There are two primary types of conventional loans, conforming or qualified QM loans, and non-conforming, also now known as a non-qualified (non QM) mortgage loans. These loans all now follow the Consumer Finance Protection Bureau’s (CFPB) minimum set rules, so non QM is not like the old days of sub-prime lending.
Conventional conforming loans are typically backed by Fannie Mae or Freddie Mac. Conventional Non QM mortgages are usually made by private lenders, wall street backed companies, or investor groups.
Purchase – loans as little as 3% down. Click here to compare options.
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Non QM loan options typically have higher rates and closing costs but are much more flexible with overall guidelines and qualifying. Loan to value options on these programs are usually limited to 90% or lower at this time. Click here for more information about these.
Compensating Factors – these are things like a long time on the job, current rent or housing payment compared to your new one, extra income making your debt to income ratio very low, extra money in savings, checking, or funds under management like stocks, bonds, 401k, etc.
Debt to Income Ratio – Typically conventional loans just look at the back end for the debt to income ratio and will go as high as 50% depending on the situation and other aspects of the loan. The front end is just the housing payment for principle, interest, taxes, homeowners dues, and property insurance (also known as PITI) totals compared to your income. For example, if you have a house payment of 2000 per month and your gross income is 6000 then your front end debt to income ratio is 33%. Your back end ratio is the total payments reported to credit like car loan, credit cards, student loans, added to your mortgage loan payment or new proposed mortgage payment. In the same example above, if you have a total house payment of 2000 and your credit cards, student loans, and car payments are another 1000 then your total debt is 3000 compared to income of 6000 and that puts you right at a 50% debt to income ratio. That is a high ratio overall but in certain cases it does make sense to go that high. Most people want to shoot for staying around 43% for the back end ratio and a good rule of thumb for budgeting purposes is to keep your total house payment at about a third of your income.
Reserves – Reserves are extra funds that you don’t need for the down payment or closing costs. They are typically verified by providing the two most recent statements. This could be in a money market, savings, checking, stock, bond, and certain types of retirement accounts. Usually an IRA or 401k does count but most programs require us to use a percentage of the current account balance. 60% is a common percentage to use here.
Non QM loan options will typically lend down to credit scores as low as 500 but do limit the loan to value and still validate income via tax returns, cash flow statements, bank statements or property rent rolls depending on what is applicable.
Nationwide High Balance – At Skyridge Lending, LLC we have a nationwide high balance program. This has better terms in general than jumbo loans and goes to 90% loan to value. The nationwide high balance program is unique because it can be used in any county, not just the high balance counties, allowing for a loan size of up to $726,525 all the way up to 90% loan to value with a near market rate as opposed to the usually higher jumbo rate options.
Jumbo is any amount over the conforming loan limits and the nationwide high balance. There are options with up to 95% loan to values. Click here for more information on the jumbo loan options.
There are also options for BPO or Broker Pricing Opinions, drive-by limited appraisals which is exterior only, and AVM or automated valuation model appraisals, depending on the situation.
In certain cases, the 2nd mortgage is used to accompany a 1st mortgage with a 80/10 or 80/15 to avoid putting 20% down and avoid mortgage insurance or jumbo loan sizes for the first mortgage, depending on total mortgage amount.
We do offer refinances as well on these at the same loan to values for rate and terms and up to 80% loan to value for cashout transactions.
Debt to income ratios are usually lower overall for investment properties, however there are some loan options that just look at the cash flow of the property based on rent rolls and appraisal rent comps in the area. These options look at the debt service coverage ratio (DSCR). Some of these options just want to see that the rent payments at least cover the mortgage payment and insurance and taxes on the property. Others want to see that there is a cushion of 20 or 30% leftover aka 1.2 or 1.3 DSCR.
The main thing with unique properties is to have comparable sales as similar as possible in the same area or within 40 to 50 miles of the subject property. Otherwise, the appraiser will use as close to the same types of properties as possible and the loan approval is done on a case-by-case basis. Sometimes the client will have to switch loan types or underwriters to get the right option for the property to be approved. At Skyridge Lending we look at the situation from a make sense perspective and work hard to get the client approved for the property type they have or want.
Off Grid – these can be tricky but certain loan types do allow for this type of financing as long as there is adequate heat and water sources. We’ve done several loans with water catchment or water delivery and storage systems, well water, wood burning stoves, and solar and/or wind for electricity. These are usually rural or remote rural properties.
Log Homes – some states like Colorado have many log homes and they aren’t considered to be that unique. Many lenders don’t lend on log homes. At Skyridge Lending we are very familiar with log homes and lend on them often.
Dome or Geodesic – we’ve done several of these in the past and in certain areas there can be similar homes that are able to help determine a value in comparable sales for the appraisal. In some cases there aren’t comps available and adjustments can be made in comparing these to standard construction. The people who live in these structures have commented that they are very energy efficient and have many advantages over standard construction.
A-Frame – these usually are built in areas with other similar type construction around and you can usually find at least one comparable sale that is recent. It is also common with this property type to use standard construction homes so these usually aren’t as hard of a unique property to finance.
Berm or underground homes – these our probably the toughest of the unique homes to finance. They are very energy efficient but can have problems with moisture and/or mold in certain areas of the Country. It is tough to find comparable sales for these homes and most programs do require at least one recent similar type of comparable sale so this is the main thing to check when looking to finance this property type.
Metal Homes – at times these aren’t as unique as they sound. It is becoming more common to have metal framing due to it being stronger, more durable, and less maintenance. Metal sided homes can also now look like traditional homes. Where this can get especially unique is when the property is a metal building that looks like a warehouse instead of a house. If it is being financed as a house it is best if it can still have the appearance of a house and then standard comparable sales can be used.
Mixed Use – this is an interesting category. We’ve seen many mixed-use properties including retail below residential in down town areas, farms with houses, houses with horse facilities, vineyards with houses, multiple houses, office downstairs with residences upstairs. We can lend on most of these properties but the terms are very dependent upon the deal specifics.
Manufactured – Manufactured is typically considered a single-wide or double-wide property and usually has HUD tags associated with it and were at one time registered with the DMV and moved to location as part of a trailer. These can be financed using FHA, VA, conventional, and in some cases USDA with newer units. In most cases the property will have to pass a structural engineers inspection and not have been moved once setup on a permanent foundation. They do have to include the land they are attached to in order to be done with a residential mortgage loan. These loans do have higher rates because the property type doesn’t hold value as long as standard construction type. Manufactured homes tend to stagnate in value and even decrease over the years because of the quality of construction. Modular homes on the other hand are typically built to international building standards. See more on those below.
Modular Homes – These are almost always built to international building standards for the past several years and are treated like a standard house. They hold value and appreciate similarly to other houses. In recent years the quality of several of these options is now higher than many site-built homes. They are built in a factory with high quality control procedures in place, then taken apart, shipped, and re-assembled on site. The time to build and move in with this type of option is much quicker in most cases than a standard build. Material and building quality on these options varies greatly depending on the manufacturer and builder.
Freddie Mac Homebuyer Education
Fannie Mae Homebuyer Education