Mortgage FAQ

Most lenders use the 28/36 DTI rule: housing costs should not exceed 28% of gross monthly income, and total debt payments should not exceed 36%. Use our Home Affordability Calculator to get your personalized home price range based on your specific financial situation.

A DTI ratio below 36% is considered good for conventional loans. FHA loans allow up to 43% DTI in some cases. VA loans typically cap at 41%. Lower DTI ratios qualify for better interest rates.

Refinancing is typically worth it when you can lower your interest rate by at least 0.75%. The break-even point (closing costs divided by monthly savings) tells you how many months it takes to recoup costs. If you plan to stay longer than the break-even point, refinancing makes sense.

For conventional loans, 620 is the minimum credit score. FHA loans accept 580+ with 3.5% down, or 500+ with 10% down. VA loans have no official minimum, but most lenders prefer 620+. Scores above 740 get the best rates.

You do not need 20% down. FHA loans require as little as 3.5% down (credit score 580+). Conventional loans allow as little as 3% for first-time buyers. However, putting less than 20% down triggers PMI on conventional loans.

PMI (Private Mortgage Insurance) is required on conventional loans with less than 20% down. It protects the lender if you default. PMI can be removed automatically at 22% equity, or you can request removal at 20% equity by contacting your lender.

Most mortgage payments include four components called PITI: Principal, Interest, Property Taxes, and Homeowners Insurance. Some payments also include PMI and HOA dues. Always budget for the full PITI amount, not just principal and interest.

Property taxes are typically collected by your lender each month and held in an escrow account. Rates vary dramatically by state — from under 0.3% to over 2.2% of assessed value. Higher property taxes mean a higher monthly payment and lower buying power.

A 30-year mortgage has lower monthly payments but costs more in total interest. A 15-year mortgage has higher monthly payments but saves significantly on interest and builds equity faster. Choose 15-year only if the payment fits comfortably within the 28% housing ratio.

Pre-qualification is a rough estimate based on self-reported financial information. Pre-approval involves a full credit check, income verification, and underwriter review — giving you a specific loan amount you are approved for. Always get pre-approved before house hunting.

Yes, gift funds are allowed for down payments on most loan types. You will need a gift letter signed by the donor stating the money is a gift and not a loan that must be repaid. Some lenders require the giftor's bank statements as proof.

Closing costs typically range from 2% to 5% of the loan amount. They include lender fees, title insurance, appraisal, attorney fees, and prepaid items like taxes and insurance. You can sometimes negotiate for the seller to pay part of your closing costs.

It depends on your situation. FHA loans accept lower credit scores and smaller down payments, but require upfront and annual MIP (mortgage insurance premium) that may be permanent. Conventional loans have stricter credit requirements but PMI can be removed at 20% equity. Compare both options with a loan officer.

Closing costs typically range from 2% to 5% of the loan amount. They include origination fees, appraisal fees, title insurance, attorney fees, and prepaid taxes and insurance. On a $300,000 loan, expect to pay $6,000 to $15,000 in closing costs.

Most residential mortgages in the U.S. do not have prepayment penalties, especially if you pay extra toward principal. However, always check your loan documents. Making an extra mortgage payment each year can shave years off your loan term and save thousands in interest.

An escrow account is managed by your lender to hold funds for property taxes and homeowners insurance. Each month, part of your mortgage payment goes into escrow. When taxes or insurance premiums are due, the lender pays them on your behalf. This ensures these critical bills are paid on time.

The Federal Reserve sets the federal funds rate, which influences short-term interest rates. Mortgage rates are more closely tied to the 10-year Treasury yield and inflation expectations. When the Fed raises rates, mortgage rates often rise, but not always by the same amount.

An ARM has an initial fixed rate period (e.g., 5, 7, or 10 years), after which the rate adjusts periodically based on a market index. ARMs typically start with lower rates than fixed-rate mortgages but carry the risk of payment increases in the future. Best for buyers who plan to sell before the adjustment period.

In most states, you are not required to use a real estate agent, but it is highly recommended. Buyer's agents are typically paid by the seller's commission, so their services cost you nothing. They provide market expertise, negotiation skills, and handle complex paperwork.

Earnest money is a deposit made when you sign a purchase contract to show you are serious about buying the home. It is typically 1% to 3% of the purchase price and is applied toward your down payment or closing costs at closing. If the deal falls through due to a contingency, you may get it back.

The appraisal and inspection may identify required repairs, especially for FHA or VA loans. Common requirements include fixing safety hazards, repairing roof leaks, and addressing electrical or plumbing issues. The seller may agree to make repairs or provide a credit at closing.

Yes, you can buy a home with student loan debt. Lenders consider your DTI ratio, which includes student loan payments. If your total monthly debt payments are below 36% of your gross income (43% for FHA), you can still qualify. Paying down student loans before applying can increase your buying power.

A rate lock guarantees a specific interest rate for a set period (typically 30 to 60 days) while your loan is being processed. If rates rise during the lock period, your rate stays the same. Some lenders offer "float-down" options if rates drop significantly before closing.

The average time from accepted offer to closing is 30 to 45 days. FHA and VA loans may take 45 to 60 days. Cash purchases can close in as little as 2 weeks. Delays can occur due to appraisal issues, title problems, or financing complications.

A home inspection is a detailed examination of the property's condition by a licensed inspector. It is not required by law, but it is highly recommended and typically included as a contract contingency. The inspection can reveal hidden problems that may give you negotiating leverage or cause you to walk away.

An appraisal is a professional estimate of a home's fair market value, required by lenders to ensure the property is worth the loan amount. If the appraisal comes in lower than the purchase price, you may need to renegotiate, increase your down payment, or walk away (if you have an appraisal contingency).

Yes, but there is a waiting period. For Chapter 7 bankruptcy, FHA loans require a 2-year wait, conventional loans require 4 years. For Chapter 13, FHA allows purchase after 1 year of on-time plan payments with court approval. Rebuilding credit immediately after discharge is critical.

A direct lender (bank, credit union, or mortgage company) originates and funds loans in their own name. A mortgage broker shops multiple lenders on your behalf to find the best rate and terms. Brokers can save you time but may charge a broker fee.

Points (or discount points) are upfront fees paid to lower your interest rate. One point costs 1% of the loan amount and typically lowers the rate by 0.25%. Points make sense if you plan to stay in the home past the break-even point (points cost divided by monthly savings).

FHA loans require both an upfront MIP (UFMIP) of 1.75% of the loan amount (can be rolled into the loan) and annual MIP paid monthly. For loans with less than 10% down, annual MIP is permanent for the life of the loan. With 10%+ down and a 15+ year term, MIP drops off after 11 years.

Traditionally, no — most refinance programs require at least some equity. However, FHA has the FHA Streamline Refinance (no appraisal required) and USDA and VA have similar programs. HARP was discontinued but some lenders offer alternative programs for underwater borrowers.

You will need: 2 years of W-2s and tax returns, 30 days of pay stubs, 2 months of bank statements, proof of down payment source, photo ID, and explanation letters for any credit issues. Self-employed borrowers need 2 years of tax returns and a profit/loss statement.

A co-signer with strong income and credit can help you qualify for a larger loan or get approved if your own credit or income is marginal. However, the co-signer is legally responsible for the loan if you default, and the mortgage debt will appear on their credit report and affect their DTI ratio.

The FHA 203(b) is the standard FHA mortgage program. It allows down payments as low as 3.5% (credit score 580+) and has more flexible credit and DTI requirements than conventional loans. It also allows seller concessions up to 6% for closing costs.

Yes, but documentation is more complex. Most lenders require 2 years of tax returns showing consistent or increasing income. Some lenders offer "bank statement loans" that use 12-24 months of bank deposits instead of tax returns, but these typically have higher rates.

A jumbo loan exceeds the conforming loan limits set by Fannie Mae and Freddie Mac ($766,550 in most areas for 2026, higher in expensive markets). Jumbo loans typically require higher credit scores (700+), larger down payments (10-20%), and have slightly higher interest rates.

In most cases, your lender collects 1/12 of your annual property tax bill each month and holds it in an escrow account. When the tax bill is due (typically once or twice a year), the lender pays it on your behalf. You receive an annual escrow statement showing all transactions.

Most lenders offer a grace period (typically 10-15 days) with no penalty. After that, you may be charged a late fee. After 30 days, the missed payment is reported to credit bureaus, damaging your credit score. After 90+ days, the lender may start foreclosure proceedings. Contact your lender immediately if you anticipate payment difficulty.

Removing a spouse from a mortgage typically requires refinancing the loan in your sole name. The lender will require you to qualify based on your individual income and credit. Some loan servicers offer a "loan assumption" option, but this is rare and typically limited to specific circumstances.

VA loans are for eligible veterans, active-duty service members, and surviving spouses. They offer 0% down, no PMI, and competitive rates. There is a one-time VA funding fee (can be rolled into the loan), but no monthly mortgage insurance. A Certificate of Eligibility (COE) from the VA is required.

USDA Rural Development loans offer 0% down payment for eligible rural and suburban homebuyers with incomes up to 115% of the area median. They require a small upfront guarantee fee and annual fee, but no PMI. The property must be in an eligible rural area (many suburbs qualify).

A rate-and-term refinance changes your interest rate and/or loan term without changing the loan amount (except for closing costs). It is the most common type of refinance. If your home value has increased, you may also be able to do a cash-out refinance to access equity.

VA loans do not have a fixed DTI limit, but most lenders prefer 41% or lower. The VA uses a "residual income" calculation in addition to DTI — this looks at how much money you have left after all major expenses. Strong residual income can offset a higher DTI ratio.

Yes, but financing terms are different. Second homes typically require 10% down and have slightly higher rates. Investment properties require 15-25% down, have higher rates, and require stronger credit and reserves. Lenders also apply stricter DTI rules for non-owner-occupied properties.

A HELOC lets you borrow against your home equity as needed, like a credit card secured by your home. It has a draw period (typically 10 years) where you pay only interest, followed by a repayment period. HELOCs have variable rates and can be a flexible way to fund home improvements or consolidate debt.

A cash-out refinance replaces your current mortgage with a larger loan and gives you the difference in cash. It makes sense when you need a large sum for home improvements, debt consolidation, or other major expenses, and current rates are similar to or lower than your existing rate. Be careful not to deplete your home equity unnecessarily.

A fixed-rate mortgage has the same interest rate for the entire loan term, providing payment stability. An adjustable-rate mortgage (ARM) has a low fixed rate for an initial period (3, 5, 7, or 10 years), then adjusts annually based on a market index. ARMs are best if you plan to sell or refinance before the adjustment period ends.

Local tax assessors determine your home's assessed value, which may be based on recent comparable sales, replacement cost, or income potential. Assessed value is typically lower than market value. You have the right to appeal your assessment if you believe it is too high — contact your local assessor's office for the appeals process.

Mortgage recasting (or re-amortization) lowers your monthly payment after making a large lump-sum payment toward principal. Unlike refinancing, recasting keeps your same interest rate and loan term but recalculates the payment based on the new lower balance. It typically costs a few hundred dollars in fees.

It is possible but difficult. Lenders typically require 2 years of tax returns showing cryptocurrency as income. If you hold crypto as an asset, some lenders allow you to use it as down payment funds after converting to cash and documenting the source. Crypto volatility makes lenders cautious, so traditional employment income is much easier to work with.

HomeReady (Fannie Mae) and Home Possible (Freddie Mac) are conventional loan programs for low-to-moderate income borrowers. They allow as little as 3% down, offer reduced PMI, and accept non-traditional income sources like boarder income or rental income from a basement unit. Homebuyer education is required.

A good agent knows the local market, responds promptly, negotiates aggressively for you, explains the process clearly, and provides references from recent clients. They should listen to your needs rather than pushing you toward specific properties. Interview 2-3 agents before choosing one to work with.

Title insurance protects against financial loss from defects in the title (ownership) of the property — such as undisclosed liens, forged documents, or unknown heirs. There are two types: lender's title insurance (required, protects the lender) and owner's title insurance (optional, protects you). It is a one-time fee paid at closing.

Yes, mortgage rates are negotiable. Get quotes from at least 3-5 lenders and use the best offer to negotiate with your preferred lender. You can also ask for a "rate match" or "rate improvement" — some lenders will match a competitor's rate to win your business. This is called "shopping your rate."