Purchase – loans as little as 3% down
There are two primary types of conventional loans, conforming or qualified QM loans, and non-conforming, also now known as 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 subprime 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.
Loan to Value – There are three different options with as little as 3% down, two of these options require at least one of the borrowers to be a first-time homebuyer. One of these options allows for 3% down without being a first-time buyer, but the house must be in a certain area and under that area’s income qualifying amount, or in an area that has no limits on income. You can find more information about the first-time buyer education courses required and the address and income limits online below.
Home buyer education courses:
Property and income eligibility links:
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.
The conventional conforming has qualifying at 620 credit scores and up. They are based on automated approvals also known as findings. Several items help with getting findings to allow for an automated approval such as compensating factors, debt-to-income ratio, reserves, number of borrowers, and loan terms. Your loan officer can help you work on your automated loan approval.
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 principal, 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 loans, credit cards, and 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.
These loans have set loan limits based on the property location and area. Higher-cost areas also have loan options known as high-balance loans. Any conventional loans above this amount are considered a jumbo loan. These amounts usually change every year. As of right now the amount is set at $484,350 max loan size allowed for the standard option. It is going to increase to $510,400 in 2020. The nationwide high balance option allows for loan sizes up to $726,525. For more info on Jumbo loans, click here. (link to below on jumbo or could say for more info on jumbo loan options see below.
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.
Appraisal waivers are becoming more available for a larger percentage of conventional loans. There are various types of waivers. Fannie Mae and Freddie Mac have been tracking housing appraisal data for the past several years now and are granting waivers of appraisals on purchase, rate, and term, and some cash-out refinances. We can determine if a waiver will be granted by Fannie Mae before running credit or the automated approval system. Freddie Mac’s version is also a good tool to use but is based on the strength of the file including credit score, reserve amounts in checking, savings, and investments, as well as the loan to value.
There are also options for BPO or Broker Pricing Opinions, drive-by limited appraisals which are exterior only, and AVM or automated valuation model appraisals, depending on the situation.
Skyridge Lending does offer 2nd mortgages but typically local banks or credit unions are better at this product as they can lend with lower costs and a better rate in many cases. We work with several banks and credit unions who we refer these to, depending on what is best for the situation.
In certain cases, the 2nd mortgage is used to accompany a 1st mortgage with an 80/10 or 80/15 to avoid putting 20% down and avoid mortgage insurance or jumbo loan sizes for the first mortgage, depending on the total mortgage amount.
The jumbo loan option is used to purchase or refinance a higher-priced home. It is a non-QM or non-qualified mortgage. It does typically carry with it a higher rate or certain features like an adjustable period after being fixed for a certain period of time, typically 5, 7, or 10 years. At Skyridge Lending we offer many different jumbo loan options based on what best fits the client's situation. There are a few options with as little as 5% down. We have loan amounts going up to 25 million. Typically once the loan amount is over $1,000,000 two appraisals are required and the loan to value and loan amount are based off of the lower appraised value of the two reports. Some jumbo loans do require reserves in the form of checking or savings, money market, 401k, etc. Reserve is based on the number of months of payments for the house. An example of this is if the program requires 12 months reserves then this is equal to verifying you have 12 months’ worth of house payments in your account after paying your down payment and closing costs for the loan. Payment is the total of principle, interest, taxes, insurance, and homeowners association dues.
2nd homes or Vacation Homes are very common in several of the states where Skyridge Lending is licensed for business. Places like Colorado, California, and Alaska see a higher portion of second homes. We have very aggressive 2nd home loan options with loans to value up to 90% on standard interest rates so this is similar to an owner-occupied transaction or primary residence. We also have some options for 95% loan to values but these rates are typically higher so most people plan on putting at least 10% down on a 2nd home purchase.
We do offer refinances as well on these at the same loan-to-value rate and terms and up to 80% loan-to-value for cashout transactions.
These loans are usually about .5% higher in rate than the standard owner-occupied market. They do allow for the loan to value up to 85% at this time for purchases and rate/term refinances and for the seller to contribute up to 2% of the purchase price to go towards closing costs and/or pre-paid items. There are several options that allow up to 85% loan to value with and without mortgage insurance, depending on the situation. Multi-unit properties are usually limited to 75 to 80% loan to value depending on the number of units. When the property is over 4 units it becomes a commercial loan, which Skyridge Lending also offers.
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.
Property types do affect your loan options. At Skyridge Lending we offer loans for most property types including but not limited to off-grid, straw insulated, log homes, dome or geodesic, A-frame construction, Berm or underground homes, metal homes, mixed-use with commercial and residential, manufactured and modular housing. We will briefly explain a little about the process here but as always, feel free to reach out to us for more information about your specific property type or what you are interested in.
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 are 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 types of 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 are 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 downtown areas, farms with houses, houses with horse facilities, vineyards with houses, multiple houses, and offices 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 was at one time registered with the DMV and moved to the 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 engineer's inspection and not have been moved once set up 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 the 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 have been built to international building standards for the past several years and are treated like standard houses. 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 reassembled 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.
Cashout is up to 80% loan to value and rate/term refinances are up to 95% loan to value. Investment properties aka Non-Owner Occupied are usually limited to 75% loan to value for cashout refinances.
Freddie Mac Homebuyer Education
Fannie Mae Homebuyer Education
This falls under conventional and is split out but I thought we need a spot just for it altogether as well in case that is what someone is looking for:
Non-Qualified Mortgage Loans, aka non-QM Loans, are typically made by private lenders, Wall Street backed companies, or investor groups. Skyridge Lending, LLC has access to several of these loan programs and options and they are typically brokered loans. While they are more expensive in closing costs and interest rates, they do offer much more flexibility with credit scores, what is on the credit, income, and asset documentation, as well as many other areas. \
Qualifying – Non-QM loan options are easier to qualify for in certain respects and allow for larger loan amounts. Most jumbo loan options are also non-QM. These loans have more relaxed guidelines overall with regard to credit history, limited credit, bankruptcy, foreclosure, and judgments. They also have more flexible options for income documentation, allowing bank statements for self-employed borrowers and higher debt-to-income ratios. Lastly, they typically don’t require as many assets.
Loan to Values – These are usually limited to 90% and lower with these loan types because they are more flexible with credit and income qualifications. In cases where credit scores are lower or there is a recent bankruptcy or foreclosure then the loan-to-value ratios are lower.
Credit Scores – Credit scores will go as low as 500 with reduced loan to values of 60 to 65% of the property's value.
High Balance and Jumbo
The jumbo loan option is used to purchase or refinance a higher-priced home. It is a non-QM or non-qualified mortgage. It does typically carry with it a higher rate or certain features like an adjustable period after being fixed for a certain period of time, typically 5, 7, or 10 years.
At Skyridge Lending we offer many different jumbo loan options based on what best fits the clients' situation. There are a few options with as little as 5% down. We have loan amounts going up to 25 million. Typically once the loan amount is over $1,000,000 two appraisals are required and the loan to value and loan amount are based off of the lower appraised value of the two reports. Some jumbo loans do require reserves in the form of checking or savings, money market, 401k, etc. Reserve is based on the number of months of payments for the house. An example of this is if the program requires 12 months reserves then this is equal to verifying you have 12 months’ worth of house payments in your account after paying your down payment and closing costs for the loan. Payment is the total of principle, interest, taxes, insurance, and homeowners association dues.