If you’re looking to purchase a home in Arizona and California using the best home loans, you will probably need to finance that home. Or if you already own a home you may want to refinance your current home loan to get a better rate, or to pull equity (cash) out of your home to renovate your kitchen.

Arizona, California and Florida home loans fall into 2 major categories: (1) Owner-occupied, and (2) Investment (non-owner occupied). There are many similarities between the two, but also some key differences described below.

If you’re looking to purchase or refinance a Arizona, California and Florida home loan for a residential 1-4 unit property, here’s everything you need to know about finding the best home loan options.

A. What Are My Arizona, California and Florida Home Loan Options?

The first step to finding the best Arizona, California and Florida home loans is to understand the options available. Depending on credit, down payment and income, there are many great home loan programs available for both salaried, hourly borrowers, self-employed and real estate investors.

Home loans fall generally into 3 main categories:

• Conventional Home Loans (conforming and non-conforming);
• Government loans
• Non-Qualified Mortgages (Non-QMs).

1) Conventional Home Loan

Conventional home loans are simply mortgages that are not insured by the federal government. Within conventional loans there are two categories of loans: conforming and non-conforming.

(a) Conforming Home Loan

Firstly, conforming loans meet the underwriting guidelines of Fannie Mae and Freddie Mac. Those government-sponsored enterprises then buy, repackage and sell the loans as securities in the secondary market.

Conforming loans are often called “agency loans” because they meet the credit and government underwriting matrices Desktop Underwriter (DU) for Fannie Mae, or Loan Product Advisor (LP) for Freddie Mac. The maximum conforming loan limits vary by California,  Arizona and Florida counties (click the links to check out those loan limits).

Agency loans are not  directly backed by the US Government, but rather indirectly through government-sponsored enterprises Fannie Mae and Freddie Mac. Agency loans, sometimes called “vanilla loans,” are the most conservative and have a very low risk of default.

(b) Non-Conforming Home Loan

Secondly, non-conforming loans have loan amounts higher than the maximum limits established by Fannie Mae and Freddie Mac for conforming loans. The agencies do not guarantee they will buy or re-sell nonconforming loans in the secondary mortgage market. There are specific investors, hedge funds as well as other entities for these types of loans.

If it is a jumbo loan, then the loan amount exceeds the conforming loan limits. Jumbo loan terms can vary widely in terms of rate and down payment, but the best jumbo loans have very competitive rates. These are a great option for borrowers looking to purchase or refinance in a high value area.

(c) What is a jumbo loan?

First of all, when properties are too expensive for a conventional conforming loan, a Jumbo Loan is a mortgage option that can be used. The maximum amount for a conforming loan in most counties is $510,400.  The limits are determined by the Federal Housing Finance agency (FHFA). If you exceed the loan limit  for your county, you need a jumbo loan.

Also, check your county limit here: California Conforming Loan Limits by County,  Arizona Conforming Loan Limits by County and Florida Conforming Loan Limits.

Furthermore, jumbo loans are also called non-conforming conventional mortgage and are considered a high risk loan for lenders because Fannie and Freddie do not guarantee the loan.  Meaning,  the lender is not protecting in the event of default by the borrower.

Finally, a fixed interest rate or an adjustable interest rate is typically available.

How do I qualify for a jumbo loan?

As little as 10% down payment

Typically require a minimum 660.

Max 50% debt to income ratio. If you have a large amount of cash reserves the lender may be more flexible on DTI.

Cash reserves are typically required in the amount to cover 6 to 12 months PITI payment.

More than one appraisal could be required.

2) Government Loans

Government loans are issued or backed by the US federal government and this protects the lender from risks of default. This in turn allows government loans to have some of the best rates available and more relaxed qualification requirements than typical conventional or Non-QM loans.

(a) FHA Loans

These loans are government-backed through the Federal Housing Administration (FHA). They also allow for the smallest down payment of all loans, 3-3.5% or even no down payment when utilizing a down payment assistance program. The county loan limits will determine how much you can borrow.  You can find your county loan limits depending on where in California the property is located here. (Arizona Loan Limits Here and Florida Loan Limits Here)(also required is mortgage insurance, which is around 1% of the loan amount). FHA loans are an incredible option for borrowers with a lower credit score and low down payment.

(b) VA Loans

These are government-backed loans through the US Department of Veteran’s Affairs (VA), and offer incredible rates and terms to veterans, active duty military, reservists and unmarried surviving spouses. VA loans offer financing up to 100% of the reasonable value of the property, no mortgage insurance, and no down payment up to $1,500,000. Not only are there VA financing options the  best California home loan  for purchase but they have a unique refinance program called the Interest Rate Reduction Refinance Loan (IRRRL). These are incredible offerings for the men and women who serve our country.

(c) USDA Loans

These government loans are backed by the US Department of Agriculture (USDA). This loan program has no down payment requirement, rates are competitive and no mortgage insurance. This is a great option for borrowers in a rural, USDA-approved area.

3) Non-Qualified Mortgage (“Non-QM”) Loans

Non-Qualified Mortgages (“Non-QM Loans”) have different underwriting guidelines than a typical conventional or government-backed loan. Non-QM loans provide self-employed borrowers and real estate investors an alternative income qualification method.

Qualified Mortgages are prohibited from having “risky” loan features such as interest-only payments, negative amortization, balloon payments, terms beyond 30 years, or excessive points and fees. Thus, anything with one of these features would be a non-QM loan.

Significantly, non-QM loans for owner-occupied properties (i.e., primary residence, second and vacation homes, etc.) must still follow Dodd-Frank’s Ability-to-Repay (ATR) Rule.  You can acquire financing for conforming loans using tax returns and financing for non conforming loans through alternative methods.

(a) Bank Statement Loans

Bank statement loans have become the best California home loan option for  self-employed borrowers to purchase or refinance a home loan. Bank statement loans are for self-employed and other non-salaried persons who make sufficient income to support a mortgage payment but whose tax returns don’t accurately reflect this.

Traditional mortgage lenders require tax returns, W-2s, and paycheck stubs in order to determine monthly income. For salaried and hourly borrowers, the lenders look at gross income for qualifying purposes. But for self-employed borrowers, traditional mortgage lenders look at net income, the adjusted gross income showing on tax returns. This puts self-employed borrowers at a disadvantage.

With bank statement loans, lenders still want to ensure borrowers can repay their mortgages, they just use bank statements to verify income as to opposed to tax returns. Self-employed borrowers are able to document their ability to repay based on business deposits into their personal or business bank accounts, i.e., their true cash flow.

This is an incredible and expanding area of mortgages that levels the playing field for self-employed borrowers, providing the opportunity to qualify without tax returns.

(b) Asset Depletion Loans

Like bank statement loans, a borrower’s ability to repay must be documented with asset depletion loans. However, the ability to repay is calculated based on a borrower’s net worth and liquid assets, not monthly or yearly income.

If a person has very strong assets but limited income, then an asset depletion loan would be a good fit for them. Instead of looking to annual income to demonstrate ability to repay, asset depletion lenders will look at a borrower’s total liquid assets, and divide by 60-72 months. If this amount is sufficient to cover the monthly mortgage payment (and all other debts), a borrower can get qualified for the loan.

(c) No-Tax-Return Investment Property Loans

No-tax-return investment property loans the best Arizona, California and Florida home loan option for real estate investors, which allows qualification based entirely on the cash flow of the property being financed. If the rental property is cash flow positive, that will constitute sufficient qualifying income.

Because these loans are for investment properties only (non-owner occupied), lenders are not required to document a borrower’s ability to repay. However, lenders still want to ensure their loan will be repaid, and they do this by looking to the income of the property, and not the borrower.

Sometimes called “landlord loans” or “rental loans,” no-tax-return investment property loans do not consider a borrower’s income in the traditional sense. Instead the cash flow of the property is the income factor.

Whereas traditional mortgage lending requires tax returns during the loan approval process, no-tax-return investment property loans do not. With these loans, real estate investors are able to purchase or refinance a property with no employment required, no personal income considered, and no debt-to-income ratio developed.

4) Hard Money Home Loans

Some homeowners are familiar with hard money consumer bridge loans, aka “bridge money” in the context of purchasing a home while waiting for their departing residence to sell.

All “bridge” loans are hard money loans. Hard money loans are the best Arizona, California and Florida home loan solution for temporary funding needs because they come with a quick close and require minimal documentation.

(a) Consumer Hard Money Bridge Loans

Borrowers can use hard money consumer purpose bridge loans to purchase a new residence while waiting for a departing residence to sell.

Consumer purpose hard money loans also allow homeowners to cash out equity in their property to use for consumer purposes such as paying off personal debt or remodeling a primary residence.

(b) Owner-Occupied Business Purpose Hard Money Loans

Business-purpose owner occupied hard money loans provide borrowers a way to access equity in their property by cashing out equity available. These loans are a great way to quickly put cash into a borrower’s pocket.

(c) Investment Property (Non-Owner Occupied) Hard Money Loans

These are most often used when time is of the essence. Because of their speed, investment property hard money loans provide same-as-cash purchasing power for acquisitions, and quick access to equity (cash) for cash-out refinance transactions.

B. Choosing The Right Home Loan For You

When choosing the best home loan option for your situation, the primary question is how best to demonstrate your ability to repay the loan.  On owner-occupied, 1-4 unit residential properties, ability to repay is based on a borrower’s income.

The income of a salary and hourly employee is determined by reviewing tax returns, W-2s and 30 day pay stubs.  Self employed income can be verified using bank statements and profit & loss statements.

Current liquid assets to make payments over 60-72 months determines a high net worth individuals ability to repay.

To learn more about qualifying for non-owner occupied properties, check out no tax return investment property loans, hard money loans, and commercial property loans.

Contact your local mortgage broker to discuss the options available.

C. What Does A Typical Arizona, California and Florida Home Loan Look Like?

The typical loan approval process takes 3-4 weeks for conventional, government, and non-QM loans. That said, hard money loans can close faster because this process involves comparing total income to all debts, underwriting and disclosure processes, and property valuation.

1) Debt-to-Income (DTI) Calculation

Loans on owner-occupied residential properties and lenders must document the borrower’s ability to repay. The above methods will determine the ability to repay.

DTI or The debt-to-income ratio typically includes all of a borrower’s monthly debts such as car payments, student loans, minimum credit card payments, and the like. DTI also includes taxes, insurance, and HOA dues for the property, as well as the new loan’s principal and interest payment.

For example, assuming a monthly income of $10,000, and monthly debts of $5,000 then the DTI Ratio = 50% ($5,000/$10,000).

Loan program have different maximum DTI allowances is as high as 55%.

2) Underwriting

There is an involved process when underwriting real estate financing . All income and debts must be verified, credit and housing history verified and reviewed, and loan disclosures and legal regulations complied with.

Most loan officers employ full-time processors to coordinate with the lenders’ underwriters and third parties for required verification. If a conditional approval has been provided and the underwriter has started the due diligence then the loan is in underwriting. This process is when conditions will me satisfied. This process typically takes 1-2 weeks but sometimes longer for more complicated loan files.

3) Appraisal

Once the underwriting commences, the lender will typically order an appraisal. The appraisal process can also take around 1-2 weeks. The condition of the property and the most recent sales in the area will determine the value of the property. The sales approach involves the review of recently sold and comparable properties to assess value.  The sales approach is the most common approach.

It can take a few days to assign a local appraiser and schedule an inspection. Then, a few days for the inspection and appraisal report returned to the lender. Finally, the lender’s quality control department will review the appraisal report because it can have errors. All of this adds up to about 1 to 2 weeks.

Receiving a satisfactory appraisal report with a sufficient home value is a condition of all lenders’ funding decisions.

D. Finding The Best Arizona, California and Florida Home Loan Lenders

With so many varieties of home loan programs, and the many variables and nuances within program categories but it is most often advisable to work with a loan broker who can advise and suggest from the available options. It’s a good idea to choose a broker with knowledge of and access to all available loan programs. In the end you have to choose the right mortgage professional for you.

For example, if you think you might qualify for a bank statement loan but not a conventional jumbo loan. Speak with a loan broker who will narrow your options and set you up for successful funding of your loan.

Many lenders across all categories of Arizona, California and Florida home loans do not have a retail channel, they prefer working with brokers.

That said, the best brokers spend many hours scouring thousands of loan programs looking for the best rates and term. Mortgages rates change often and borrowers are looking for the best Arizona, California and Florida home loan options. It is in the broker’s best interest to find the lowest rate and most favorable terms available for them.

Furthermore, watch out for excessive upfront fees. Reputable brokers do not collect origination fees unless the loan is funded. There are upfront fees such as a credit check, appraisal or placing the funds into a separate performance escrow.  That said, any high upfront fees and costs should be a potential red flag. Some lender will require an application fee deposit because they conduct initial site visits or property evaluations but not often.

E. The Bottom Line

In conclusion, there are many great options for borrowers looking to purchase or refinance a residential property in Arizona, California and Florida. Often borrowers will qualify for more than one program. It is best to carefully weigh all viable options to ensure you get the very best pricing and terms. Salaried, hourly, self-employed or retired individuals have a Arizona, California and Florida home loan available. Speak to a mortgage professional at Valor Lending Group to discuss how you can qualify and start the process.