expensive. Rates are slightly higher than conventional mortgages, though this remains the best option for high-value properties.
Common Requirements:
Max DTI: ~45%
Min FICO: ~620-680
Min Down Pmt: ~20% (Max LTV: ~80%)
For more details, visit the dedicated jumbo loan page.
Full Doc: Just like conventional, but accepts more property types & situations.
Non-QM Full Doc loans serve as a catch-all for properties that don't meet conventional guidelines due to property-related issues like non-warrantable condos or mixed-use zoning. Borrowers typically qualify for conventional financing, making the higher rates frustrating. Rates run 0.25-1% above conventional.
Common Requirements:
Max DTI: 55-57%
Min FICO: 500-580
Min Down Pmt: 3.5% (Max LTV: 96.5%)
For more details, visit the dedicated Manual Underwrite loan page.
DSCR: Qualifies the property, not the borrower.
A conventional loan, but the govt makes an even better promise they'll partially reimburse lenders if the borrower defaults.
DSCR loans evaluate the property's rental income rather than the borrower's personal income, making them excellent for those who can't meet conventional income guidelines. These require no income verification and offer quicker, less complex processing. Rates are 0.5-1% higher than conventional with prepayment penalties allowed.
Common Requirements:
Max DTI: 50%
Min DSCR: 0.75
Min FICO: 640-680
Min Down Pmt: 20-30% (Max LTV: 70-80%)
Bank Stmt Loans: Bank stmts used to calculate income (instead of usual guidelines).
A conventional loan, but the govt makes an even better promise they'll partially reimburse lenders if the borrower defaults.
Bank statement loans substitute bank statements for traditional income documentation, perfect for self-employed borrowers who write off significant income. All line items on statements undergo underwriter review. These loans charge rates 0.5-1% above conventional and may include prepayment penalties.
Common Requirements:
Max DTI: 45-55%
Min FICO: 660-700
Min Down Pmt: 10-20% (Max LTV: 80-90%)
For more details, visit the dedicated Bank Statement loans page.
Asset-Based: Calculates income based on available liquid assets.
Asset-based loans, aka asset conversion, asset depletion, etc, divide a borrower’s liquid assets by an amount of months it would take to deplete accts if the brw made no money.
Ideal for buyers with substantial assets but little income, such as newly retired individuals. Qualification relies on liquid assets rather than employment income. Borrowers typically need over 20% down, with rates or points charged at closing running 1-3% above conventional.
Common Requirements:
Max DTI: 43-50%
Min FICO: 640-660
Min Down Pmt: 20% (Max LTV: 80%)
For more details, visit the dedicated Asset-Based loans page.
Alternate Income: Only looks at a single source of income documentation.
Profit & Loss • 1099s • Employer Verification • W2s
A loan.
Alternate income loans support borrowers who would otherwise qualify conventionally but have weaknesses in their income documentation. Acceptable sources include Profit & Loss statements, 1099s, employer verification, or W2s. Rates run 0.5-2.5% higher with increased risk of processing complications.
Common Requirements:
Max DTI: 45-55%
Min FICO: 660-700
Min Down Pmt: 10-20% (Max LTV: 80-90%)
For more details, visit the dedicated Alt-Income loans page.
Seconds: Bank stmts used to calculate income (instead of usual guidelines).
A conventional loan, but the govt makes an even better promise they'll partially reimburse lenders if the borrower defaults.
Common Requirements:
Max DTI: 45-50%
Min FICO: 700
Max HCLTV: 70-90%
For more details, visit the dedicated Asset-Based loans page.
Hard Money
Bridge Loan: Bridges gaps between funding needs.
Expensive, but not as expensive as losses one could incur if they lose a property or are unable to secure a new acquisition.
Bridge loans provide temporary financing between transactions, typically structured as interest-only for 6-24 months (usually 12 months). They feature minimal underwriting requirements and super-fast closing timelines. These are expensive, especially without a clear exit strategy, with rates 1-3% above conventional plus upfront points.
Common Requirements:
Max DTI: often irrelevant
Min FICO: Varies
Max LTV: 65-75%
For more details, visit the dedicated Bridge loans page.
Swing Loan: Bridge loan variant designed for homeowners 'swinging' from one primary home to a another.
Expensive, but not as expensive as losses one could incur if they lose a property or are unable to secure a new acquisition.
Bridge loans provide temporary financing between transactions, typically structured as interest-only for 6-24 months (usually 12 months). They feature minimal underwriting requirements and super-fast closing timelines. These are expensive, especially without a clear exit strategy, with rates 1-3% above conventional plus upfront points.
Common Requirements:
Max DTI: often irrelevant
Min FICO: Varies
Primary Residence Only
Max LTV: 65-75%
For more details, visit the dedicated Bridge loans page.