Mortgage FAQ

Minimum credit scores vary by loan type: Conventional loans typically require 620+, FHA loans accept 500-579 (with 10% down) or 580+ (with 3.5% down), VA loans have no official minimum but lenders often require 620+, and USDA loans typically need 640+. Higher scores (740+) get the best rates.

Down payment requirements: Conventional loans: 3-20% (3% minimum for first-time buyers), FHA loans: 3.5% minimum (10% with lower credit), VA loans: 0% down for eligible veterans, USDA loans: 0% down in eligible areas. A 20% down payment avoids PMI but isn't required.

PMI (Private Mortgage Insurance) protects the lender if you default. It's required when down payment is under 20% on conventional loans. Typical cost: 0.5-1% of loan amount annually. Ways to avoid: Put down 20%+, use VA loan (no PMI), or use piggyback loan (80-10-10). PMI automatically cancels at 22% equity or you can request removal at 20%.

30-year: Lower monthly payments, more flexibility, higher total interest. 15-year: Higher payments, lower rates (typically 0.5% less), much less total interest. Example: $300k loan at 7% - 30-year costs $465k total, 15-year costs $385k total. Many choose 30-year and pay extra when possible for flexibility.

Interest rate is the cost to borrow the principal. APR includes interest plus other costs (origination fees, points, some closing costs). APR gives a fuller picture of loan cost. When comparing loans, look at both - a lower rate with high fees might have a higher APR.

Common guideline: Housing costs shouldn't exceed 28% of gross monthly income. Total debts (including mortgage) shouldn't exceed 36%. Example: $75k income = ~$1,750/month for housing. However, your specific situation matters - consider your other expenses, savings goals, and emergency fund.

Typical requirements: 1) W-2s (last 2 years), 2) Pay stubs (last 30 days), 3) Tax returns (last 2 years), 4) Bank statements (last 2-3 months), 5) Investment/retirement account statements, 6) Employment verification, 7) Identification (driver's license, SSN). Self-employed need additional: business tax returns, profit/loss statements.

Closing costs typically 2-5% of loan amount. Include: Loan origination fees, Appraisal, Title insurance, Credit report fee, Escrow fees, Recording fees, Prepaid interest, Property taxes, Homeowners insurance. On $300k home, expect $6k-$15k. Some lenders offer no-closing-cost loans (higher rate instead).

Yes, but debt affects how much you can borrow. Lenders look at debt-to-income (DTI) ratio: monthly debts / gross monthly income. Most prefer DTI under 43%, some accept up to 50%. Student loans count even if deferred. Credit card minimums, car loans, and other obligations all factor in.

Consider refinancing when: 1) Rate drop of 1%+ (significant savings), 2) You'll stay long enough to recoup closing costs, 3) Want to shorten term (30→15 year), 4) Need cash for major expense (cash-out refi), 5) Want to remove PMI (with enough equity). Calculate breakeven: closing costs / monthly savings = months to recover.

Pre-qualification: Quick estimate based on self-reported info, no credit check, not a commitment. Pre-approval: Formal process with credit check and document review, lender commits to specific amount, stronger for sellers. Pre-approval shows you're serious and can afford the home.

Pre-approval: 1-3 days with documents ready. Full approval after offer: 30-45 days typical, can be 20-25 days with good preparation. Delays happen from: missing documents, appraisal issues, title problems, employment changes. Stay responsive and don't make major purchases during process.