MORTGAGES – FOR BEGINNERS 

Congratulations, you’ve decided that you’d like to purchase a home! What’s next?

The process of buying a home can become very overwhelming, especially for first time home buyers. Knowing the different loan types and what a mortgage is can be very useful. Here is a brief overview of the different loans types.

PRE-APPROVAL VS PRE-QUALIFICATION 

Once you have decided to purchase a home, the next step is to reach out to a trusted lender. Your lender can help determine what types of homes you can afford and which loan type best fits your needs. After reviewing necessary documentation, your lender will provide you with a letter which states that you are financially eligible to purchase a home. This letter can accompany your offer to prove to the seller that you are indeed capable of purchasing the home. There are three types of letters: Pre-Qualification, Pre-Approval and DU Letter. 

Pre-Qualification is the letter that is typically issued after the initial meeting with your lender. The lender will ask you for things like your credit report, job history, income and debt to determine your eligibility for a loan. 

A pre-approval letter is issued after the underwriting system for the lender has done an in depth look into your finances and determined that you deserve the loan. This is a much stronger form of commitment that the pre-qualification letter as this letter shows that you have actually been approved by the lender. 

DU LETTER 

A DU letter, also known as, Desktop Underwriter Letter, is the strongest issuance of lender commitment. This letter stands as a written commitment from the lender that the borrower is to receive the requested loan after running an in depth investigation into the buyers finances. Only pending the selection of the home to purchased and appraisal. This guarantee can be extremely useful, especially when competing with other cash offers. This proves to the seller that you are able to buy their home without financial issue. 

LOAN PROGRAMS

It is important that you do your research when it comes to selecting a lender. Since things like structure, interest rates and length can vary between lenders. Below is a list of the four most common loan types and what they offer. 

Conventional – this is the most common type of mortgage. The loans usually last about 30 years and have steady monthly payments. Most commonly, a 20% down payment on the home will eliminate the Private Mortgage Insurance requirement. A Private Mortgage Insurance requirement is typically in cases where the buyer puts less than 20% down on a house. When a buyer submits less than 20% down payment, the risk to the lender is greater. Therefore they implement this insurance requirement which automatically introduces a fee to the monthly mortgage payments. Once those payments are paid equal to 20% of the purchase price, you can apply to have the insurance requirement removed. 

FHA – this type of loan was designed to assist first time home buyers. These loans are guaranteed by the Federal Housing Administration. FHA loans are also easier to obtain as they are less dependent on high credit scores, income, and savings requirements like other loan types. The greatest benefit to FHA loans is that the down payment can be made as little as 3.5%. 

VA – VA loans is offered by Veteran Affairs and is a special loan program designed for veterans and their qualifying spouses. Unlike the FHA loans, the borrower does not have to be a first time home buyer and there is no required down payment. Even the closing costs are highly regulated as to assist the buyer obtain the loan. 

JUMBO LOANS – Jumbo loans, similar to the conventional loan type, are known to have higher interest rates and stricter guidelines. These are most commonly used in situations where the loan amount is higher than the conforming value set by Freddie Mac and Fannie Mae. 

Knowing what a mortgage is and the difference between the several loan types can help buyers make an informed decision when purchasing a home. The best first step is to speak with your lender. They will determine what you are eligible for and therefore determine what houses you can afford. After connecting with your lender, reach out to your real estate advisor. Your realtor can help find your next dream home within your budget and make the process smoother. 

If you are interested in learning more about mortgages, please feel free to  call us, The Connie Cabral Group, today at 305.776.0899 or send us an email to ConnieCabral.com. 

Our team of certified luxury property specialists go above and beyond for our clients – from first contact to after closing.