4. Low Documentation Loans
Low documentation loans, sometimes called no documentation loans, are available to people who aren’t traditionally employed.
Business owners and freelancers who earn self-employment income can apply for these loans using their bank records and other financial statements instead of pay stubs.
Credit scores, the size of the down payment, and proof of funds play a larger role in determining if you can get a low documentation loan. Because of the perceived higher risk, low documentation loans usually come with a higher interest rate than traditional variable or fixed-rate loans.
However, these loans are for people who can afford loan payments and do have the money for a down payment.
Doctor’s home loans, for example, can fall under this classification if they own their own practice.
5. Home Equity Line of Credit
If you bought your home, or own it outright, you can apply for a home equity line of credit. This type of loan lets you borrow against your home’s value; you can use the money to renovate or improve your house.
The amount you can borrow depends on how much your home is worth, as well as how much you still owe on it. You can also use that money for other projects and purchases.
If you still owe money on your original home loan, you will have an accelerated repayment schedule and must repay the full amount by the originally agreed-upon date.
For example, if you took out $100,000 in a fixed-rate loan, paid off $75,000, and then took out a home line of credit for $25,000, you would have to pay back the $50,000 plus interest by the deadline of the original $100,000 loan.
6. Non-Conforming Loans
A non-conforming loan is designed for people with low credit ratings who can’t get traditional home loans.
Non-conforming loans aren’t backed by Fannie Mae and Freddie Mac, like conventional loans. They can help people in a range of circumstances such as: those who can’t afford a down payment; those who want to borrow more than $484,000 (also known as a jumbo loan); and those with an unfavorable debt-to-income ratio.
These are high-interest, high-risk loans, and predatory lenders can charge excessive rates, so borrow only from a reputable lender when looking for a non-conforming loan.
And check what local regulations say is the legal maximum you can be charged in interest.
Compare Lenders for the Best Rate
Now that you know the six major types of housing loans on the market, you can pick the one that best fits your employment and financial situation.
Remember: Always get quotes from several lenders. You’ll want to make sure that you’re getting the best rate possible, which can save you hundreds or thousands of dollars over the years.
How did your home loan go? Share your experiences in the comments!