We explain how Community Development Loans, compared to conventional and FHA loans, make it easy for the self-employed, entrepreneurs, immigrants or foreign nationals, and low-income families to buy their dream homes even in a hot housing market.
Summer’s heat is in full swing, and so is a hot, hot housing market. While low mortgage rates and a competitive housing market are great for our economy, if you’re a potential home-buyer who’s applying for a mortgage with inconsistent or difficult to document income, wish to use gift money for a down payment, or are even just an outlier when it comes to traditional income earnings, the process of getting a mortgage can prove difficult.
News flash: FHA home loans and conventional loans weren’t made with self-employed, gig economy workers, or low-income earners in mind. For people who don’t fit the traditional mold, this pandemic has been especially hard, financially. Even if you’re deserving of a home loan, the system wasn’t made to help everyone. One bad year on the books, and it’s almost like every other year of your financial records didn’t exist. Sound familiar?
That’s why Quontic offers Community Development Loans—for people who should be able to get loans but can’t provide the “right” paperwork; People who are deserving of a home loan but can’t jump through the “right” hoops.
So let’s compare some of the ways Community Development Loans succeed where FHA loans and conventional loans fall flat.
What is an FHA loan?
The Federal Housing Administration loan is a government-backed loan that helps out first-time homebuyers. In this case, “government-backed” just means that it protects your lender against loss if you default on your loan. An FHA loan may seem great if you have a low credit score or when you’re looking at the low down payment offerings, but there are a few things to consider when applying for this loan.
- An FHA loan is only good for primary residences—sorry investors and second home buyers!
- One of the biggest drawbacks to an FHA home loan is the mortgage insurance premiums and annual mortgage insurance premiums that come with it for at least 11 years, if not the life of the loan.
- Loan limits on FHA loans can be a deterrent. They are set based on county property values, and can dip as low as $360,000.
What about Conventional Loans?
You’ve likely learned that conventional loans, like FHA loans, also have low down-payment requirements, but there are differences?
- A conventional loan is not government-backed, but underwritten to the guidelines of Fannie Mae or Freddie Mac.
- They have more stringent requirements like a higher credit score and a lower DTI to qualify.
- The mortgage insurance premium on Conventional loans (above 80% of the property value) is lower than the premium on FHA loans.
Definition of a Community Development Loan
Community Development Loans (CDLs) are unique to Quontic and provide non-traditional access to prime mortgage financing. While these loans work in a similar fashion to traditional purchase or refinance mortgage loans, one key difference is that the down payment on a CDL is usually a minimum of 20% and credit scores must be at least 660 to qualify. The rate is usually higher than it is on conventional loans, given that we provide significant income documentation relief.
But if you’re a non-traditional income earner, the difference between finally closing on a home and waiting 3 months on a mortgage application only to be rejected is significant. Community Development Loans are also different from conventional and FHA loans in that:
- Qualification is based on the borrower’s overall credit and financial profile, rather than the standard tax documentation or income verification such as W2’s and pay statements. That’s good news for non-traditional income earners!
- Let’s reiterate that: No tax returns are needed and no W2s are required to qualify!
- Loan limits reach up to $3 million.
- Own a small business? We allow self-prepared profit and loss statements.
- 100% gift funds are accepted for down payments, closing costs and reserves.
And the best part? The security of a Community Development Loan. While the national average of a traditional mortgage has a 3%+/- default rate right now, we at Quontic are way below the national average in terms of all the other lending products. Community Development Loans have a proven track record, time and time again. These loans are safe, reliable, and they work. We bypass all the traditional paperwork that normally filters people out, and we find ways to be the “yes” banks when other banks say “no.”
Ready to get your mortgage loan approved with a Community Development Loan from Quontic? Check out our website and prequalify today.