Quick Guide to Loan Qualifications: What You Need to Know Before You Apply
Jul 7
3 min read
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When it comes to financing your dream home or your next real estate investment, understanding the qualification requirements for different types of loans is key. Here's a comprehensive overview of the loans we covered today, with a focus on the basic qualifications you need for each.
FHA Loans (Federal Housing Administration)
Best For: First-time buyers or buyers with lower credit scores.
Basic Qualifications:
Credit Score: 580+ for 3.5% down; 500-579 may qualify with 10% down.
Down Payment: 3.5% minimum.
Debt-to-Income (DTI) Ratio: Ideally under 43%.
Primary Residence: Required.
Mortgage Insurance: Required.
Conventional Loans
Best For: Buyers with good credit and stable income.
Basic Qualifications:
Credit Score: Typically 620+.
Down Payment: As low as 3% (5%-20% for better rates).
DTI Ratio: Typically under 45%.
Primary, Secondary, or Investment Properties: Allowed.
Jumbo Loans
Best For: High-value properties over conforming loan limits.
Basic Qualifications:
Credit Score: 700+ (some lenders accept 680).
Down Payment: 10%-20% or higher.
DTI Ratio: 40%-43%.
Cash Reserves: Often required (6-12 months).
VA Loans (Veterans Affairs)
Best For: Veterans, active duty service members, and some military spouses.
Basic Qualifications:
Service Eligibility: Must meet VA service requirements.
Credit Score: No official minimum; most lenders prefer 620+.
Down Payment: None required.
Primary Residence: Required.
VA Funding Fee: Applies unless exempt.
ITIN Loans (Individual Taxpayer Identification Number Loans)
Best For: Borrowers without a Social Security number.
Basic Qualifications:
ITIN Number: Required.
Credit Score: Flexible; many lenders accept non-traditional credit.
Down Payment: Typically 10%-30%.
Proof of Income: Tax returns, bank statements, employment.
Bank Statement Loans
Best For: Self-employed individuals and business owners.
Basic Qualifications:
Credit Score: Typically 660+.
Down Payment: 10%-25%.
Documentation: 12-24 months of personal or business bank statements.
DTI Ratio: Flexible.
Non-QM Loans (Non-Qualified Mortgages)
Best For: Borrowers who don’t meet traditional lending criteria.
Basic Qualifications:
Credit Score: 620+ (flexible).
Down Payment: 10%-30%.
Income Documentation: Bank statements, assets, rental income.
Property Types: Primary, second homes, investments.
DSCR Loans (Debt Service Coverage Ratio)
Best For: Real estate investors.
Basic Qualifications:
DSCR Calculation: Property’s rental income must cover loan payments.
Credit Score: Typically 660+.
Down Payment: 20%-25%.
No Personal Income Verification: Approval based on property cash flow.
Interest-Only Loans
Best For: High-income borrowers needing lower initial payments.
Basic Qualifications:
Credit Score: 700+ preferred.
Down Payment: 20% or more.
DTI Ratio: Varies, often under 43%.
Interest-Only Period: Typically 5-10 years.
Asset Depletion Loans
Best For: High-net-worth individuals using assets to qualify.
Basic Qualifications:
Credit Score: 700+ preferred.
Down Payment: 20%-30%.
Assets: Liquid assets must meet lender's threshold.
No Traditional Income Required: Qualification based on asset value.
Portfolio Loans
Best For: Buyers needing lender flexibility or with multiple properties.
Basic Qualifications:
Credit Score: 680+ typically.
Down Payment: 20% or more.
Flexible Guidelines: Lender-specific; allows exceptions to standard rules.
Private Bank & Relationship-Based Lending
Best For: High-net-worth individuals or long-time bank clients.
Basic Qualifications:
Credit Score: Often 700+.
Assets: Strong financial relationships or asset holdings with the bank.
Loan Terms: Highly customizable based on relationship.
Bridge Loans
Best For: Homeowners needing short-term financing between two transactions.
Basic Qualifications:
Credit Score: 660+.
Equity: Significant equity in current property (20%-30%).
Exit Strategy: Sale of existing property or long-term financing.
Construction Loans
Best For: Building a new custom home or major renovations.
Basic Qualifications:
Credit Score: 680+.
Down Payment: 10%-30%.
Detailed Construction Plans: Required.
Licensed Builder: Required.
Conversion: Typically converts to permanent financing.
Final Thoughts
Each loan type has its own unique set of requirements, benefits, and ideal borrower profiles. Before applying, it’s crucial to speak with a knowledgeable lender or real estate professional to identify the right loan for your specific goals and financial situation.
If you'd like help determining which loan is the best fit for you, I’m here to guide you through the process every step of the way.
Contact Kereen Henry Luxury Associate Broker | Keller Williams 404-210-1674 | www.kereenhenry.com
