02/19/2020: Plan for the Future: Defining Mortgages
Applying for a home loan or mortgage should be an exciting milestone – especially for a first-time homeowner. For some, this is the first major step to settling down. For others, it’s a commitment to their chosen community. There’s one thing that is true across all boards…
What is a Mortgage Loan?
A mortgage is a type of loan, secured for real estate, that you’ll need to pay back in full in order to fully own the property. Until your debt is fully paid, your property is thought of as “collateral” to ensure you pay your mortgage. If for any reason you fail to make these payments, the lender can foreclose your property and sell it to someone else.
Types of Mortgage Loans
Federal Housing Administration (FHA)
An FHA loan is a mortgage issued by an FHA-approved lender and insured by the Federal Housing Administration (FHA). An FHA loan is a popular choice for a lot of first-time homebuyers.
Veteran’s Administration (VA)
VA loans are designed to help qualified veterans buy, build, or improve a home. In most cases, eligible homeowners are not required to have a down payment. There are a lot of benefits to filing a VA loan, including no monthly mortgage premium, lower interest rates, limited closing costs, and refinancing options.
Unlike other loan option types, VA loans are offered exclusively to eligible veterans who have available entitlement. To qualify for this type of loan, the veteran must intend to occupy the property as a home, must be at satisfactory credit risk, and must have a sufficient and stable income.
Conventional (Fixed and Adjustable rates)
A conventional loan comes in the form of three types of mortgages: conforming, non-conforming or jumbo. A “conforming” mortgage is appropriately named due to their ability to conform to guidelines established by Fannie Mae and Freddie Mac. Both of these government-sponsored enterprises (GSE) purchase mortgages from lenders and sell them to investors. While a “non-conforming” mortgage is one that doesn’t fit within the GSE guidelines. Jumbo mortgages are large loans that surpass the amount allowed by Fannie Mae and Freddie Mac.
Refinancing is a term used to describe the process of replacing an existing mortgage with a new loan. This is typically used in order to take advantage of money-saving benefits.
Refinancing is a great option for lowering mortgage payments, attaining a lower interest rate, converting home equity into cash, or switching to a fixed-rate loan.
Down Payment Assistance
Putting down a down payment on a home can be stressful, but the good news is that we’re here to help! It’s an excellent option if you’re hoping to become a homeowner, but are struggling to come up with a down payment.
Down payment assistance was designed to help people make the transition from being renters to homeowners. This assistance usually takes one of three forms: down payment grants, forgivable second mortgage programs, or matched savings programs. These programs can help cover the down payment on a new home, and sometimes even the closing costs.
A construction loan is a short-term loan used to assist in financing the construction of a home or real estate project. This loan would cover the costs of construction before attaining long-term funding. Due to the increased risk, it’s typical to expect higher interest rates compared to a traditional mortgage.
A construction loan is a great option for anyone building their own home or developing a property. Once the house is complete, the borrower can either refinance the loan into a more permanent mortgage or apply for a new loan to pay it off.
An investment loan is intended for a single-family, townhome, condo, or multi-unit property that is purchased with the intention of earning a return on the investment. If you’re interested in purchasing investment property, there are a variety of loan options available, from a fixed rate to adjustable with several term lengths.
This type of loan is ideal for individuals looking to make some passive income or to provide a vacation home for their family. To qualify for an investment loan, the borrower must have excellent credit, cash reserves, the ability to pay a minimum of 20 -25%.
Portfolio Loan Programs
A portfolio loan is an alternative, non-traditional source of funding where the lender keeps in for investment, rather than selling on a secondary mortgage market. Lenders can decide to go this route for many reasons.
This type of loan was designed for people who don’t fit the mold of traditional borrowing. This may come in the form of someone who is self-employed, has no credit score but a good income. While a portfolio loan isn’t inherently good or bad, it can come with its own set of pros and cons.
How To Get A Mortgage Loan
Applying For a Mortgage Loan
Once you take away the excitement of settling down, applying for a home loan or mortgage can be an intimidating task. The key to applying for and getting a mortgage loan is preparation. The best way to tackle this monster of a task is to ensure that you’re prepared for the process that is about to unfold.
Closing a mortgage transaction takes about an average of 45 days, so once the ball gets rolling, things will move fast.
In preparation for the application, there are a few things to consider:
- Confirm your credit score and make sure that it is in a strong range for the application
- Research and understand what type of mortgage you want
- Do your research on lenders and compare them
- Compile all of your necessary documents for the loan application
- Get preapproved for a given loan amount
- Find homes in your budget
Documents You’ll Need For Your Mortgage Application
When you’re preparing for your mortgage application, it is a great idea to start compiling your necessary documents. This task will make the process less stressful. Lenders will require documentation to verify your details like creditworthiness, employment history, and other information about your financial situation. It is a good idea to prepare the following documents:
- Tax Returns
- Credit Report
- Renting History
- Photo ID
- Complete and Comprehensive Bank Statements
- W-2s for the last two years
When it comes to loans, selecting a home loan and mortgage lender is an important decision. At Citizens Bank, our financial experts are dedicated to providing you with the resources and support you need every step of the way.
Our Resident Expert
Citizens Bank utilizes the expert advice of Joan Fleming, VP of Residential Lending and Community Development. With a professional career spanning over 25 years, Fleming has established herself as an expert in home loan and mortgage consulting.
To apply for a mortgage, or to speak with Joan directly, please fill out a loan request form here.
We understand that home loan and mortgage financing isn’t easy for everyone – that’s why we made it simple. Our team created these simple calculators to help you keep track of your payments.
- Mortgage Loan Calculator
- Adjustable-Rate Mortgage Calculator
- Bi-Weekly Payment Calculator
- Mortgage APR Calculator
- Mortgage Qualifier
- … and many more!
Learn more about home loans and mortgages with Citizens Bank
Citizens Bank is the oldest minority-owned bank operating in the United States. Since 1904, we’ve been serving the people of Nashville and Memphis, TN. To find out whether you’re in a good borrowing position, and the maximum amount you should be able to borrow, give us a call at (855) 788-4465. For more information find us on Facebook, Instagram, and Twitter.