Mortgage & Financing
Understanding mortgage options and the financing process is essential for both buyers and real estate professionals. Learn about loan types, qualification requirements, and what to expect.
Types of Mortgage Loans
- Down payment: 3-20% (PMI required under 20%)
- Credit score: 620+ (740+ for best rates)
- Debt-to-income: Usually 43% or less
- Conforming loans follow Fannie Mae/Freddie Mac guidelines
- Down payment: 3.5% minimum
- Credit score: 580+ (500 with 10% down)
- Debt-to-income: Up to 50% in some cases
- Requires mortgage insurance (MIP) for life of loan
- Down payment: 0% (no down payment required)
- No private mortgage insurance
- Competitive interest rates
- Funding fee required (may be financed)
- Down payment: 0% (no down payment required)
- Income limits apply (varies by area)
- Property must be in eligible rural area
- Guarantee fee required
- Down payment: 10-20% typically
- Credit score: 700+ usually required
- Stricter income and asset documentation
- Higher interest rates than conforming loans
How Lenders Evaluate You
- • Check your credit report for errors before applying
- • Pay down credit card balances
- • Avoid opening new credit accounts
- • Make all payments on time
- • Front-end DTI: Housing expenses / gross income
- • Back-end DTI: All debts / gross income
- • Pay off smaller debts to improve DTI
- • Consider increasing income sources
- • 20% avoids PMI on conventional loans
- • Explore down payment assistance programs
- • Gift funds may be allowed (with proper documentation)
- • Some loan types require as little as 3-3.5%
- • Two years of employment history typically required
- • Recent job changes may need explanation
- • Self-employed borrowers need additional documentation
- • Bonus/commission income may require 2-year history
APR (Annual Percentage Rate)
Interest rate plus lender fees, showing true cost of borrowing
LTV (Loan-to-Value)
Loan amount divided by property value. Affects PMI requirements
PMI (Private Mortgage Insurance)
Insurance protecting lender if borrower defaults. Required with <20% down
Points
Prepaid interest to lower rate. 1 point = 1% of loan amount
Escrow
Account holding funds for taxes and insurance, paid with mortgage
Closing Costs
Fees for loan origination, title, appraisal, etc. Usually 2-5% of loan
Pre-Qualification
Quick estimate of how much you may be able to borrow based on self-reported information.
Pre-Approval
Formal application with credit check and income verification. Results in a pre-approval letter.
Home Shopping
Search for homes within your approved budget with your pre-approval in hand.
Loan Application
Complete full application after offer is accepted. Provide all required documentation.
Processing
Lender verifies information, orders appraisal, and prepares file for underwriting.
Underwriting
Underwriter reviews file and makes approval decision. May request additional documentation.
Clear to Close
Loan is approved, closing documents are prepared, and closing date is scheduled.
Closing
Sign final documents, pay closing costs, and receive keys to your new home.
Interest Rates Change
Mortgage rates fluctuate daily based on market conditions. Always get current rate quotes from multiple lenders. Rates and programs mentioned here are for educational purposes and may not reflect current offerings.
Educational Content
This content is provided for educational purposes only and does not constitute professional advice. Rules and regulations vary by state. Consult with a licensed professional in your area for specific guidance.