Whether you’re looking for your first home, trading up, downsizing, or purchasing a vacation or investment property, choosing a mortgage can be daunting, stressful, and time consuming—but it doesn’t have to be. It’s best to first understand specific mortgage types, as well as requirements, terms, limits rates, qualifications, and specifics.
Even before pursuing real estate listings, it’s recommended to conduct research for the best mortgage that meets your needs, and attain a mortgage commitment letter, or at the very least, a pre-approval from a reputable mortgage lender.
Consult this useful guide to learn more about various mortgages, such as conventional, government-backed, jumbo, fixed-rate, and others.
What Is the Mortgage Process?
According to the National Association of Realtors (NAR), 87 percent of homeowners utilized a mortgage for 2020 home purchases. The most common way to purchase a home, a mortgage or home loan helps you finance a property by borrowing the necessary funds to cover its purchase and down payment at closing.
Unless they are paying 100 percent of the purchase price in cash, buyers are required to have an approved mortgage at closing,
Deciding which mortgage is the best for you requires considerable thought, research, and discussion. Prior to your home search, consult a reputable mortgage lender with experienced loan officers for guidance on requirements, qualifications, and documents—from application to approval.
Mortgage Commitment Letter vs. Pre-Qualification Letter vs. Pre-Approval Letter
A mortgage commitment letter provides an edge over other prospective buyers, and critical peace of mind. Also known as a loan commitment letter, it's the final piece following a pre-qualification letter and pre-approval letter. A mortgage commitment letter states the approved loan amount, along with specified conditions drawn up by the lender. You’ll need to sign this for the mortgage lending process to move forward to finance and obtain your dream home.
Contour Mortgage takes this a step further, with a SecureBuy program, whereby all documents are fully underwritten for priority consideration. This improves the likelihood of an accepted offer, and facilitates a smoother closing process.
Read our Blog: “Mortgage Commitment Letter: Your Ticket Home”
Common Mortgage Types
There are several available financing options and accompanying items to consider, including specific requirements, qualifications, tax credits, debt-to-income ratios (DTI), and down payments.
Learn more about each of the various home loan types provided through Contour Mortgage.
Conventional Mortgage Loans
Also known as a conforming loan, a conventional mortgage cannot exceed pre-set limits set by the Federal Housing Finance Agency (FHFA). Available as a 30- or 15-year fixed rate term, these are suited for homeowners with average or higher credit ratings, solid income and cash reserves, and equal or low (DTI).
Qualifying conventional loan borrowers must put at least 20 percent of the purchase price down. Should this amount be lower, you’ll be required to hold private mortgage insurance (PMI) until the loan-to-value reaches 80 percent. This provides the lender added assurance should the borrower default on the loan.
Read our Blog: “The Difference Between Conventional & FHA Loans”
Government-Backed Loans
Boasting less-stringent credit, income, and DTI requirements, government-backed loans are available through approved lenders such as Contour Mortgage. Geared toward borrowers who might not otherwise qualify, these are guaranteed by agencies such as the Federal Housing Administration (FHA), U.S. Department of Agriculture, and Veterans Affairs (VA) for active and retired military personnel.
While each has its own set of qualifications and requirements, borrowers won’t have to purchase PMI when putting less than 20 percent down. VA loan applicants are excluded, regardless of down payment amount.
Utilized for the borrower’s primary residence, this loan trio applies to purchase, refinance, or improvement of single-family homes, as well as multi-family dwellings, and condos and co-ops.
First-time homebuyers can also take advantage of these loans’ many purchase and improvement grants and credits through various agencies and organizations. Consult the U.S. Department of Housing and Urban Development (HUD) website to learn more.
Read our Blog: “What Is a Government-Backed Mortgage & How Do I Qualify?”
Jumbo Loans for Higher-Priced Homes
Previously reserved for luxury homes and large properties, jumbo loans are becoming more common for continually increasing housing and cost-of-living expenses in certain areas. Borrowers purchasing a modest home in some regions could now be required to obtain this loan.
Depending on your area of choice, a jumbo loan can range from $548,250 to $822,375 for a single-family home. Because of the higher price point, qualifications and requirements can be more stringent than other loans. It’s best to work with your mortgage lender for additional information.
Read our Blog: “What Is a Jumbo Loan?”
Fixed-Rate vs. Adjustable-Rate Mortgages (ARMs)
While both are offered through any of the aforementioned loan types, each has specified terms and conditions. Fixed-rate loans facilitate a stable, consistent payment throughout the term. While amounts can be slightly higher, it offsets what could otherwise be a higher, long-term payment. This also applies to home equity loans or refinancing.
ARMs are fixed for the first 10 years of the loan. Once this passes, the loan is adjusted every six months until paid off. While this can be slightly less predictable than a fixed-rate mortgage, borrowers have added assurance due to its lifetime rate cap—even during high inflation periods.
This is also a prudent solution for those not planning to stay in the home for more than 10 years—once rates fall, borrowers can take a short-term/cash out loan.
Home Renovation & Rehab Project Loans
As many home prices have increased throughout the United States, borrowers might also examine alternative avenues, such as fixer-uppers or properties requiring significant repairs and upgrades. To this end, conventional mortgages offered through Fannie Mae and Freddie Mac can help with renovation costs for these projects. So can government-backed FHA 203(k) Standard and Limited loans.
Read our Blog: “Can You Add Renovation Costs to Your Mortgage?”
Loan Pre-Approval Questions & Answers
With many available loan products designed for potential home buyers, it’s best to contact a Contour Mortgage loan officer for professional guidance and help with requirements and processes.
Contour Mortgage provides lending services throughout the United States. Contact us to learn how we can help you achieve the financing you need to purchase your dream home.
