Types Of Loans

A conventional loan is a type of mortgage that is not backed by a government agency. Conventional mortgages often meet the down payment and income requirements set by Fannie Mae and Freddie Mac, and conform to the loan limits set by the Federal Housing Finance Administration, or FHFA.

Conventional loan interest rates tend to be higher and tougher to qualify for than those of government-backed mortgages, such as FHA (although these loans, which usually mandate that borrowers may mortgage insurance premiums, could work out to be just as costly in the long run.)

Advantages of Conforming Conventional Loans:

• Down payment options as little as 3%
• Available for jumbo loans, primary home, second home & investment properties
• No program-specific fees: For example, with an FHA loan you’ll pay a 1.75% upfront mortgage insurance premium; VA loans have a funding fee of 1.4 to 3.6%, depending on your down payment and times of use.
• Mortgage insurance can be removed after your principal loan balance drops to 78% of the home’s value. Whereas, mortgage insurance on FHA loans last for the life of the loan

A jumbo loan is a mortgage used to finance properties that are too expensive for a conventional conforming loan. The maximum amount for a conforming loan is $548,250 in most counties, as determined by the Federal Housing Finance Agency (FHFA). Homes that exceed the local conforming loan limit require a jumbo loan.

Also called non-conforming conventional mortgages, jumbo loans are considered riskier for lenders because these loans can’t be guaranteed by Fannie and Freddie, meaning the lender is not protected from losses if a borrower defaults.

Advantages of Jumbo Loans:

• Allows you to go higher than conforming limits without having to come up with the entire difference as a down payment
• Options with as little as 10% down 
• Options with no mortgage insurance 

FHA loans are partially insured by the government, which reduces a lender’s risk and makes qualifying for the loan simpler. FHA loans can be a smart choice for buyers with limited funds and marginal to average credit. The Federal Housing Administration was created in 1934 to make it easier to purchase a residence even for buyers with limited capital and/or imperfect credit. 

FHA loans require an upfront mortgage insurance premium (UFMIP) of 1.75% to either be paid at closing or rolled into the loan. In addition, an annual insurance premium (MIP) which is collected in monthly installments is required. 

Advantages of using a FHA mortgage:

• Less strict guidelines
• Lower interest rates
• Low minimum down payment of 3.5%

At Enclave Financial, we realize that not every borrower fits into a “one size fits all” mortgage which is why we offer various non-traditional options. The major advantage of utilizing this type of loan is it allows a borrower to qualify for a home loan who may not typically qualify under traditional guidelines. 

A few of our most common include:

• Bank Statement Loans: Mortgage solutions for self-employed borrowers 
• 1099 Income Loans: Mortgage solutions for self-employed borrowers
• Investor Cash Flow: Perfect for investors building their rental property portfolio 
• Asset Qualifier: Ideal for borrowers with high net worth & significant assets