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A residential loan is a type of loan used to purchase or refinance a home. It is commonly known as a mortgage loan and is secured by the property being financed. Here’s an overview of key aspects of residential loans:

1. Types of Residential Loans

  • Conventional Loans – Not backed by the government, typically requiring higher credit scores and larger down payments.
  • FHA Loans – Insured by the Federal Housing Administration, allowing lower credit scores and smaller down payments (as low as 3.5%).
  • VA Loans – Available to eligible veterans and active-duty military members, offering 0% down payments and no private mortgage insurance (PMI).
  • USDA Loans – Designed for rural homebuyers, with 0% down payment options for eligible applicants.
  • Jumbo Loans – Used for high-value properties that exceed conventional loan limits.

2. Key Loan Terms

  • Principal – The original loan amount borrowed.
  • Interest Rate – The cost of borrowing, expressed as a percentage (fixed or adjustable).
  • Loan Term – The repayment period (e.g., 15, 20, or 30 years).
  • Down Payment – The upfront payment made by the borrower (typically 3%–20%).
  • Private Mortgage Insurance (PMI) – Required for conventional loans with less than 20% down.

3. Loan Qualification Factors

  • Credit Score – A higher score improves loan approval chances and lowers interest rates.
  • Debt-to-Income Ratio (DTI) – Lenders prefer DTI ratios below 43%.
  • Employment & Income Stability – Proof of steady income is necessary for loan approval.
  • Property Appraisal – Ensures the home’s value aligns with the loan amount.

4. Loan Repayment Options

  • Fixed-Rate Mortgage (FRM) – The interest rate remains the same throughout the loan term.
  • Adjustable-Rate Mortgage (ARM) – The interest rate can change after an initial fixed period.
  • Interest-Only Loans – The borrower pays only interest for a set period before starting principal payments.

5. Loan Process
1. Pre-Approval – Lenders assess financial health and determine borrowing capacity.
2. House Hunting & Offer – The buyer finds a home and makes an offer.
3. Loan Application & Processing – The lender reviews income, credit, and the property.
4. Underwriting & Approval – The lender evaluates risk and approves or denies the loan.
5. Closing – Final paperwork is signed, and funds are disbursed to complete the home purchase.

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