Mortgage FAQ

PMI (Private Mortgage Insurance) is an additional monthly fee required when your down payment is less than 20% of the home's value. It protects the lender not you in case of default. You can avoid PMI by: (1) putting at least 20% down, (2) choosing a VA loan (no PMI required), (3) using a piggyback loan structure (80/10/10), or (4) requesting PMI cancellation once your loan balance reaches 80% of the home's original value.

Credit score requirements vary by loan type: conventional loans typically require a minimum score of 620, FHA loans accept scores as low as 580 (with 3.5% down) or even 500 (with 10% down), and VA loans have no official minimum but most lenders prefer 620+. Higher scores qualify you for better interest rates a score of 740+ generally gets you the best available rates.

Down payment requirements depend on the loan type: conventional loans require 3%20%, FHA loans require as little as 3.5%, and VA and USDA loans may require 0% down. While a 20% down payment helps you avoid PMI on conventional loans, many buyers qualify with much less. First-time buyer programs and down payment assistance can also help reduce the amount you need upfront.

FHA loans are government-backed by the Federal Housing Administration and offer more flexible qualification requirements lower credit score minimums (580+) and lower down payments (3.5%). However, they require both upfront and monthly mortgage insurance premiums (MIP). Conventional loans are privately insured, typically require higher credit scores (620+), and only require PMI if your down payment is below 20%. Once you reach 20% equity, conventional PMI can be cancelled, while FHA MIP often lasts the life of the loan.

Closing costs are fees paid at the final step of a real estate transaction. They typically include loan origination fees, appraisal fees, title insurance, attorney fees, prepaid taxes, and insurance escrow. On average, closing costs range from 2% to 5% of the loan amount. For a $400,000 home, that's roughly $8,000$20,000. Some costs can be negotiated, and in certain market conditions, sellers may agree to cover a portion of the buyer's closing costs.

Mortgage points (or discount points) are optional fees paid at closing to lower your interest rate. One point typically costs 1% of the loan amount and reduces your rate by about 0.25%. For example, on a $400,000 loan, one point costs $4,000. Buying points makes sense if you plan to stay in the home long enough to recoup the cost through lower monthly payments. Use our calculator to find your break-even point and decide if points are worth it for your situation.

A common guideline is that your total monthly housing costs (principal, interest, taxes, and insurance PITI) should not exceed 28% of your gross monthly income, and your total debt payments (including car loans, student loans, etc.) should stay below 36%. However, affordability depends on your individual circumstances savings, lifestyle, and financial goals. Use our affordability calculator to get a personalized estimate based on your income, debts, and down payment.

A fixed-rate mortgage locks in one interest rate for the entire loan term (typically 15, 20, or 30 years), giving you predictable monthly payments. An Adjustable-Rate Mortgage (ARM) starts with a lower fixed rate for an initial period (e.g., 5, 7, or 10 years), then adjusts periodically based on market rates. ARMs can be a good choice if you plan to sell or refinance before the adjustment period, but they carry the risk of higher payments if rates rise. Fixed-rate mortgages offer stability and are generally recommended for long-term homeowners.

When comparing mortgage rates, always look at the Annual Percentage Rate (APR) it includes both the interest rate and fees, giving you a more accurate cost comparison. Request Loan Estimates from at least 34 lenders within a 14-day window (this counts as a single credit inquiry). Compare the interest rate, APR, origination fees, discount points, and estimated closing costs. Even a small rate difference (0.25%) can save you thousands over the life of the loan.

Yes, you can qualify for a mortgage with student loan debt. Lenders look at your debt-to-income ratio (DTI) the percentage of your gross income that goes toward monthly debt payments. Most lenders prefer a DTI below 43%, though some programs allow up to 50%. If your student loans are on an income-driven repayment plan, lenders may use the actual payment amount rather than the full amortization amount. Paying down other debts and increasing your income can improve your chances of approval.