Most Asked Mortgage Questions & Answers
1. How much can I afford to borrow for a mortgage?
Lenders use your debt-to-income (DTI) ratio to determine how much you can borrow: usually 43–45% of your gross monthly income, sometimes up to 50% for stronger files. Consider your comfort and budget—not just the lender’s approval amount.
2. What credit score do I need to qualify?
Conventional loans require 620+ (for best rates, 740+). FHA may go as low as 580, VA/USDA typically 620. Higher scores mean lower interest and lower mortgage insurance.
3. What is the minimum down payment?
Conventional: 3% (first-time/affordable programs) or 5%. FHA: 3.5%. VA/USDA: 0% for eligible buyers. Higher down payments lower your payment and may eliminate private mortgage insurance.
4. What is debt-to-income (DTI) ratio, and how does it affect me?
DTI is your total monthly debt payments divided by your gross monthly income. Most lenders limit DTI to 43–50%. Lower DTI increases your chance of approval and often gets you better rates.
5. Can I qualify if I’m self-employed?
Yes—typically 2 years of filed tax returns, profit and loss statements, and sometimes business bank statements. Lenders use your averaged net income after business deductions to determine how much you can borrow.
6. Can I get a mortgage if I have student loans?
Yes. Your monthly payment is counted when calculating DTI. If you’re on an income-based repayment or your credit report shows $0, Fannie Mae will use 1% of your balance (if no payment is listed), Freddie Mac uses 0.5%.
7. How does my employment history affect my approval?
You usually need a 2-year job/income history in the same field. Recent grads can count time in school. Changes within the same career are usually fine, but changing industries may require extra documentation.
8. Can I get pre-approved before finding a home?
Yes! Pre-approval means the lender has reviewed your credit, income, and assets. A pre-approval letter shows sellers you’re a serious and qualified buyer.
9. What documents do I need for a mortgage application?
Generally: W-2s (2 years), pay stubs, bank statements (2 months), government-issued ID, and info on debts. Self-employed: tax returns and business documents. Using gifts? You’ll need a gift letter and proof of funds.
10. What is the difference between pre-qualification and pre-approval?
Pre-qualification uses self-reported info for a rough estimate. Pre-approval means the lender has reviewed your credit report and documents—making it much stronger for offers.
Loan Types, Programs & Costs
11. What is the difference between conventional, FHA, VA, and USDA loans?
Conventional loans are not insured by the government and have stricter qualifications. FHA loans (government-insured) allow lower scores/down payments. VA loans (for veterans/military) require no down payment or MI. USDA offers $0 down for rural homes and modest incomes.
12. What is PMI (private mortgage insurance), and when do I need it?
PMI is insurance for the lender (not you) required if you put less than 20% down on a conventional loan. It can be removed when you reach 20% equity, and is auto-removed at 78% LTV. FHA charges MIP, its own version of insurance.
13. What are HomeReady and Home Possible loans?
Fannie Mae’s HomeReady and Freddie Mac’s Home Possible are low-down-payment loans for low/moderate-income buyers (3% down, reduced PMI, flexible income rules, homeownership education required, and have income limits).
14. Are there special programs for first-time buyers?
Yes! Besides HomeReady/Home Possible, many states and cities have grants or second mortgage programs, sometimes with no repayment or a forgivable “silent” loan—plus, “first-time” usually means not owning a home in the past 3 years.
15. Can I get a mortgage with down payment assistance or a grant?
Yes, if you qualify by income or location. Many lenders accept these programs, which can provide grants or forgivable loans to help with down payment and closing costs.
16. What are closing costs, and how much should I expect to pay?
Closing costs include lender fees, appraisals, title insurance, and prepaid taxes/insurance. They usually total 2–5% of the home’s price. You’ll see them on your Loan Estimate and Closing Disclosure.
17. What are points, and should I pay them to lower the rate?
“Points” are up-front fees (1 point = 1% of loan) paid to lower your interest rate. Whether you should pay points depends on how long you’ll keep the loan—use a break-even calculator to decide.
18. Can the seller pay my closing costs or give a concession?
Yes, within limits: usually up to 3–6% of the price depending on loan type and down payment. For investment properties, the cap is usually 2%.
19. What is escrow, and why do I have to pay into it?
Escrow is a lender-managed account for property taxes and insurance—added to your monthly payment so bills are paid on time. Most lenders require this unless you have a large down payment.
20. How long does it take to close on a home?
Most closings take 30–45 days after a contract is signed. Quick closes (as fast as 2–3 weeks) are possible if you’re highly qualified and your lender is efficient.
Processes & Special Scenarios
21. What happens during the appraisal?
An independent appraiser reviews the property’s value, safety, and condition to ensure it meets lender and program requirements. If the appraisal comes in low, you may need to negotiate a lower sale price or pay the difference.
22. Can I use gift funds for my down payment?
Yes—HomeReady, Home Possible, and FHA allow all your down payment and closing costs to be a gift from a close relative or (sometimes) employer, with a signed gift letter and documentation.
23. Can I lock in my interest rate? When is the best time?
Yes, most lenders let you lock a rate for 30–60 days once under contract. The best time is when you are comfortable with the offered rate and sure of your closing timeline.
24. What can delay or derail my mortgage closing?
Common issues: credit changes (new debt or missed payments), large unverified bank deposits, job loss, appraisal discrepancies, incomplete paperwork, or significant credit score drop. Avoid major changes until after closing!
25. Should I get a fixed or adjustable-rate mortgage (ARM)?
Fixed-rate loans have the same payment for the life of the loan (most common). ARMs start low and adjust after a few years—potentially good if you won’t stay long, but risky if rates rise.
26. Can I refinance later if rates drop?
Yes! Refinancing lets you switch to a lower rate, shorter term, or remove PMI. You’ll need to re-qualify with credit, income, and sufficient equity.
27. Can I get a mortgage with a previous bankruptcy or foreclosure?
Usually after a waiting period—2 years (Chapter 13 discharge), 4 years (Chapter 7), or 4–7 years for foreclosure/short sale. Some programs/lenders allow exceptions for extenuating circumstances.
28. Can non-occupant co-borrowers help me qualify?
Yes: FHA and HomeReady permit a non-occupant co-borrower’s income on 1-unit (HomeReady for 2–4 units if LTV ≤95%). Their credit/debts count too.
29. How many properties can I finance with conventional loans?
Up to 10 residential properties, but many lenders place tighter overlays (often 4). Documentation and reserve requirements increase above 4 properties.
30. What if I buy a second home or investment property?
You’ll need a higher down payment (10%+ second home, 15–25% investment), higher credit, and more reserves. Seller-paid costs are capped at just 2% for investments.
31. What if my income comes from bonus, commission, or gig work?
You’ll usually need a two-year history (sometimes one year if stable) and supporting documents (pay stubs, tax returns, etc.). Gig/self-employed income must be stable and likely to continue.
32. Can I get a mortgage after Chapter 13 bankruptcy? What are the waiting periods?
Yes. HomeReady and Home Possible: 2 years after discharge, 4 years after dismissal. FHA may allow 1 year after filing for those making payments on time with court approval.
33. Can I buy a house if I recently changed jobs?
Yes—if the job is in the same field or is a career advancement. Probation is usually okay, but going from salary to commission/self-employed can complicate approval.
34. Can I rent out my home after buying it?
Generally, you must occupy the property for at least 12 months as your primary residence. After that, you can usually rent it out, but check your mortgage and HOA for restrictions.
After Closing
35. When will I get my deed/title?
You receive your deed at or soon after closing, recorded with your county. Title insurance protects your ownership rights against claims or defects.
36. How do I remove PMI?
Once you reach 20% home equity (based on original price or current appraised value after refi), you can request PMI removal. Lenders must remove PMI automatically at 78% loan-to-value (LTV).
37. What if I want to pay off my mortgage early?
Most U.S. mortgages (conventional, FHA, VA, USDA) have no prepayment penalty. You can pay extra principal whenever you like—just make sure your lender applies it to the loan balance.
38. How does escrowing property taxes and insurance work?
A portion of every payment goes into escrow for taxes and insurance. The lender pays your bills when due. This helps you budget and ensures nothing is missed.
Tip: Always consult with a mortgage professional or lender, as rules and requirements can vary by program, state, and over time.