One of the most common questions that I get asked is the difference between all of the loans that are offered. My goal is to help you better understand why we try and help you get pre-approved with the loan ahead of time and what paperwork you need to gather.
So loans are like oranges. Oranges get divided into crates when they are inspected by FDA inspectors. They put these oranges in different categories of Grade A, Grade B, and Grade C.
Grade A oranges are round, orange, and smooth. Grade B oranges may have a little bit of green, but they are still round in shape and fairly smooth. Finally, you have Grade C oranges that are lumpy and discolored.
However, they all still taste the same. A’s are sold in the grocery store. B’s are usually kept for juicing by Sunkist or Florida Natural. And C’s are the ones that are sent, and sold to institutions, like schools or the military.
So now you are asking me,
“What does this have to do with my loan?”
Well, loans are bundled in similar grades of A, B, and C.
A’s are the ones that you commonly hear advertised on TV and the radio. Those bundles are in $50 million bundles and they are sold on the stock market, Fannie Mae, Freddie Mac, or Ginnie Mae. All the paperwork that your lender asks you to gather is so that they can make sure that your loan is an A loan.
B loans are usually for the self-employed, like myself since I own my brokerage. This also applies to somebody who is getting a construction loan. In general, Smaller institutions like your local community bank offer these type of loan options.
C loans are hard money loans. When you hear people talking about hard money, know that this is associated with a much higher interest rate, plus points (meaning fees upfront).
When you are looking to buy a home, you are trying to get an A loan because that is going to be your best rate. When people ask about “shopping around for rates”, you are still talking about a Fannie Mae loan. It is going to vary by approximately an eighth of a point, maybe a quarter-point. However, you are also buying the speed and the packaging so that you could close faster.