Loan Types

LOAN TYPES

Adjustable Rate Mortgage: Have an interest rate that is adjusted at certain intervals based on a specific index during the life of the loan. 

Balloon Payment Loan: A fixed rate loan that is amortized over 30 years but becomes due and payable at the end of a certain term. May be extendible or may roll-over into another type of loan. 

Buy-Down Loan: Fixed rate loans where the interest rate and the payment are reduced for a specific period of time by paying the interest up front to subsidize the lower payment.

Community Home Buyers Program: A fixed rate loan for first time buyers with a low down payment, usually 3-5%, no cash reserve requirement and easier qualifying ratios. Subject to borrower meeting income limits and attendance of a four hour training course on home ownership.

Conventional Loan: Sometimes more lenient with the appraisal and condition of the property. When you are buying a “fixer upper” you may need to use this type of loan. Homes purchased above the FHA loan limit are usually financed with this type of loan.

FHA Loan: Insured by the Federal Housing Administration under H.U.D. They offer a low down payment and are easier to qualify for than conventional loans.

Fixed Rate Loan: Has one interest rate that remains constant throughout the life of the loan.

Graduated Payment Mortgage: A fixed rate loan that has payments starting lower than a standard fixed rate loan, which then increases by a predetermined amount of each year for a set number of years.

Non-Qualifying Loan (Assumable): Pre-existing loans which can be assumed by a buyer from the seller of a property without going through the qualifying process. The buyer pays the seller for their equity and then starts making payments.

VA Loan: Guaranteed by the Veterans Administration. A veteran must have served 180 days active service.

THE LOAN PROCESS

PRE QUALIFICATION/INTERVIEW

Application interview

Lender obtains all pertinent documentation needed for prequal

LOAN SUBMISSION

The loan package is assembled and submitted to the underwriter for approval

DOCUMENTATION

Supporting documents come in

Lender checks on any problems

Request for any additional items are made

LOAN APPROVAL

Parties are notified of approval

DOCUMENTS ARE DRAWN

Loan documents are completed & sent to escrow

Borrowers sign final signatures with a Notary Public

ORDER DOCUMENTS

Credit report, appraisal on property, verifications of employment, mortgage or rent, and funds to close, landlord ratings, preliminary title report

FUNDING

Lender reviews the loan package

Funds are transferred by wire

RECORDING OF DOCUMENTS

Orange Coast Title Company records the deed of trust at the County Recorder’s office.

Escrow is now officially closed

YOU ARE A PROUD HOMEOWNER!

Comparing the Loan Types

VA Loans

Being able to purchase without a down payment is a tremendous advantage. But you will not have equity in the property to start. The VA Funding Fee varies based on the nature of your service, down payment and whether you’ve used the VA program before. In this example, we used the 2.3 percent most first-time buyers pay. A buyer reusing their VA loan benefits would pay a higher fee (3.6 percent), which would bump the monthly payment to $1,375. As with the other government-backed options, the fee in this example is financed into the loan. 

FHA Loans

These loans have more lax credit requirements and a lower down payment (3.5 percent) than conventional loans, but they also tend to feature the most expensive mortgage insurance, which borrowers now pay for the life of the loan. FHA loans have an upfront funding fee (1.75 percent of the loan amount) and an annual mortgage insurance premium (0.85 percent of the loan balance for most borrowers). 

USDA Loans

This is the only other no-down payment mortgage program. Borrowers will pay mortgage insurance for the life of the loan. USDA loans feature both an upfront funding fee (1 percent of the loan) and annual mortgage insurance (0.35 percent of the loan balance). These are also the most restrictive loans of the group. Homebuyers are required to purchase in what the USDA deems a qualified rural area and have an income at or below 115 percent of the area median income, adjusted for family size.

Conventional Loans

This loan requires the highest down payment (5 percent), but you begin with the most equity. Borrowers who can’t put down 20 percent (that would be $40,000 in this example) will pay private mortgage insurance. The rate for PMI can vary based on several factors, including credit score and down payment. It’s typically anywhere from 0.2 to 1.5 percent of the loan balance. For this example, we used a PMI rate of 0.72 percent.

What's the Best Fit?

Determining which loan product is the best fit for you is a conversation that should include a loan officer you trust. They can help you run the numbers and give you a clear sense of what makes the best financial sense.

A VA loan isn’t automatically the best fit just because you’re eligible. Qualified borrowers who have sterling credit and the ability to put down at least 20 percent would want to take a long look at conventional financing.

But the reality is that kind of financial profile isn’t the norm for many VA-eligible homebuyers. That’s what makes the home buying benefits of the VA loan program so powerful.

Velocity Realty is more than just a real estate company—we're your trusted partner in achieving your property goals with speed and precision. Whether you're buying, selling, or investing, our experienced team is committed to delivering results that exceed expectations. Stay connected with us for the latest updates, real estate tips, and success stories by following us on Facebook, Instagram, and LinkedIn. Join our community and let us help you navigate your real estate journey with confidence!

#FollowUs #SanDiegoRealEstate #Loans #HomeBuyers #FirstTimeBuyers