It can take years for a Loan Officer to get good at loans –
it’s a full time job after all – so don’t be discouraged that you don’t know
everything yet. There’s almost too much
information for you to know. We at least
want you to be familiar with concepts and the basic premise of loans. Knowledge is Power – we are going to get you
as powerful as you can be! Here are the
loan types for you to be familiar with:
1.
Conventional Loans – Conventional Loans are
loans that you can get through almost any bank.
Conventional Loans are governed by Fannie Mae and Freddie Mac (you may
recognize those names) and they are essentially government back loans. You can purchase an investment 1-4 Unit home
with a conventional loan or refinance a loan with a conventional loan. For investors conventional loans are loans
for people who BUY AND HOLD properties. They are low rates with no prepayment
penalties and you can always get them fixed for 30 years. You can also get these loan types on your
primary home if you wanted to. You can
find this loan anywhere practically. As
a comparison, right now the going rate on a 30 year fixed conventional loan is
about 4.25% - 4.875%.
2.
Portfolio Loans – Portfolio loans are also long
term loans and are easier to qualify for than a conventional loan. Portfolio loans can be used for practically any
type of property. Portfolio loans could
be for a 1-4 unit property or a mixed use property or something different. Portfolio loans are loans from a bank’s own
money. Each bank will decide how they
want to use this money. So one bank’s
portfolio loan could be entirely different from another bank. You may consider using a portfolio loan if
you can’t qualify for a conventional loan.
A portfolio loan may ignore your taxable income all together. It may be able to qualify you just based on
your bank statements or even on the property itself. But there is a tradeoff, the interest rate is
higher than a conventional loan. As a
comparison, the going rate on a portfolio loan may be somewhere between
6.5%-9.5% on a 30 year fixed loan.
Portfolio loans sometimes only have the option of a 15 year or 20 year
loan. Remember, it’s up to the bank to
decide how they lend their own money. When
asking about this loan type make sure and get as much information as possible
and not just information on the interest rate.
A 15 year loan at 5.5% has a very different payment than a 30 year loan
at 6.5%.
3.
Hard Money Loans – Hard Money loans are loans
that are ONLY for investment properties.
Their length can be anywhere from 3 months – 18 months; meaning after 3-18
months you owe the loan back in full.
They are designed for people who either flip properties or need to close
quickly on an investment property. You
can use this loan and refinance out of it into a conventional or portfolio loan
if you are looking to buy and hold. They
are normally easier to qualify for but carry a higher rate. As an investor it is important to know a hard
money lender – even if your plans are not to use one – you never know when you
need money right away. As a comparison,
the going rate on a hard money loan is 8%-14%.
Paying 14% for 1 month might be a little annoying but it shouldn’t be a
deal killer. Remember, this are very short term loans.
4.
Owner Financing and Private Money - These loans are
loans that you would get from an individual person. Owner Financing is when the
Owner of the property can offer you a loan for the house you are buying. This isn’t coming from the bank, it’s coming
from the actual owner. It’s up to them
on how they want to qualify you and up to them on the terms of the loan as
well. And private money would be
something like a loan from a family member.
The terms on these two types of loans can differ drastically but there
is a purpose and a benefit for these loans too.
5.
Other – While Loans 1-5 are loans where you can
PURCHASE a property don’t forget that other types of loans can also help you
purchase a home: Personal Guarantee
Loans, Home Equity Loans, Cash Out Refinance Loans, Credit Card Loans,
etc. Sometimes thinking outside the box
will open the door to achieving your goal.
Whew! That’s a
lot! This post may have caused you to
come up with even more questions. This
is normal when you are getting POWERFUL!
This is a 5-part series so make sure to check out the other chapters to
become an expert!
Andrew Postell
Gateway Mortgage
817-873-0621
Andrew.postell@gatewayloan.com
