At the most basic level, there are 3 types of mortgage loans. Mortgage loans, in-house bank loans, and equity loans.

Mortgage loans (offered by banks, lenders, and brokers)

If you are buying a home or refinancing a home, chances are it will be financed with a conventional or government loan. Brokers generally have a wide variety of lenders that they can go to in order to find you the most suitable loan for your particular situation. Once these loans are closed, they are sold off to Fannie Mae or into the secondary market. Lenders that sell their loans off to Fannie Mae are very particular when it comes to loans because they want to ensure that they will be able to sell their loans to Fannie Mae. Banks, lenders and brokers all sell their loans to Fannie Mae.

Some times when a person cannot qualify for a loan that can be sold to the secondary a bank may do a portfolio loan or an in-house loan.

Bank loans (Portfolio or in-house)

Bank loans are generally given to bank employees, people the bank knows well or have lots of money, if you are looking for a construction loan or are purchasing land. Unlike brokers, bank loans are all internal so they can’t shop around outside of their own loan programs to find a more suitable loan to your situation. These loans aren’t sold to Fannie Mae either which is why they are popular for those looking for construction loans or looking to purchase land. For example, a dentist who starts a practice will not be eligible for the secondary market until they have two full years of income history with that business. This is where portfolio or in-house loans come in because banks may sometimes help this dentist buy a home.

Equity loans

Equity loans or equity lines are loans that are normally 2^nd loans and are based on the equity in the house. Years ago, people bought homes with no money down by using 80/20 loans to avoid mortgage insurance. The 20% loan is basically the equity loan.

In recent times lenders and banks have reduced to limit on 2^nd loans to between 80-90 % of the value of the house. This would mean that you might be able to get a 80/10/10 loan.

The last 10% would be your own money. If you already own a house then your limit for a second would basically be 80-90% of the value of the house.

Jay A. Kumar

Related posts:

1. Understanding Mortgage Quotes
2. Deceptive Mortgage Advertising
3. Why Can’t I Get the Low Advertised Rates?
4. The Best Way to Finance a Car
5. Credit Inquiries and Your Credit Score