Purchase mortgages and refinances are both home loans, but they serve very different purposes. A purchase mortgage is a type of loan that homebuyers apply to finance the purchase of a new home. A refinance mortgage is the process homeowners go through to change their mortgage rate and terms. While purchase and refinance loans may have similar requirements and elements, the process and end results vary.
What Is A Purchase Mortgage
A purchase mortgage is a type of loan that homebuyers use to finance a new home.
Mortgages are not one-size-fits-all. There are various programs available, but finding the best option largely depends on the buyer’s financial situation and property.
JVM’s Client Advisors and Mortgage Analysts are experts in every type of mortgage loan and are available to help answer questions and find the right loan that best fits your financial goals.
Related: Types of Mortgage Loans
How Do Purchase Mortgages Work
Buying a home is a significant investment that most often requires mortgage assistance. To secure a mortgage, you will need to be pre-approved and meet the specified requirements.
Homebuyers using a purchase mortgage need to secure down payment funds. Down payments typically range between 3% to 20% of the purchase price, depending on the loan.
Homebuyers will also need to be prepared to have their credit pulled. There is no exact credit score requirement for mortgages, but this differs from one lender to another. In general, a credit score in the 600s or higher will put homebuyers in a decent position to qualify for a loan.
Once an offer is accepted, homebuyers need to secure a home appraisal. As long as the home appraises at purchase price, homebuyers won’t run into any issues. If the appraisal comes in lower than the planned purchase price, the lender may have to adjust the final closing costs to account for the appraisal shortfall.
The last step of the purchase mortgage process is to finalize the loan application with underwriting and pay the closing costs. Closing costs are the various fees buyers face when purchasing a new home. Closing costs can accrue from lenders and third parties involved in your loan transaction, such as escrow, home appraisers, and title companies.
What Is Refinancing
Refinancing is an excellent opportunity for homeowners to change their mortgage rate and terms to lower their interest rate, monthly payment, or cash out some of their property’s accumulated equity.
There are two types of refinances available for homeowners:
- Rate/Term Refinance: A rate and term refinance is the refinancing of an existing mortgage to lower the interest rate or change the loan duration (from a 7/1 ARM to a 30-year fixed*, for example) without increasing the loan amount.
- Cash Out Refinance: A cash out loan is the refinancing of an existing mortgage into a larger mortgage that changes the interest and the terms of the loan and advances money to the borrower. Borrowers obtain cash-out mortgages primarily for home improvements and debt consolidations.
How Does Refinancing Work
Refinancing with JVM Lending is fast, easy, and as seamless as possible. Most homeowners will start their refinance by working with one of JVM’s Client Advisors to discuss their goals and qualification parameters.
Homeowners will then need to fill out an online loan application. Once their application is completed and submitted, they will work with a Mortgage Analyst to lock in their new interest rate. Homeowners should check with their lender to see if they need to obtain a new appraisal.
Next, mortgage Analysts will prepare new loan disclosures for the homeowner and package their file for underwriting’s review. After underwriting gives the homeowner the “clear to close,” the homeowner will have successfully funded a new refinance loan!
The Bottom Line
Mortgage lenders like JVM Lending are able to offer purchase and refinance loans to qualified borrowers. A purchase loan is a traditional mortgage, where an individual borrows money from a mortgage lender or bank to finance the purchase of a home.
A refinance offers homeowners with a mortgage to update or change the terms of their loan, by obtaining a new loan to replace the existing one. This can provide savings in monthly mortgage payments with a lower interest rate, or can leverage a homeowner’s existing home equity into liquid funds. Whatever your home goals are, our experienced team is happy to help assist you through every aspect of the mortgage lending process.