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How much should millennials plan to spend on a home?
What if you fail the 28% rule of thumb test?
What about if you don’t have enough for a down payment?
What else should millennial homebuyers know?
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If Mortgages Were Pants, Which Is the Best Fit for You?
Not everything you need to know about mortgages involves FICO scores, basis points, and loan to value ratios. Most people don’t need to fill their head with this kind of jargon anyway…so we’re simplifying it by comparing each major mortgage type to a pair of pants.
Why pants? Well most of us wear pants or some kind of pants equivalent…and let’s face it pants open up a lot of avenues for humor. And as my teacher Mr. Gutierrez told me: if they’re laughin’, they’re listenin’.
In this video I breakdown the mortgage types and explain which pants they’re associated to…or skip below where you’ll see all the comparisons listed out.
What pants are they? Levi’s 501 jeans
Why? The Levi’s 501 jean is the most well known pair of pants out there (sorry Dickies) and you can dress ’em up or dress ’em down depending on the occasion. Similarly the Conventional Loan is the most popular mortgage because of the same combination of versatility and practicality. They don’t call it “conventional” for nothing so if you’re looking for a mortgage this is usually the place to st.
What pants are they? Overalls
Why? FHA stands for federal housing administration and once upon a time the FHA created this loan to support first time buyers. Similar to how first time pants-wearers often need the extra support that overalls provide. Here’s what we mean by support: 3.5% down, generally lower interest rates and lower minimum FICO score than conventional.
What pants are they? Cargo Pants
Why? Well for starters cargo pants are MUCH more commonly worn by our armed forces than jeans and overalls, but these are actually one of my favorite loans for a few reasons: zero percent down payment, no mortgage insurance, and interest rates are very low (generally lower than conventional loans).
What pants are they? Apple Bottom Jeans (boots with the fur)
Why? This is when your loan exceeds the conforming loan limit and is no longer treated the same as a typical conventional loan. Similarly, apple bottom jeans are designed for when you are blessed with those curves that exceed the limits of conventional pants. But to accommodate that extra space, the bank is going to enforce some stricter guidelines like a lower debt to income ratio, more money in reserves, and a higher down payment.
Non QM Loans
What pants are they? Chaps
Why? QM stands for a “Qualified Mortgage” so when you’re a non QM borrower, you’re out on the fringes a little bit. Your financial situation may make the average banker or loan officer stare or scratch their head in confusion just like seeing someone out on the street wearing chaps. And just like you can’t get chaps at Target (at least at my Target) only certain lenders offer non QM loan products and you can expect their loan terms aren’t typical. For example, the interest rate can be a couple points higher depending on the scenario.