Home Purchase Mortgages
Frequently Asked Questions
What is a Home Purchase Mortgage?
A home purchase mortgage is a loan given by a bank, mortgage company, or other financial institution for the purchase of a home. This can be either a primary residence, a secondary residence, or an investment residence. For typical residential mortgages the property may be a condominium, town-home, single-family residence, duplex, triplex or fourplex.
In a home mortgage, the owner of the property (the borrower) transfers the title to the lender on the condition that the title will be transferred back to the owner once the final loan payment has been made and other terms of the mortgage have been met.
What are the types of Home Purchase Loans?
There are five main types of Home Purchase Mortgages:
- Conventional loan – Best for borrowers with a good credit score
- Jumbo loan – Best for borrowers with excellent credit looking to buy an expensive home
- Government-insured loan – Best for borrowers who have lower credit scores and minimal cash for a down payment
- Fixed-rate mortgage – Best for borrowers who’d prefer a predictable, set monthly payment for the duration of the loan
- Adjustable-rate mortgage – Best for borrowers who aren’t planning to stay in the home for an extended period, would prefer lower payments in the short-term and are comfortable with possibly having to pay more in the future
Should I get Pre-Qualified for a Loan?
Getting pre-qualified is an important first step to ensure you can actually get a mortgage, while also determining how much home you can afford.
A slightly more involved process is a mortgage pre-approval, where you provide financial documents to a bank or mortgage broker for review, and they run your credit.
Real estate agents (and home sellers) typically require that you be pre-approved if you want to make a qualified offer.
What is Mortgage Insurance?
Mortgage Insurance protects the lender from losses in the event that a borrower defaults on their loan.
If you put down less than 20% on a conventional loan, you may be required to pay for mortgage insurance. Depending on the type of loan, the insurance may be regulated by the FHA or provided privately.
Even if the mortgage insurance is “lender paid,” it’s likely passed on as a cost built into your mortgage payment, which increases your rate and monthly payment. Ask your loan specialist to explain the associated rates and costs, and if there are options to finance without mortgage insurance.