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Home Purchases & Refinances
Purchase mortgages and refinances are both home loans, so what’s the difference? And more importantly, why do you need to know? To find out, let’s take a closer look at each.
Purchase mortgages, as the name implies, are mortgages used to finance the purchase of a home. Refinances, on the other hand, are used to “refinance” an existing mortgage. You can have a purchase mortgage without a refinance loan. But you can’t have a refinance without a purchase mortgage in the first place (because there would be nothing to refinance!).
On paper, how can you tell purchase mortgages and refinances apart? Mainly, the difference is in the purpose of the two loans:
· Purchase mortgages enable you to become a homeowner.
· Refinances empower you to change the terms of your original mortgage, which you may want to do for a variety of reasons.
For example, if interest rates are lower today than they were when you obtained your original loan, you might refinance to take advantage of the lower rate. (In fact, this is one of the most common reasons to refinance a purchase mortgage today.) But there are other reasons to refinance your mortgage as well. Here are just a few:
The real estate buying and selling process
Loan Products & Programs
Fixed vs Adjustable Rate Mortgages
When deciding on a loan, one of the first things you will need to assess is whether you would like a fixed rate or adjustable rate mortgage. There are multiple factors to consider, including your current and future financial picture and the length of time you plan to be in the home.
Fixed Rate Mortgage
A Fixed Rate Mortgage is a home loan that will have the same interest rate for the entire payment period. With a fixed rate mortgage the amount of your monthly payment will remain the same, year over year, for the entirety of your loan. For example, if you have a 30-year fixed rate mortgage, the amount of your principal and interest payments will remain the same, every month for the entire 30 year period.*
*Note: For the sake of a basic definition we are excluding taxes, fees, etc. that may change over the life of your loan.
Adjustable Rate Mortgage
An Adjustable Rate Mortgage (commonly referred to as an ARM), is a home loan that the interest payment changes, or adjusts, over the life of the loan. Usually, after an initial fixed period, the interest rate on an ARM will adjust on an annual basis. For example, with a 7/1 ARM home loan, the interest rate will remain fixed during the initial 7-year period on the life of the loan. After that initial 7-year period, the interest rate on your home loan will begin to adjust on an annual basis (every 1 year) based on market rates. Typically with an ARM you will qualify for a lower interest rate at the beginning of your loan. If you're planning to move within 5 - 7 years, an ARM may be a great option for you. The only risk with an ARM is if rates increase after the initial period, you will have to pay the higher rate.
Depending on your financial goals and your current financial situation, you may find that an ARM offers lower upfront payments or helps you qualify for a larger loan amount. However, if you’re ready to set down roots and are committed to the community, a fixed rate mortgage might be the right fit (especially if you don’t see yourself moving anytime soon). A mortgage banker can discuss each potential scenario with you to help you determine your best course of action.
Government-Insured vs Conventional Loans
A government loan is insured either completely or partially by the U.S. government. The government does not lend money to the borrower. Rather, it promises to repay some or all of the money to the lender in the event that the borrower defaults. This reduces the risk for the lender when making a loan.
A government backed loan can be a great option for borrowers with fewer resources (either for the down payment or repayment). Government loans will typically have lower down payment options and lower credit score requirements, but feature a lending limit (or cap the amount you can borrow).
There are 3 major government programs that insure loans.
VA Loans
VA Loans are loans guaranteed by the U.S. Department of Veteran Affairs (VA), and are designed to offer home financing to eligible veterans and surviving spouses. VA Loans are available to eligible veterans who wish to buy a home, build a home, or make energy-saving home improvements. This one-of-a-kind mortgage program allows those who qualify an opportunity to finance a home with no money down, at competitive rates and no monthly mortgage insurance. VA Loans include other benefits for veterans as well, such as comparable closing costs, no private mortgage insurance (PMI) or penalties for prepayment, and available counseling to borrowers with financial difficulties or facing default.
While there are not loan limits on a VA loan, there is a limit on how much the VA will guarantee. This may impact the amount that can be borrowed. In addition, to be considered for a VA loan, a Certificate of Eligibility from the VA must be presented.
USDA Loans
USDA Loans are mortgages backed by the U.S. Department of Agriculture as part of its USDA Rural Development Guaranteed Housing Loan program. In order to qualify for a USDA Loan, the home to be purchased must be located in an eligible rural area as defined by USDA (it’s important to note that the USDA has rather broad definition of “rural”, and many small towns actually meet the requirement).
USDA Loans were created to strengthen the rural economies and can be distributed only by direct lenders meeting the federal guidelines. These loans do not include monthly mortgage insurance and generally feature competitive interest rates. Sente Mortgage is designated as an approved lender in the USDA Rural Development Lender Program for Guaranteed Rural Housing (GRH) Loans.
The program is attractive because it offers 100% financing, lower mortgage insurance rates and less rigorous lending requirements. It’s also important to note that USDA Loans are fixed rate mortgages (ARMs are not available in this program).
VA Loans
About
Because We Create Financial Possibility.
Home ownership is the key to a strong financial foundation.
Home ownership is one of the most important aspects to building significant net worth. According to the Federal Reserve’s Survey of Consumer Finances, a homeowner’s net worth is 36 times greater than that of a non-homeowner. When done right, home ownership has the ability to empower millions of Americans to strengthen their financial foundation. At DSI Investments, we help our borrowers achieve their dream of homeownership by finding the right financing solution to fit their long and short term goals.
As Michael James , our VP, puts it...
“We believe that a mortgage is much more than a transaction. It’s the foundation for financial opportunity.”