May 13, 2020 at 12:32pm | Mike and Dawn Sharp

What Happens when You Use the [WRONG] Mortgage

Had known what I know now...

I would have purchased a beautiful and historic five bed two-and-a-half bath home, instead of a lovely and quaint two bed one bath airplane bungalow.

In fact, here's a photo of that home:

Gorgeous right?

So what the hell happened? Why didn't I buy this gorgeous home?

It's actually very simple.

Neither we nor our real estate agent spent the time to educate ourselves by speaking with the mortgage bankers about the types of mortgage products available to us.

This home needed some major renovations in order for it to conform to the FHA product we were intending on using, and we simply didn't have the money for a 15% down payment to go with a conventional mortgage being offered to us.

If we had only known there was a mortgage product that would have allowed us to purchase this home FHA and cover the repairs. This product exists, and we will cover this product and many others here in this blog post.

My intention with this blog post is to share with you information I've learned from my lending partners about different types of mortgage products, and show you how each of those can help you purchase a home that fits into buying criteria. I hope that you take this information to your mortgage banker/broker, your real estate agent, and with whomever is going to be helping you buy that home.

The last thing that I want is for you not to be able to buy the home you want, because of ignorance.

What's a Mortgage?

For those of you who are not familiar with what a mortgage is, it's simply a "loan" that is awarded to you for the purpose of purchasing real estate only.

I put "loan" in quotes because the behind-the-scenes process is a lot more detailed, however for now this is all you need to know. Like any other loan, it is important that you do your research to understand the costs and the benefits of each mortgage product you're being offered, because not all of those products will suit you and your buying goals.

While outside of the scope of this post, there are nuances about mortgage products that you must understand to help you select the best product. Terms like interest rate, discount points, and origination fees are mortgage characteristics that will impact your selection.

To help you better get familiar with these things I have included for you a labor of love.

Here's a Thank You Gift

For reading the post, I want to give you a labor of love.

To help out my buyer clients with selecting a mortgage banker/broker and mortgage product, I have prepared an easy to use Mortgage Comparison Spreadsheet .

This spread sheet contains:

  • Find a TRUSTED Local Lender - Find the names of local mortgage brokers that we trust.
  • Ask the RIGHT Questions You'll have access to 41 questions to ask mortgage brokers before you apply.
  • Pick the BEST Mortgage for You - With an easy to use spreadsheet to record information you'll be able to easily select the best mortgage for your home.

Every now and then come back to this spreadsheet to download a new version, because I am also updating and editing this sheet with new information. I want to give this to you now, because as you continue reading this post it may push you to finally call a lender, or add questions you have to those forty-one (41) questions.

Let's continue on with the different mortgage products.

Types of Mortgage Products

To start this off, here is a list of common mortgage products, and for more details you can visit Newamerican Funding's website:

*In this post we will cover the benefits of the conventional loan, 30/15 year fixed mortgage, 203(k) loan, and the FHA loan. Later on, we will have more detailed posts about all these loan types. The purpose now is to introduce you to common mortgage products.

Home Improvement Loan / 203(k)

This is the mortgage product that I should have used to purchase that gorgeous home I showed you earlier.

A 203(k) loan allows you to purchase a home that traditional government-back or conventional loans don't allow for because you'll have the ability to finance the repairs into the loan.

There's two different 203(k) loans and they're both backed by the FHA; the two common ones are Fannie Mae Homestyle and FHA 203(k). Depending on the product there are restrictions and limitations.

To read more about those click here .

Benefits of 203(k) loans:

  • Gives you the ability to buy a "fixer upper" by financing the repairs
  • Expands your choices when looking to buy a home, and reduces missed opportunities.
  • You can get up to $35,000 cash out, and you may be able to finance more than the appraised value.
  • Have the ability to include the renovation of your current home when refinancing.

Conventional Loan

The conventional loan is likely one of the more common mortgage products, and is not insured or guaranteed by the government.

Conventional loans typically follow the guidelines set by Fannie Mae and Freddie Mac often referred to as Fannie and Freddie.

Conventional loans have a great number of benefits and offer a great degree of flexibility. Here are a few benefits of conventional mortgage products:

Benefits of Conventional Mortgage Products:

  • Down payment options as low as 3%
  • Fewer restrictions
  • Less strict appraisal and property requirements
  • Private Mortgage Insurance (PMI) can be waived after 20% equity is obtained.
  • Can be used to purchase an investment property or to flip a home.

30/15 Year Fixed Mortgage

The 30 year fixed rate mortgage is by far the most popular type of loan because of the length of fixed (static) interest rate. There's some draw backs of course, however for many people the benefits outweigh those.

Here's the idea behind this loan: if you were to purchase a home at a 4% interest rate, and on year 20 of 30 the interest rate jumped up to 15%, your loan would remain at the 4% rate.

Something to keep in mind here is that what we are discussing is the term of the loan. It's possible to have a 30 year fixed rate on a number of different mortgage products.

Here are the benefits:

Benefits of a 30 Year Fixed rate Mortgage:

  • Payments are affordable, and typically do not adjust over those 30 years*
  • Your interest rate will remain the same even when rates raise.
  • Easy to plan for financing.
*I have had an instance where property taxes were underestimated and the amount of money in escrow was short. This changed our monthly payment, however it later stabilized.

FHA Loan

The FHA loan is a mortgage insured by the federal housing administration (FHA).

The FHA is basically saying that they trust the research team (the underwriter and the appraiser) enough to insure the mortgage payments. This insurance makes this product very accessible, and is the reason why this mortgage product has so many financing and appraisal conditions.

Despite those challenges, this mortgage product is still very valuable, and here's why:

FHA Loan Benefits:

  • There's a large number of mortgage products that fall under FHA loans*
  • Make purchasing a home more affordable, and more attractive especially as a first time home buyer.
  • Allows for low down payments, and in some case that money doesn't even need to be "your money".
  • Refinancing is streamlined, easy, and often no income verification, appraisals or credit qualification is needed.
*For a more complete list of FHA loan products, visit this link

In Conclusion

We discussed some of the common mortgage products: FHA loan, 30/15 year fixed mortgage, and conventional loan.

We also highlighted a loan growing in popularity: the FHA 203(k) that can help you purchase a home that needs renovations and would otherwise not be purchasable.

All of these mortgage products are tools in your tool-belt that will ensure you're able to buy the right house whenever it comes up.

It would leave a sour taste in my mouth if you were to find the home you wanted and felt like you had no other option but to pass on it... believe me, I know that this is bad feeling.

There are a lot more mortgage products out there. They're constantly changing, and many of them we did not discuss. I want to once again encourage you to partner up with a knowledgeable lender and avoid the pitfalls and mistakes that too often happen.

Thankfully, I have given you a great thank you gift that is packed full of information and usefulness.

You also have US!

Sharp Homes logo.

Sharp Homes is a full service real estate agency located in the Kansas City Metro are, and brokered by eXp Realty, LLC.

We serve people who are looking to buy, sell or invest in a home for their future. We understand that this decision is an important, life altering decision.

It is easy to over pay or under sell your home.

We have streamlined, and tested process that has put us in the top 3% of all real estate agencies in the K.C Metro, and starts with a no obligation buying/selling consultation.

After your consultation, you will have the confidence and knowledge you need to buy or sell your home.

Click HERE to arrange your consultation.

* Disclaimer! In this post you will find links to some of the people with whom we have done business. We share these contacts with you because we believe that they are not only good people, but because they do good business. We receive absolutely no commissions or payments implied or otherwise for making these referrals. Buying real estate involves risk, and it is your responsibility to complete your due diligence on any vendor or contractor before entering into a business relationship with them. 


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