A mortgage feels daunting until you realize there are only a handful of loan types and each one has a purpose with different tradeoffs.

Allow me to say something that you haven't heard before: you want to be in touch with specifically, a Mortgage Broker, not a retail lender, direct lender, mortgage banker, credit union, or your banking institution (any of these are good second opinions but not first).

Mortgage Brokers act as matchmakers: they submit your file to several wholesale lenders and compare rates, fees, and program guidelines. A bank or retail lender generally can’t “shop” your loan the same way because they’re limited to their own lending "menu" which is the best way to explain it.

‍Conventional

Most common and generally the most flexible and most selected. Conventional mortgages are great for buyers with average credit and stable income. They can be used for primary homes (and in many cases second homes, investment properties, and construction), and the minimum down payment is 3% if you qualify for the mortgage payment, of course.

You've likely heard the big milestone is 20% down because it usually avoids monthly private mortgage insurance (PMI) that is required when your LTV is above 80%. My mortgage insurance is $35 on my condo and I've owned it for two and a half years as I write this post. It was ballpark $135 when I first purchased it with minimum down. I'm fearless, I will never let mortgage insurance stop me, I hope you adopt the same mindset.

This monthly private mortgage insurance (PMI) payment is built into your monthly payment with you principal, interest, taxes, and property insurance and is marginal when looking at your monthly payment at large.

This is not the same as FHA’s mortgage insurance because conventional mortgage insurance can be removed later when you reach 20% equity (either through paying the loan down or appreciation, depending on the rules and your loan type). Conventional tends to be the simplest path with the smallest fees at origination but it does not have the lowest mortgage rates.

FHA

Exist to make buying more accessible, especially for buyers who need slightly more flexible underwriting for higher debt compared to many conventional options. FHA loans also offer lower mortgage rates than Conventional most of the time by roughly half a percent on average for 30-year fixed mortgages.

The important thing to understand is that FHA comes with two layers of mortgage insurance: Upfront Mortgage Insurance Premium (UFMIP) which is due at the time of the loan origination i.e creation and annual mortgage insurance that’s paid monthly in your monthly payment neither the upfront premium or monthly premium are optional or removable in their entirety, they only decrease or increase.

Now this is going to throw you off but stay with me, both FHA and Conventional loans have monthly mortage insurance premiums they pay, the difference is that Conventional allows their borrowers to not have any mortgage insurance with 20% down or more or apply to remove it on their current loans at 20% equity.

FHA loans do not allow you to opt out of either the upfront or monthly mortgage insurance. The upfront piece (UFMIP) is commonly around 1.75% of the base loan amount and is often rolled into the loan so you don’t have to bring that full amount in cash unless you desire but it does increase your financed balance if it's not paid at closing.

Mortgage insurance varies based on down payment, loan amount, and term. Mortgage insurance can change and sometimes does if your loan is sold to a new servicer or during a refinance. FHA also uses an FHA appraisal that can be more sensitive to certain property-condition items, because the home must meet requirements set by the Federal Housing Administration.

Keep in mind, when you refinance an FHA loan you may be required to pay another UFMIP, however, if refinancing within 3 years, a pro-rated refund credit from your old loan’s UFMIP may apply.

FHA Refinancing

I've been told that this refunded proration of the UFMIP previously paid at either the original FHA mortgage origination or the prior FHA refinance comes from the Federal Housing Administration and is not something that a lender can estimate or pull for you without an active refinance application.

The "FHA Streamline Refinance" is reportedly a process for existing FHA borrowers to lower interest rates with no appraisal, income, or credit checks, while a traditional FHA refinance requires full underwriting. Streamlines generally cannot include cash-out (max $500 some sources claim) and must result in a net tangible benefit.

VA

For eligible veterans, active-duty service members, and some surviving spouses a Department of Veterans Affairs mortgage is often the best value option because they can offer 0% down and no monthly mortgage insurance. However, VA loans typically include a VA funding fee, which helps keep the program running and ranges depending on the veteran.

A VA funding fee varies depending on factors like whether it’s your first VA loan or a subsequent use, whether you’re putting money down, and your category of service; many vets roll the funding fee into the loan, and some borrowers may be exempt (for example, certain disability-related eligibility rules).

VA appraisals follow VA guidelines (“minimum property requirements”), so the condition conversation can matter, but it’s usually manageable when you choose the right property and handle issues early.

USDA

Built for buyers purchasing in eligible areas (which can sometimes include suburban pockets, not just farmland) and who meet income limits for that area and household size. USDA can offer 0% down, which is why it’s so attractive for qualified buyers, but it also has its own fee structure.

Typically an upfront guarantee fee and an annual fee paid monthly so, like FHA, the rate alone doesn’t tell the whole affordability story. can be an amazing fit when the location and income requirements line up, especially for buyers who want a lower cash-to-close path and are open to a broader search radius.

Jumbo‍

Isn’t a “program” like FHA/VA/USDA it instead applies to those programs and simply means the loan amount is above conforming limits for whichever loan program, every program has a conforming loan for limit every county. It is affectionally referred to as a "Jumbo" mortgage after it surpasses this value.

Jumbo loans often require higher credit scores, more cash reserves, and down payment expectations can be higher depending on the lender and property type. Jumbo is a great option for high-income and or high-asset buyers who want to surpass these loan limits which are set each year.

The Mortgage Application Process: Hardest Part

What usually overwhelms buyers isn’t choosing the loan type it’s the “in-between” after you submit your mortgage application and begin shopping for a property. Pre-approval processes require many documents and it not only requires a lot of sourcing but a lot of patience. Your lender checks credit and reviews income, and assets to estimate your qualifications for a mortgage.

Eventually, you'll complete that and then once you enter the process to execute a purchase contract. If successful your lender moves into processing (collecting and verifying documents), then underwriting (the lender’s formal risk review), and the appraisal confirms value (and sometimes condition expectations depending on the loan).

This is why buyers feel like they’re being asked for “one more thing” or the "same thing" constantly because underwriting is essentially documenting the story of your finances and making sure nothing changed since you began. The fastest way to keep it smooth is to get the underwriter everything they need with haste, avoid new debt, keep bank activity clean and explainable, and don’t move money around without telling the lender because large deposits, undisclosed transfers, or sudden changes can cause delays.

Ready to begin? Give Sydney a call or text.