There are different types of mortgage loans available to today’s consumers, each with slightly different guidelines. Some have inherent advantages so it takes some time to consider which loan type best suits your requirements.
Let’s take a look at the different programs to see what’s right for you.
Click here to check today’s VA loan rates.
VA Refinance
VA loans are available for eligible veterans, certain active-duty personnel, borrowers with six years’ service in the National Guard or Armed Forces Reserves, and other selected borrowers. VA loans offer two types of refinancing, a standard or a streamline — all backed by the Department of Veterans Affairs.
A standard VA refinance requires the borrowers to provide complete documentation of their loan file including a new appraisal, income and employment verification and fair credit. This loan is also known as a VA cash-out refinance, and is typically only used when getting cash out or paying off a non-VA loan.
Apply for a VA cash out loan here.
For those with a VA mortgage, there’s the VA streamline refinance, officially called the Interest Rate Reduction Refinance Loan (IRRRL). This refinance in essence allows eligible borrowers to drop their rate with very little documentation, time, or money. No income or asset verification and no appraisal are required.
Click here to apply for a VA streamline refinance.
The streamline program may be used to finance a property that was previously occupied and a VA loan used to finance the original purchase. Only an existing VA loan may be eligible for the streamline program. No cash out is allowed.
All VA loans require a funding fee which can be as high as 3.3 percent of the loan amount and may be included in the final loan. For the VA streamline, the funding fee is dramatically reduced to as low as 0.50 percent.
Non-VA Refinance Types
For eligible homeowners, the VA loan is usually the cheapest and easiest option. However, in some cases, those looking to refinance might choose another loan type.
Here are the main non-VA choices.
1. Conventional Refinance
Conventional mortgages are those approved using guidelines established by Fannie Mae and Freddie Mac and are by far the most popular program. Almost every lender offers them and guidelines are mostly consistent from lender to lender, with very few differences.
Mortgage rates on conventional loans are very competitive as lenders compete using the same programs. The best use of a conventional refinance occurs when the homeowners have at least 20 percent equity in the home. In this case, no private mortgage insurance is required.
A VA refinance requires an upfront funding fee, which ranges from 0.50% to 3.3% depending on refinance type. But conventional loans don’t require an upfront fee. This could save Veterans money, provided they have enough home equity for a conventional refinance.
Check your refinance eligibility here.
A conventional loan can also be used to finance an investment property. Other programs, VA, FHA, and USDA loans are only available to purchase an owner-occupied home while a conventional loan can be used to finance the purchase of a primary residence or a rental property.
Borrowers are also allowed to pull equity out of the home in the form of cash when refinancing, referred to as a “cash out” refinance. Most lenders allow for a cash out refinance up to 80 percent of the value of the property, although you’ll likely get a lower interest rate if you stay below 75 percent.
Conventional refinance loans are always “fully documented” meaning the borrowers must qualify in the same manner as during the purchase with paycheck stubs, appraisal, and income tax returns in addition to other standard requirements.
2. FHA Refinance
The FHA refinance also has a streamline program, very similar to the VA program.
No credit score requirement, no appraisal, and no income or employment verified. The FHA streamline is available for FHA-to-FHA transactions. In other words, you have an FHA loan currently.
It may also be used to finance a property that was previously occupied by the borrowers but is now rented out.
The new loan rate and mortgage insurance must drop. The refinance must benefit the borrower.
There can be no payments within the previous three months more than 30 days past the due date.
FHA loans require a monthly and upfront mortgage insurance premium. If the original FHA loan was opened prior to June 1, 2009, the mortgage insurance premiums receive a nice discount.
If you have a VA loan, however, your best option is the VA streamline.
3. USDA Refinance
The USDA program is for properties located in rural or semi-rural areas and the borrowers must not exceed specific income guidelines. The USDA refinance is a standard refinance requiring a fully documented loan including an appraisal, credit, and income among others.
There is a pilot streamline refinance program available in 35 states and operates in a similar fashion as VA and FHA streamline programs. The USDA streamline is for a 30 year fixed rate only and the rate must be at least one percent lower than the existing one and can only be a USDA-to-USDA transaction. No cash out is allowed.
VA, FHA, USDA or Conventional: Which Refinance is Best?
It really all depends on your home equity. VA, FHA, and USDA loans all have some form of mortgage insurance or funding fees applied, increasing the loan amount as well as the monthly payment. If there is at least a 20 percent equity position in the property refinancing out of one of these three loan types into a conventional one is the better choice.
If there are loan to value issues and there isn’t at least 20 percent equity in the transaction then the applicable streamline should be considered.
There can always be additional lender requirements on top of any issued guidelines called overlays. Some lenders may ask for an appraisal for a streamline for instance. If you’re thinking about refinancing, consider all your options. Not only could you benefit from a lower rate, but you might also be able to get rid of mortgage insurance premiums as well.
Click here to check today’s VA refinance rates.
Let’s look at a comparison of the four major loan types for a $250,000 purchase price.
Head to Head – VA Compared to other Loan Types
VA
FHA
Conventional
USDA
APR*
3.721% APR
4.798% APR
5.192% APR
4.246% APR
Principle and Interest
$1146
$1102
$1168
$1163
Monthly Mortgage Insurance or Fee
$0
$269
$210
$84
Estimated Taxes and Insurance
$268
$268
$268
$268
Total Monthly Payment
$1414
$1639
$1646
$1515
Qualification:
Comparison of Qualification Requirements
VA
FHA
Conventional
USDA
Down Payment Percentage
0%
3.5%
5%
0%
Approx. Cash Needed**
$0
$8750
$12,500
$0
Typical Minimum Credit Score Needed***
620-640
620-640
680
620-640
Streamline Refinance Available?
Yes
Yes
No
Yes
**Assumes $6000 in seller-paid closing costs; ***Varies based on lender; All scenarios assume 700 credit score, property in WA
Additional Benefits of VA Home Loans
VA home loans have more lenient credit and debt ratio guidelines. You may qualify for a VA loan even if you can’t be approved for other loan types. Get your free rate quote.
You can refinance or sell your home at any time without penalty with a VA loan.
The seller is allowed to pay all of your closing costs up to 4% of the purchase price.
I’m Ready to Apply for This Great Benefit
The VA home loan program is a great opportunity for active-duty service members and veterans. Take advantage of your entitlement.
Many people want to buy investment properties because of the fantastic returns they can provide. However, many people do not have the 20 percent down payment (or more) that most banks require. There are ways to buy an investment property with little money down. The easiest way to buy an investment property with less than 20 percent down is to buy as an owner-occupant and later rent out the house, but there are many other options for investors as well. Using a line of credit, refinancing your home, house hacking, the BRRRR method, or even credit cards can provide ways to buy investment properties for less money. Seller financing is a great way to put less money down on a rental property if you can find sellers who are willing. A more advanced technique is to use hard-money financing that you can refinance into a conventional loan. Whatever way you choose to buy a rental property, research the method to make sure that it is legal in your state, your lender approves it, and that you are not stretching your finances too thin.
How much money down do most banks require?
An investor will have to put down at least 20 percent to buy a property from a typical bank. If you own more than four properties, that figure can increase to 25 percent down, providing that they are even willing to finance more than four properties. On top of the down payment, an investor will have to pay closing costs, which can range from two to four percent of the loan amount. It is very expensive to buy an investment property using financing from a typical bank. I have found a great portfolio lender who will finance as many properties as I want with 20 percent down, but they are not easy to find. Once you factor in repairs, carrying costs, down payment, and closing costs it can cost as much as $30,000 to buy a $100,000 rental property.
The video below goes over ways to buy with little money down as well:
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How to buy as an owner-occupant
The easiest way to buy an investment property with little money down is to buy as an owner-occupant, satisfy your loan requirements, rent out the property, and keep it as an investment. Most owner-occupant loans require the buyer to occupy the home for at least a year. Once that year is up, you can rent out the house and turn it into an investment property. There are many owner-occupied loans available, with down payments ranging from 0 to 5 percent down. You can put as much money down as you want if you want to put 20 percent down or even 50 percent down. USDA and VA have great no-money-down programs and little to no mortgage insurance, which will save an investor a lot of money each month. You will have more costs with little money down loans because mortgage insurance is required. Mortgage insurance can add hundreds of dollars to your house payment and eat away at your cash flow. The process of buying as an owner-occupant and then turning the house into an investment property is as follows:
1. Buy a house as an owner occupant, which will cash flow when you rent it out.
2. Move into the house and live there for at least a year.
After the year is up, find another house that will cash flow and purchase that home as an owner-occupant.
4. Move out of the first house and keep it as a rental. Move into the new house and repeat the process every year!
Eventually, you will be building up equity and extra cash flow, which will enable you to buy properties with a 20 percent down payment. Repeating this process 10 times would be an excellent way to get started, but no one wants to move ten times in ten years. It can also be tough to convince your family to live in a home that would be a great rental.
Low down payment owner occupant loans
If you are going the owner-occupant route there are many loans available that have from very little to nothing down required.
FHA loan
FHA loans are government-insured loans that can be obtained with as little as 3.5 percent down. You can only have one FHA loan at a time unless you have extenuating circumstances like a job relocation. You do have to pay mortgage insurance on FHA loans, which I will discuss later in this article. There are limits to the amount an FHA mortgage can be, which varies by state and even city.
USDA loan
USDA is a loan that can be used in rural areas and small towns. The loan can’t be used in medium-sized towns or large towns/metro areas. The loan is a fantastic loan for those that qualify and want to buy a home in the designated areas. USDA loans can be had with no money down, but do have mortgage insurance as well.
VA loans
VA loans are run through the United States Veterans Administration. You have to be a veteran to qualify for the loan, but they also can be had with no money down and no mortgage insurance! VA is a great option for those that qualify because the costs are so much less without mortgage insurance.
Down payment assistance programs
Many states have down payment assistance programs. In Colorado, we have a program called CHFA. The program helps buyers get into owner-occupied homes with very little money down. CHFA actually uses an FHA loan but allows for less than a 3.5 percent down payment. Check with lenders on your state to see if you have any programs that help with down payment assistance.
Conventional mortgages
Even conventional mortgages have low down payment loans available for owner-occupants. For owner-occupants, conventional loans have down payments as low as 3 percent. You will most certainly have to pay mortgage insurance with any conventional loan that has less than 20 percent down. Unlike some of the other loan options available, you can have as many conventional mortgages in your name as you want as an owner occupant.
FHA 203K Rehab loan
An FHA 203K rehab loan allows the borrower to finance the house they are buying and repairs they would like to complete after closing. This is a great loan for homes that need work, but the buyer has limited funds to repair a home. There are more costs associated with this loan upfront because two appraisals are needed and lenders have higher fees for 203K loans.
NACA Loans
NACA is a non-profit program with:
No down payment
No closing costs
No points or fees
No credit score consideration
Below market 30-year and 15-year fixed-rate loans
This sounds like it is too good to be true, and it is a great program. However, you do not simply apply for the loan and hope the lender approves you. You must take classes, and even host classes when in the loan program.
More details are on the NACA site.
What loan costs does a buyer need to consider besides the down payment?
On almost any loan you will have more costs than just the down payment. The lender will charge an origination fee, appraisal fee, prepaid interest, prepaid insurance and possibly prepaid mortgage insurance. Plus you may have more costs the title company charges like a closing fee, recording fees, and possibly title insurance. In most cases, the seller pays for title insurance, but with HUD and VA foreclosures the buyer has to pay for title insurance. These costs can add up to another 3.5 percent of the mortgage amount or sometimes more. When you talk to a lender they can give you an estimate of exactly how much these costs will be before you get your loan.
Can you ask the seller to pay closing costs?
Even though the lenders and title company will charge you more fees than just the down payment, that does not mean you have to pay that upfront. You can ask the seller to pay closing costs for you. If you can get the seller to pay your closing costs for you, loans like VA and USDA may be obtained with no out-of-pocket cash. You may still have to put down an earnest money deposit, but that can be refunded at closing in some cases. When you ask the seller to pay closing costs, it reduces the amount of money they are getting from the sale so you might actually be paying more for the home than if you didn’t ask for closing costs. But in my mind paying a little more for the house and financing those costs to save cash is better than paying more money out-of-pocket for a little cheaper home.
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House Hacking
House hacking is when you buy as an owner-occupant but you buy a multifamily property instead of a house. By purchasing a multifamily property you can live in one unit while you rent out the other units. This strategy allows you to rent the property faster, which may mean the bank will be more willing to give you a new loan as soon as you are ready to move out. You will also have help from the other tenants to pay your mortgage. In some cases, you may be able to live for free while you own the house because the other rent covers your costs.
Virtual real estate
Yes, you can now buy virtual real estate! This is land in the metaverse that only exists digitally. Some pieces of virtual real estate have sold for millions of dollars and others can be bought for almost nothing. Here is some more information on getting started!
BRRRR Method
BRRRR stands for buy, repair, rent, refinance, and repeat. It is a great way to get into rentals with less money down. You will need to get an awesome deal to make this strategy work, but you may be able to get all of your money back. You buy a house that is an amazing deal, fix it up, rent the property, and then refinance it. Once the refinance is done you repeat over and over! The key to making this strategy work is getting an awesome deal with plenty of equity. You also need to be prepared if things do not go perfectly. Appraisals can come in low, the banks may not want to finance you, you may not get the property rented or repaired as fast as hoped, etc.
Hard money loans
Using hard money can save you a ton of cash in the short-term, but it is more expensive in the end. Fannie Mae lending guidelines, allow you to refinance a home with no seasoning period, which means you do not have to wait six months or a year after you purchase a home, to refinance at a higher value than what you bought it for. Fannie Mae guidelines base the refinance amount on a new appraisal, and they will allow a 75 percent loan-to-value ratio. Fannie Mae guidelines do not allow a cash-out refinance, but they do allow the refinance to pay off any existing loans. Many hard money lenders will allow a buyer to borrow up to 100 percent of the purchase price and to finance repairs as well.
Since Fannie Mae guidelines allow a 75 percent loan-to-value refinance, theoretically an investor could buy a home for $100,000 and get a loan with a hard money lender for $100,000 plus $30,000 in repairs for a total loan amount of $130,000. The investor could refinance the home for as much as 75 percent of a new appraisal. If the appraisal came in at $180,000, then 75 percent loan-to-value would allow a refinance of $135,000. Fannie will not allow a cash-out refinance, but the investor could refinance the full $130,000 loan amount. This strategy can be costly due to hard money fees, but it allows the investor to refinance the entire purchase price and repairs!
This strategy can also be very risky because you are depending on a high appraisal to get your money out. Most hard money loans are only one year and you must pay off the loan after that year. Refinance appraisals are not always as high as we would like them to be. Make sure you have an exit strategy if the appraisal comes in lower than you expect.
Private money loans
One legitimate way to buy real estate with no money down is to use private money. Private money is from a private investor, friend, or family member. The private investor will give you money at a certain interest rate to buy a flip or rental property. Private money rates can vary from very cheap to very expensive depending on the relationship, investment, and terms of the loan. I use private money from my sister for my fix and flips. She charges me six percent interest. It is a great way to reduce the amount of cash I have into the properties.
I have used private money to buy commercial rentals and then refinance into a long-term loan with a local bank.
Can being a real estate agent help?
There are many advantages to having your real estate license, but the biggest benefit is you can keep your commission on almost every house you buy. On a $100,000 house, your commission could be $3,000 dollars or more. Here is an article that details why it is an advantage to become a real estate agent if you are an investor. Being a real estate agent also gives me an advantage in finding and purchasing great deals. I detail how hard it is to get your real estate license here. I saved more than $270,000 a year on commissions by being a real estate agent. That does not include the money I made on deals that I got because I was an agent.
Turnkey rentals
A new trend in the US is buying turnkey rental properties that are purchased, repaired, rented, and managed by a turnkey provider. Turnkey properties are a great opportunity for investors to buy rental properties out-of-state when homes are too expensive in their area. There are turnkey providers who offer as little as 5 percent down for investors, but they tend to have very high-interest rates. Here is a great article about turnkey providers or send me a request here for turnkey providers I know of. I bought a turnkey rental in Cleveland a few years ago.
Line of credit
I have had many lines of credit in my career. I have had lines of credit against my personal house (the house I live in) and my investment properties. It is much easier to get a line of credit against your personal house and some banks will not even offer lines of credit on investment properties. A line of credit is basically a loan against a home, but you do not have to use the money all the time. If you do not need the money you can pay it back to the bank and not be charged interest on it. When you need the money again, you can borrow it very quickly as long as the line is open.
Off-market properties
Off-market properties are purchased through direct marketing or by word of mouth. Buying off-market usually means less expensive properties and in some cases, owners with flexible terms such as owner financing. Many investors wholesale off-market properties, which you can purchase with no down payment. Wholesaling is a process of buying and selling properties very quickly. The properties must be very good deals and are usually found by direct marketing for properties. Many investors make a great living by only wholesaling properties to other investors.
Seller financing
Some sellers may be willing to finance the house they are selling or finance a second loan on a home that allows a buyer to put less than 20 percent down. If your bank is willing to offer 80 percent loan-to-value, the seller may offer to loan the other 20 percent, which would amount to no money down for the buyer. The seller may also offer a number of other loan-to-value percentages to help a buyer get into a home for less than 20 percent down.
Finding seller-financed properties is the tricky part. Most sellers are not looking to finance a loan when they sell. To find seller financed listings, look for homes that have no loans against them or an MLS listing description that say seller financing is available. The seller’s terms can vary greatly depending on how desperate they are to sell and what exactly they are looking to get out of the deal. Do not expect to pay four percent interest on a seller-financed loan; they will want a premium on any money they lend. It is also harder to find great deals with seller financing, which is key to my strategy.
There are many new restrictions on financing thanks to the recent Dodd-Frank Act.
Refinance
In most areas of the country, home values are rising and interest rates are at record lows. You may be able to refinance your home and get enough money to buy an investment property. Once you are able to buy an investment property, you can refinance it in one year (sometimes less with the right bank). With rates as low as they are, if you bought the home below market value, you should be able to take out as much as you put into the house and still cash flow. I use this refinance technique all the time. Getting lenders to do a refinance is tricky when you own multiple investment properties. I use a portfolio lender who has allowed me to use a cash-out refinance on as many properties as I want.
Below is a property I refinanced:
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Move in ready Houses
A move-in ready property means all the repairs are completed and it is ready to rent as soon as you buy the home. There can be many advantages to buying a nice home. The biggest advantage is you do not have to pay for repairs. You also do not have to spend time waiting for repairs to be done, which saves money on mortgage payments, utilities, and other carrying costs. The downside of a move-in ready property is that it is usually more expensive and provides less cash flow than a home that needs work.
Credit cards
A few other ways to get quick cash can be very expensive and are usually reserved for people looking to do a quick flip. If you have a killer deal you cannot pass up, you may want to consider these options, but I do not recommend using them unless it is necessary. The easiest way to get quick cash is with credit cards. You can get a cash advance or pay for repairs using your credit card. If you use a credit card to finance your down payment or repairs and cannot pay it off right away, do not pay the 17 percent interest rate. Do your best to get another card that will allow a balance transfer. Many times, you can transfer all of your balance and pay little to no interest for up to a year. That may give you enough time to pay off the card and not to be stuck with a high-interest rate eating all of your profits. I also suggest using a rewards card for repairs on your investment properties. If you pay the balance off every month, this is a great way to make a little extra money.
Self-directed IRA
If you have money invested in an IRA, you are not limited to investing in stocks or mutual funds. There are special self-directed IRAs that you can use to purchase an investment property. You can use your IRA for down payments and repairs and then collect rent in the IRA.
401K
Some 401ks allow an investor to take out a loan against them. You usually have to pay back the loan relatively quickly and pay interest on the loan. You have to be very careful when borrowing from a 401k because the money you borrow is no longer earning interest or growing in your retirement fund. If you lose your job, you also may be required to pay back the loan within 60 days or pay a 10 percent penalty and income tax on the loan.
Subject to loans
With a subject to loan, you buy a house without paying off the previous owner’s mortgage. This is another tricky situation; investors must be very careful with it. Most bank mortgages are not assumable; when the homeowner sells the house, they have to pay the loan in full. The bank most likely will have a due-on-sale clause that says the loans must be paid in full, once the property transfers ownership. With subject to loans the new investor buys a house subject to an old mortgage and does not pay off the loan. There is a chance that the bank will require the loan to be paid off if they find out that the home has been sold.
Investors buy homes subject to a mortgage so that they do not have to get a new loan. It may be hard for the investor to qualify for a mortgage or they may be maxed out on being able to get new loans. If you buy a home for $80,000 that has a $75,000 mortgage in place, the investor would only need $5,000 to buy the house instead of the normal 20 percent or more.
Fannie Mae Homepath program
The Fannie Mae Homepath program on their REO properties allows investors to put only 10 percent down and allows up to 20 financed loans in one person’s name, which is also a huge bonus. It is very difficult for many investors to get loans on more than four properties.
This program has been discontinued.
Conclusion
Rental properties can be expensive, but there are ways to purchase them with less than 20 percent down. If you are short on cash, buying properties with little money down can accelerate the purchasing schedule and increase your returns. However, you will most likely make less money on each property, because borrowing that last 20 percent can be much more expensive than the first 80 percent.
My book Build a Rental Property Empire, goes over how to buy investment properties with little money down. It also covers how to find deals, finance rentals, manage them, and much more! It is available as a paperback and ebook on Amazon or as an audiobook on Audible.
A new home may be one of the biggest purchases you’ll make in your life. Before you begin shopping for the right home to buy, you’ll need to explore mortgage options if you’re planning to finance the purchase.
Not all home loans are the same, though. So, doing your research before moving forward can help you select the most suitable option for your financial situation and possibly keep more money in your pocket. Plus, you’ll know what to expect, in terms of guidelines, when you apply.
Types of mortgages
Conventional loan – Best for borrowers with a good credit score
Jumbo loan – Best for borrowers with excellent credit looking to buy an expensive home
Government-insured loan – Best for borrowers who have lower credit scores and minimal cash for a down payment
Fixed-rate mortgage – Best for borrowers who’d prefer a predictable, set monthly payment for the duration of the loan
Adjustable-rate mortgage – Best for borrowers who aren’t planning to stay in the home for an extended period, would prefer lower payments in the short-term and are comfortable with possibly having to pay more in the future
1. Conventional loan
Conventional loans, which are not backed by the federal government, come in two forms: conforming and non-conforming.
Conforming loans – As the name implies, a conforming loan “conforms” to the set of standards put in place by the Federal Housing Finance Agency (FHFA), which includes credit, debt and loan size. For 2023, the conforming loan limits are $726,200 in most areas and $1,089,300 in high-cost areas.
Non-conforming loans – These loans do not meet FHFA standards. Instead, they cater to borrowers looking to purchase more-expensive homes or individuals with unusual credit profiles
Pros of conventional loans
Can be used for a primary home, second home or investment property
Overall borrowing costs tend to be lower than other types of mortgages, even if interest rates are slightly higher
Can ask your lender to cancel private mortgage insurance (PMI) once you’ve reached 20 percent equity, or refinance to remove it
Can pay as little as 3 percent down on loans backed by Fannie Mae or Freddie Mac
Sellers can contribute to closing costs
Cons of conventional loans
Minimum FICO score of 620 or higher is often required (the same applies for refinancing)
Higher down payment than some government loans
Must have a debt-to-income (DTI) ratio of no more than 43 percent (50 percent in some instances)
Likely need to pay PMI if your down payment is less than 20 percent of the sales price
Significant documentation required to verify income, assets, down payment and employment
Who are conventional loans best for?
If you have a strong credit score and can afford to make a sizable down payment, a conventional mortgage is probably your best pick. The 30-year, fixed-rate conventional mortgage is the most popular choice for homebuyers.
2. Jumbo loan
Jumbo mortgages are home loan products that fall outside FHFA borrowing limits. Jumbo loans are more common in higher-cost areas such as Los Angeles, San Francisco, New York City and the state of Hawaii, where home prices are often on the higher end.
Pros of jumbo loans
Cons of jumbo loans
Down payment of at least 10 percent to 20 percent required in many cases
A FICO score of 700 or higher usually required
Cannot have a DTI ratio above 45 percent
Must show you have significant assets in cash or savings accounts
Usually require more in-depth documentation to qualify
Who are jumbo loans best for?
If you’re looking to finance a home with a selling price exceeding the latest conforming loan limits a jumbo loan is likely your best route.
3. Government-insured loan
The U.S. government isn’t a mortgage lender, but it does play a role in making homeownership accessible to more Americans. Three government agencies back mortgages: the Federal Housing Administration (FHA), the U.S. Department of Agriculture (USDA) and the U.S. Department of Veterans Affairs (VA).
FHA loans – Backed by the FHA, these home loans come with competitive interest rates, and help make homeownership possible for borrowers without a large down payment or pristine credit. You’ll need a minimum FICO score of 580 to get the FHA maximum of 96.5 percent financing with a 3.5 percent down payment. However, a score as low as 500 is allowed if you put at least 10 percent down. FHA loans require two mortgage insurance premiums, which can increase the overall cost of your mortgage. Lastly, with an FHA loan, the home seller is allowed to contribute to closing costs.
USDA loans – USDA loans help moderate- to low-income borrowers who meet certain income limits buy homes in rural, USDA-eligible areas. Some USDA loans do not require a down payment for eligible borrowers. There are extra fees, though, including an upfront fee of 1 percent of the loan amount (which can typically be financed with the loan) and an annual fee.
VA loans – VA loans provide flexible, low-interest mortgages for members of the U.S. military (active duty and veterans) and their families. There’s no minimum down payment, mortgage insurance or credit score requirement, and closing costs are generally capped and may be paid by the seller. VA loans charge a funding fee, a percentage of the loan amount, which can be paid upfront at closing or rolled into the cost of the loan along with other closing costs.
Pros of government-insured loans
Cons of government-insured loans
Mandatory mortgage insurance premiums on FHA loans that cannot be canceled unless refinancing into a conventional mortgage
Loan limits on FHA loans are lower than conventional mortgages in most areas, limiting potential inventory to choose from
Borrower must live in the property (although you may be able to finance a multi-unit building and rent out other units)
Could have higher overall borrowing costs
Expect to provide more documentation, depending on the loan type, to prove eligibility
Who are government-insured loans best for?
Are you having trouble qualifying for a conventional loan due to a lower credit score or minimal cash reserves for a down payment? FHA-backed and USDA-backed loans could be a viable option. For military service members, veterans and eligible spouses, VA-backed loans are often better than a conventional loan.
4. Fixed-rate mortgage
Fixed-rate mortgages maintain the same interest rate over the life of your loan, which means your monthly mortgage payment always stays the same. Fixed loans typically come in terms of 15 years or 30 years, although some lenders allow borrowers to pick any term between eight and 30 years.
Pros of fixed-rate mortgages
Monthly principal and interest payments stay the same throughout the life of the loan
Easier to budget housing expenses from month to month
Cons of fixed-rate mortgages
If interest rates fall, you’ll have to refinance to get that lower rate
Interest rates typically higher than rates on adjustable-rate mortgages (ARMs)
Who are fixed-rate mortgages best for?
If you are planning to stay in your home for at least five to seven years, and want to avoid the potential for changes to your monthly payments, a fixed-rate mortgage is right for you.
5. Adjustable-rate mortgage (ARM)
Unlike the stability of fixed-rate loans, adjustable-rate mortgages (ARMs) have interest rates that fluctuate with market conditions. Many ARM products have a fixed interest rate for a few years before the loan changes to a variable interest rate for the remainder of the term. For example, you might see a 7-year/6-month ARM, which means that your rate will remain the same for the first seven years and will adjust every six months after that initial period. If you consider an ARM, it’s essential to read the fine print to know how much your rate can increase and how much you could wind up paying after the introductory period expires.
Pros of ARMs
Lower fixed rate in the first few years of homeownership (although this isn’t a guarantee; as of late, 30-year fixed rates have actually been similar to those for 5/6 ARMs)
Can save a substantial amount of money on interest payments
Cons of ARMs
Monthly mortgage payments could become unaffordable, resulting in a loan default
Home values may fall in a few years, making it harder to refinance or sell before the loan resets
Who are adjustable-rate mortgages best for?
If you don’t plan to stay in your home beyond a few years, an ARM could help you save on interest payments. However, it’s important to be comfortable with a certain level of risk that your payments might increase if you’re still in the home.
Other types of home loans
In addition to these common kinds of mortgages, there are other types you may find when shopping around for a loan:
Construction loans
If you want to build a home, a construction loan can be a good choice. You can decide whether to get a separate construction loan for the project and a separate mortgage to pay it off. A construction-to-permanent loan, which merges construction costs and financing into a single loan product, is also an option.Both options typically require a higher down payment and proof that you can afford the monthly payments.
Interest-only mortgages
With an interest-only mortgage, the borrower makes interest-only payments for a set period – usually between five and seven years- followed by payments for both principal and interest You won’t build equity as quickly with an interest-only mortgage, though, since you’re initially only paying interest for a set period. Still, these loans are best for those who know they can sell or refinance, or for those who can reasonably expect to afford the higher monthly payment later.
Piggyback loans
A piggyback loan, also referred to as an 80/10/10 loan, actually involves two loans: one for 80 percent of the home price and another for 10 percent. You’ll make a down payment for the remaining 10 percent.These loan products are designed to help the borrower avoid paying for mortgage insurance. While eliminating those PMI payments might sound appealing, keep in mind that piggyback loans require two sets of closing costs, and you’ll also accrue interest on two loans. Crunch the numbers to find out if you’re really saving enough money to justify this unconventional arrangement.
Balloon mortgages
Another type of home loan you might come across is a balloon mortgage, which requires a large payment at the end of the loan term. Generally, you’ll make payments based on a 30-year term, but only for a short time, such as seven years. When the loan term ends, you’ll make a large payment on the outstanding balance, which can be unmanageable if you’re not prepared or your credit situation deteriorates. You can use Bankrate’s balloon mortgage calculator to see if this kind of loan makes sense for you.
Next steps to getting your mortgage
Now that you have an idea of the right kind of loan for your home purchase, it’s time to find the right mortgage lender to make it happen. Every lender is different, and it’s important to comparison shop to find the best terms that fit your finances. From the brick-and-mortar bank and credit unions in your neighborhood to online-only mortgage companies, there is a wide range of options to choose from. Read Bankrate’s lender reviews of some of the leading names in mortgages, and follow this guide to find the best lender.
Check out these resources for more information about types of mortgages and available lenders:
Founded in 1964, Fremont Bank is a family-owned and managed retail and commercial bank operating in the State of California.
The bank’s headquarters are in Fremont, California and branches exist in several California counties. Fremont was one of the first banks to offer banking services on Saturdays, a service that began in the 1960s.
Fremont Bank Locations
Fremont Bank’s mortgage options include fixed and adjustable-rate mortgages, FHA, Jumbo, and Combination loans.
Located in California, with branches in:
Contra Costa
Alameda
Santa Clara
Monterey
San Francisco
Retail Loan Offices in:
Los Angeles
Sacramento counties
Mortgages offered in California and Nevada only.
Fremont Bank Mortgage Facts
Fixed and adjustable-rate mortgages available, as well as FHA loans, combo, and jumbo loans
Loans are available for California and Nevada properties only
Offers fully underwritten pre-approval letters, so borrowers know precisely how much they are approved for
High-value home loans available, up to $2.5 million
Low down payment and no closing cost options available to qualified borrowers
Combo loan options let applicants combine more than one loan
Special Purchase Team members advise applicants on which loans to consider
No Closing Cost loans available for applicants who qualify
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History of Fremont Bank
Fremont Bank began in 1964 and was founded by a WWII veteran who relocated to the San Francisco Bay Area in the 1940s. This bank is relatively unique in the sense that it has been family owned and operated from when it was founded to today.
The founder’s three kids continue to work with Fremont Bank and serve in management. As one of the first places to offer Saturday banking, Fremont Bank appears to have made significant efforts to tailor its services to the needs of customers.
According to the East Bay Times, in November 2018 Washington Hospital debuted a new facility, The Morris Hyman Critical Care Pavilion, named after Fremont Bank’s founder. Hyman was a well-known local philanthropist in addition to his work in banking.
Fremont Bank operates branches in California only, so borrowers should keep that in mind as they shop for a loan. Properties must be located in California or Nevada in order to qualify. The bank offers fixed- and adjustable-rate mortgages, FHA, Combo, and Jumbo loans as well as refinance programs.
One unique offering at Fremont Bank is the No Closing Costs mortgage and refinance loan program. Borrowers who qualify can avoid paying the typical non-recurring closing costs that are generally part of the mortgage closing process. To qualify, applicants must meet specific credit and other standards.
Currently, Fremont Bank has a Yelp score of 3.5/5 stars and 186 reviews. The bank’s BBB rating is A+ with customer reviews averaging stars.
Fremont Bank Loan Specifics
Fixed-Rate Loans
With this type of loan, borrowers get a single rate that stays the same for the entire length of the mortgage. Borrowers are protected in case Federal interest rates increase, so they know what to expect every month as they budget for their mortgages.
Applicants who want to lock-in a low rate may want to consider a fixed-rate mortgage, particularly if they plan to stay in the same home for several years. Fremont Bank offers 10, 15, and 30-year fixed-rate mortgages. Borrowers may need a 20 percent down payment to qualify for a loan.
Adjustable-Rate Loans
Although adjustable-rate mortgages do typically begin with a single low rate, market condition changes can result in rate fluctuations. Rates are subject to change and may increase or decrease over time.
This means borrowers could be obligated to pay higher rates and may end up paying more than they thought for a loan. It is also possible for rates to decrease. Applicants who may sell their home or want to refinance might benefit from adjustable-rate loans.
FHA Mortgage Loans
The government backs the Federal Housing Administration (FHA) loans from Fremont Bank and provide affordable financing with low down and monthly payments. Applicants who meet the income standards may pay as little as 3.5 percent down with an FHA loan. Fremont offers both adjustable and fixed-rate loans.
Combination Loans
Borrowers may qualify for a more expensive property or take out cash while closing on a home by obtaining a combination loan. Combo loans combine two different types of loans. Applicants may not need PMI, either. For applicants who need a bigger loan or plan to fund another project through the loan, a combo loan may be the right fit.
Jumbo Loans
For home purchases that are a bit more expensive than typical mortgages allow for, borrowers can obtain a jumbo loan. Fremont jumbo loans offer up to $2.5 million in financing. This option may be ideal for financing homes that are located in high cost-of-living neighborhoods.
No Closing Cost Loans
A unique program at Fremont Bank, the No Closing Cost loan allows borrowers to receive a mortgage without paying for any of the typical closing costs associated with mortgages.
For instance, borrowers avoid appraisal costs, credit report, escrow, title insurance, notary, points, recording, loan documentation, and other non-recurring expenses with getting a mortgage.
To qualify for this program, borrowers must be purchasing or refinancing a single-family home and must meet credit requirements. Closing costs that would otherwise be part of the applicant’s responsibility are refunded at closing.
.large-leaderboard-2-multi-105border:none !important;display:block !important;float:none !important;line-height:0px;margin-bottom:15px !important;margin-left:auto !important;margin-right:auto !important;margin-top:15px !important;max-width:100% !important;min-height:250px;min-width:250px;padding:0;text-align:center !important;Borrowers who qualify may save a significant amount of the total expense associated with getting a mortgage or refinance.
Fremont Bank Mortgage Customer Experience
Fremont Bank offers a variety of mortgage products and has loan guidance available for prospective borrowers who want to learn about their financing and refinancing options. Applicants can talk with a loan officer who can direct them to a suitable loan program.
Prospective borrowers must meet with a loan officer and Fremont branches, most of which are in the Bay Area, allow applicants to schedule appointments to learn more and begin the application process.
Prequalification is free and carries no obligation, so borrowers can get a better idea of what they qualify for and how much a home fits in their budgets.
Borrowers applying for mortgages at Fremont Bank will need to provide documentation, generally speaking, to demonstrate eligibility. To show that they can afford the monthly payments, applicants may need bank statements, W2 forms, tax returns from past years, pay stubs, documentation of assets, and other evidence, as requested.
Depending on the type of loan, requirements and credit standards may vary. Fremont Bank’s loan officers work with each applicant to find the right mortgage or refinance option.
Fremont Bank Lender Reputation
Fremont Bank’s Better Business Bureau rating is A+ with a customer review of three stars. Generally, this lender appears to have a positive reputation with customers*.
*Information collected December 5th, 2018
Fremont Bank Mortgage Qualifications
Credit Score
Quality
Ease of Approval
760+
Excellent
Easy
700-759
Good
Somewhat Easy
621-699
Fair
Moderate
620 and below
Poor
Somewhat Difficult
n/a
No credit score
Very Difficult
Fremont Bank offers the best chances of approval and great rates to applicants with credit scores of 760 and higher. Within the 700 to 759 score range, borrowers may not receive the best mortgage options but will probably have a few different choices they can consider.
“Fair” credit applicants may not have access to the best offers from Fremont Bank. Without a credit score or credit history, borrowers may have difficulty getting a mortgage offer from Fremont Bank.
Applicants should bring plenty of income and asset documentation to their appointments with loan officers so that they can stand the best chances of approval.
Debt-to-income ratio
Quality
Likelihood to get approval by lender
35% or lessÊ
Manageable
Likely
36-49%
Needs Improvement
Possible
50% or more
Poor
Less Likely
Homepage URL: https://www.fremontbank.com/
Fremont Bank generally offers more favorable terms to borrowers with debt-to-income (DTI) ratios under 30 percent. With higher DTIs, it may be better to ask about government-backed loan options and alternative loans.
Phone Number & Additional Details:
Company Phone: 1-877-732-0033
Headquarters Address: 39150 Fremont Blvd., Fremont, CA 94538
If you live in the California area, Fremont could be a feasible option for your mortgage, but if not, you are still left searching for the best bank. Don’t worry, we’ve got you covered.
If you’re an active-duty service member or a veteran seeking a mortgage, you may have heard about the VA loan program.
Backed by the U.S. Department of Veteran Affairs, this mortgage program offers a range of benefits to eligible borrowers, including the ability to purchase a home with little or no money down. Below, CNBC Select provides an overview of VA loans and guides you through the process of determining whether one might be the right financing option for you.
What we’ll cover
What is a VA loan?
VA direct loans are a type of mortgage loan funded and provided by the Department of Veteran Affairs (VA). A VA-backed loan is issued by private lenders such as banks and mortgage companies, but guaranteed by the VA. When we say that a federal agency has guaranteed a loan, we mean that the agency promises to cover some or all of the lender’s losses if the borrower defaults.
Much like conventional loans, FHA loans and other mortgage options, VA loans can be used to buy a primary residence, refinance an existing mortgage, or make home improvements. Here are some of the common types of loans available under the program:
VA Purchase Mortgage: Allows eligible borrowers to purchase a home with no minimum down payment and no private mortgage insurance requirement.
VA Cash-out Refinance: Allows eligible borrowers to refinance their current mortgage loan for a larger amount than they currently own and receive the difference in cash.
VA Streamline Refinance (also known as an Interest Rate Reduction Refinance Loan): Allows eligible borrowers to refinance an existing VA loan with a new one to reduce their monthly mortgage payment, shorten their loan term, or receive a lower interest rate.
VA Rehab and Renovation Loan: Allows eligible borrowers to finance both the purchase price of a home and certain renovations for it within a single package.
Native American Direct Loan: Allows eligible Native American Veterans and their spouses to purchase, build, or improve homes on federal trust land.
How do you apply for a VA loan?
If you’re interested in applying for a VA loan, you can follow these steps to get started:
Determine your eligibility: Check if you meet the eligibility requirements by reviewing the guidelines on the VA website.
Obtain a Certificate of Eligibility: If you are eligible, you will need to obtain a Certificate of Eligibility from the VA. You can get one after applying online through a portal, by mail, or through a VA-approved lender.
Find a VA-approved lender: Look for a lender that is approved by the VA to originate loans. CNBC Select gathered some of the best lenders that offer a VA loan. Navy Federal Credit Union — one of the lenders on that list — offers term lengths that range from 10 to 30 years. PenFed Credit Union, which is another solid contender, offers a VA loan option without lender fees.
Navy Federal Credit Union
Annual Percentage Rate (APR)
Apply online for personalized rates
Types of loans
Conventional loans, VA loans, Military Choice loans, Homebuyers Choice loans, adjustable-rate mortgage
Terms
10 – 30 years
Credit needed
Not disclosed but lender is flexible
Minimum down payment
0%; 5% for conventional loan option
PenFed Credit Union Mortgage
Annual Percentage Rate (APR)
Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included
Types of loans
Conventional loan, VA loan, FHA loan, Jumbo loan and adjustable-rate mortgage (ARM)
Terms
Not disclosed
Credit needed
Minimum down payment
3.5% if moving forward with an FHA loan
Complete the loan application: The lender will guide you through the application process and help you gather the necessary documents, including ones for income and employment verification, credit reports and bank statements.
Wait for the loan approval: Once you submit your application, the lender will review it and determine if you meet the credit and income requirements. They will also order an appraisal of the property to determine its value.
On average, the VA loan approval process takes 53 days to close, according to a 2021 report from ICE Mortgage Technology.
Why choose a VA loan?
The VA guarantee provides a layer of security in the event the borrower defaults. This allows lenders to offer mortgages to people they might otherwise consider too risky, such as those with a limited credit history or a lower credit score.
VA loans also make it easier for military personnel and their families to access credit at more favorable terms. Borrowing other types of home loans can be expensive. FHA loans require a minimum down payment of at least 3.5% and conventional loans typically require a minimum of 5%. Plus, home loans typically come with private mortgage insurance if the down payment is less than 20%.
By opting for a VA loan, borrowers can save thousands of dollars on upfront costs. One of the most significant benefits is that VA loans typically require no down payment or private mortgage insurance. Additionally, they offer competitive interest rates and reduced closing costs.
These benefits can be especially appealing if you’re still paying off other debts or need to keep as much money on hand as possible for potential home renovations or an emergency fund. Just make sure to keep any money you’re saving for a short-term goal in a high-yield savings account where it can grow off the earned interest. The Western Alliance Bank Savings Account currently provides a high APY with a minimum deposit of just $1, and UFB Premier Savings also offers a competitive rate with no fees (with the possible exception of an overdraft fee).
Western Alliance Bank Savings Account
Western Alliance Bank is a Member FDIC.
Annual Percentage Yield (APY)
Minimum balance
$1 minimum deposit
Monthly fee
Maximum transactions
Up to 6 transactions each month
Excessive transactions fee
The bank may charge fees for non-sufficient funds
Overdraft fee
The bank may charge fees for overdrafts
Offer checking account?
Offer ATM card?
Terms apply.
Who is eligible for a VA loan?
Only qualified U.S. veterans, active-duty military personnel, and some surviving spouses can receive VA loans. To be eligible, you must meet the minimum service requirement and not have received a dishonorable discharge. You’ll also want to double-check with each lender for any additional eligibility guidelines.
Service members must serve for at least 90 continuous days, while veterans must meet minimum requirements that change depending on when they served (the same holds true for National Guard and Reserve members). The VA website lists the conditions for different periods.
Even if you don’t meet the minimum requirements, you may still be eligible if you were discharged for certain reasons, such as medical conditions or a disability connected to your military service.
Spouses qualify for VA loans if they are married to a veteran or service member who meets the eligibility criteria. Surviving spouses of veterans who died in the line of duty or because of a service-related injury may be eligible as well.
Credit and income requirements vary by lender. The VA does not have a minimum credit score requirement, but lenders usually look for a credit score of at least 620 and proof of stable income, according to Veterans United.
Before the property can be purchased with this type of loan, it must meet specific usage requirements, including being a primary residence and passing a VA appraisal.
What are the drawbacks of a VA loan?
Taking out a VA loan usually also requires you to pay a funding fee, which is a one-time charge from the VA to offset the cost of the program. It can range from 1.25% to 3.3% of the loan amount, depending on factors like whether it is the borrower’s first VA loan, according to the department website.
A major benefit of the VA loan program is being able to buy a home without making a down payment or paying for out-of-pocket expenses like closing costs. This can be a great option for those who do not have significant savings.
Borrowers can choose between paying the VA funding fee upfront or rolling it into their monthly mortgage payments. If you choose to roll the fee into your monthly payments, you’ll wind up needing a larger budget to cover all your expenses for the month.
It makes sense to pay the fee upfront if you can, but borrowers should weigh both of these options with their lender.
Another aspect of the program to consider is that the home appraisal process can be more rigorous for VA loans than those for other types. The VA requires that an approved appraiser conduct a thorough check of the property to determine its value and ensure that it meets the VA’s minimum property standards.
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Bottom line
Eligible veterans or service members looking to purchase a home or refinance an existing mortgage should explore VA loan options. They offer a variety of benefits, such as a smaller down payment and no private mortgage insurance requirement. That makes them particularly beneficial for those who are looking for a more accessible path to homeownership.
Catch up on CNBC Select’s in-depth coverage of credit cards, banking and money, and follow us on TikTok, Facebook, Instagram and Twitter to stay up to date.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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