A Guide to Residential Loan Transactions in New York
A residential loan is a type of loan used to purchase homes or other forms of real estate, usually in a series of payments divided into principal and interest. The usual requirements are down payments and credit scores. This loan can also vary depending on the needs of the borrower.
Residential loans come in various forms, such as the 15-year fixed-rate mortgage and the 30-year fixed-rate mortgage. While stretching payments over more years can lower the monthly payment, it can also increase the total interest rate of the loan.
Common Types of Residential Loans
Mortgages for condominium
Mortgages for condo units are usually more expensive than the typical family homes. This is because condominiums have additional risk factors out of the borrower’s control, like coastal exposure or crime rate.
The down payment and interest rates will be higher as lenders charge more. This is because the condo unit’s value depends more than the borrower’s finances. Every unit can lose its value if owners are struggling as a whole.
One to four family houses and loans
This type of residential loan is for properties with up to 4 separate units within the same structure. For example, a duplex is usually for a two-unit home, often split down the middle. Properties with 5 or more units are not considered multi-family homes and would require commercial financing.
An advantage of a multi-family home is that it features high conforming loan limits that keep the rates down.
Cooperative apartment shares and proprietary leases
A proprietary lease grants the shareholders in a co-op the right to live in a specific apartment. Since co-op buyers don’t actually own their units, the proprietary lease has legal specifications that cover the relationship between the shareholders and co-ops.
The lease details the requirements regarding renovations, repairs, maintenance, and other unit residency terms.
Mortgage Brokers, Mortgage Bankers & Retail Lenders
A mortgage banker is an individual, company, or institution that funds mortgages using their own funds or funds that are borrowed from a warehouse lender. A mortgage broker, on the other hand, is the middleman between the borrower and the lender. They don’t represent an institution, unlike a mortgage banker.
A retail lender is an entity that lends money to individuals. These include credit unions, banks, or loan institutions. Some advantages of non-bank lending are fewer documentary requirements, higher approval rates, and faster loan processing. However, remember to take extra caution as you might fall for scams like unregistered private lending companies.
What are conventional and government-sponsored mortgages?
Conventional mortgage
A conventional mortgage is any type of home loan that’s not backed by the federal government. It’s available through banks, private lenders, or mortgage companies. The two kinds of conventional mortgages are conforming and non-conforming loans.
Conforming loan
A conforming loan is a loan that falls within limits made by the Federal Housing Finance Agency. Usually, lenders require you to pay private mortgage insurance on conventional loans when you put out less than 20% of the home’s price.
Non-conforming loan
A non-conforming loan does not conform to standards for purchase. The two reasons why a loan might not conform are if someone else buys the loan or the loan is too large to be considered a conforming loan.
Government-sponsored mortgage
The U.S. government plays a role in helping Americans become homeowners by offering relaxed credit requirements, availability for first-time and repeat buyers, and helping in finances when you don’t qualify for a conventional mortgage.