5 Types of Home Loans: What is Right for Your Client?

As a loan officer or originator, there are a variety of loan products you’ll be working with daily. It’s up to you to understand each and provide your clients with the best loan options for their financial situation.

When determining the best type of loan for your client, there’s a lot to take into consideration, such as credit score, debt, down payment, loan term, location and more.

Some of the most common types of mortgage loans include:

• Conventional Loan

• Government Loan

• Jumbo Loan

• Fixed-Rate Mortgage

• Adjustable-Rate Mortgage

Let’s take a deeper dive into each loan type, so you can determine which option would be best for each of your clients.  

Types of Mortgage Loans

1. Conventional Loan

There are two types of conventional loans available: Conforming and nonconforming. Conforming loans are loans that are within the maximum loan limits set by Fannie Mae and Freddie Mac, where non-conforming loans go outside of the traditional guidelines set by Fannie and Freddie.

Conventional loans can be used for primary and second homes, as well as investment properties. While it varies by lender, borrowers are typically required to have a median FICO score at or around 640 and have a debt-to-income (DTI) ratio of roughly 45% but can exceed that DTI if the automated underwriting system allows.

Conventional loans are a great fit for those clients who would be able to afford a down payment of 3% or more.

2. Jumbo Loan

Jumbo loans are conventional loans that are non-conforming since the home price exceeds the federal loan limits set by Fannie Mae and Freddie Mac.

Jumbo loans are most common in high-end locations, where the home values are above the county loan limits and up into the million-plus dollar range. FICO scores are typically required to be at least 700 or higher, and borrowers are obligated to prove they have a set amount of assets. While it varies by lender, borrowers are typically required to put 10 to 20% down, with a debt to income ratio not exceeding 45%.

3. Government Loans

FHA, USDA, and VA loans are all types of government loans, and really round out the loan product offerings to be able to assist more clients.

• FHA loans: Are available for those who may not have a significant amount of money saved and are looking to put less money down.

• USDA loans: Helps qualifying lower-income borrowers in rural or unique areas.

• VA loans: Provides low-interest and low down payment mortgages for active U.S. military members, veterans and their families.

4. Fixed-Rate Mortgage

Fixed-rate loans allow your client to keep the same interest rate over the entire life of their loan, meaning their interest rate will remain fixed. Typically most borrowers opt for a 30-year fixed mortgage, but some lenders offer a flexible term option to gives borrowers the option to choose from a 7 to 30 year fixed loan that fits their needs. 

5. Adjustable-Rate Mortgage (ARM)

ARM’s are typically fixed for the short term, and then become variable.  The rates can change, after the initial fixed term over time based on the status of the market. While these tend to save borrowers money on interest, in the long run, your client should not rely on paying the same amount each month on their mortgage. Some consider these loans a bit risky.

As a mortgage professional, you are responsible for guiding your clients in choosing a mortgage loan product that best fits their financial needs and goals. The more you’re able to explain loan types and how they will affect your client, the more likely they’ll have a positive home loan experience and send future referrals your way.

Ready to help make dreams of homeownership come true? Becoming or joining an independent mortgage broker is easier than you might think and our team at BeAMortgageBroker.com is here to help you every step of the way.