Mortgage FAQs

Pre-qualification is a rough estimate based on numbers you report yourself. Pre-approval verifies your income, assets, debts, and credit, and gives you a conditional commitment for a loan amount. Sellers take pre-approval far more seriously, and it tells you what you can actually borrow before you fall for a house outside your range.

It depends on the program. FHA loans require 3.5% down, conventional loans can go as low as 3%, and VA and USDA loans require $0 down for eligible borrowers. Down payment assistance may cover part of that amount if you qualify, and your lender can show you the real cash needed for your price point.

FHA loans often allow scores as low as 580 with 3.5% down, and sometimes lower with a larger down payment. Conventional loans generally want higher scores, and a higher score usually means a better rate. If your score is close, a short plan to pay down balances and avoid new credit can make a real difference.

Closing costs cover lender fees, title work, recording, prepaid taxes and insurance, and escrow deposits. In Florida, a common planning range is 2% to 5% of the loan amount. Your lender must give you an estimate early, and a final closing disclosure at least three business days before closing.

An escrow account is a holding account your servicer uses to pay your property taxes and homeowners insurance on your behalf. Part of each monthly payment goes into escrow so those big annual bills are covered when they come due. Your lender estimates the amounts at closing, and the balance is reviewed each year and adjusted if taxes or premiums change.

Locking fixes your rate for a set period, usually 30 to 60 days, so market moves cannot raise it before closing. Floating leaves you exposed to rate changes, which can help if rates fall but hurt if they rise. Most buyers lock once they have a signed contract and a closing date, because the risk of a higher payment usually outweighs the chance of a small improvement.

A discount point is prepaid interest equal to 1% of the loan amount, paid at closing to buy your rate down. One point typically lowers the rate by about a quarter of a percent, though the exact effect varies by lender and market. Points are worth it when you stay in the loan long enough for the monthly savings to pass the upfront cost — your lender should show you that break-even math before you decide.

DTI compares your monthly debt payments to your gross monthly income. Lenders look at two numbers: your housing payment alone, and all of your debts together. Conventional loans often cap total DTI around 45% to 50%, while FHA loans can allow higher ratios with compensating factors like strong reserves or credit. Paying down a car loan or credit card before you apply can move your DTI more than you might expect.

Reserves are the savings and assets you still have after closing, measured in months of mortgage payments. Lenders like to see that you are not drained to zero at the closing table, because life keeps happening after you move in. Requirements vary by program and risk, but two to six months of reserves is a common expectation — retirement accounts often count at a discounted value.

A typical purchase closes in 30 to 45 days from a signed contract, though some files close faster and some take longer. The timeline depends on the appraisal, title work, underwriting, and how quickly you return requested documents. Delays usually come from missing paperwork, appraisal issues, or late changes to the file, so responding to your lender the same day keeps things on track.

An appraisal gap means the home appraised for less than your contract price. The lender will only lend on the appraised value, so you must cover the difference in cash, renegotiate the price, ask for a reconsideration of value with better comparable sales, or walk away if your contract allows it. A strong offer includes a plan for this possibility before you ever reach the appraisal.

Private mortgage insurance protects the lender when you put less than 20% down on a conventional loan. It can usually be removed once you reach 20% equity — by request, by a new appraisal, or by refinancing — subject to your servicer's rules. FHA mortgage insurance, by contrast, usually lasts for the life of the loan, which is one reason conventional loans can be cheaper over time for strong-credit buyers.

The VA funding fee is a one-time fee that helps keep the VA loan program running without a down payment or monthly mortgage insurance. It is usually a percentage of the loan amount based on your service history, down payment, and whether you have used the benefit before, and it can often be rolled into the loan. Veterans with a service-connected disability rating are exempt, and some surviving spouses are exempt as well.

Divide your total refinance costs by your monthly savings to get the number of months until the refinance pays for itself. If the costs are $4,500 and you save $150 a month, your break-even is 30 months. Refinancing makes sense when you plan to keep the loan well past that point — and less sense if you might move or refinance again before it.

A cash-out refinance replaces your current mortgage with a larger one and gives you the difference in cash, with a new rate and term. A HELOC is a separate revolving line of credit secured by your home, usually with a variable rate, that you draw on as needed. A cash-out refinance often fits a large one-time need, while a HELOC fits ongoing or flexible borrowing — but both put your home on the line, so borrow only what the payment truly supports.

The interest rate is the cost of borrowing the principal, while the annual percentage rate (APR) adds lender fees and other costs into one yearly figure. APR is useful for comparing loans side by side, but it is not the rate your payment is based on. When two lenders quote different rates and APRs, ask for the full fee breakdown so you compare the same costs, not just the same labels.

A bank offers only its own loan products, while a mortgage broker can shop many lenders and programs for the same borrower. Brokers often find better pricing or a program fit that a single bank cannot offer, especially for buyers with unusual income, credit, or property types. Either way, compare the rate, fees, and service together — the lowest rate with poor service can cost you the closing.

Expect recent pay stubs, W-2s, tax returns, bank and asset statements, a government photo ID, and documentation for any large deposits or debts. Self-employed borrowers will also need profit-and-loss statements and business returns. Gathering these early speeds up underwriting and prevents last-minute scrambles before closing.

Lenders usually average your adjusted gross income from the last two years of tax returns, which can be lower than your actual cash flow if you take large deductions. They may also ask for year-to-date profit-and-loss statements and business returns to confirm the income is stable or growing. If your deductions are heavy, talk to your lender before tax season — timing and documentation choices can change what you qualify for.

Yes, most loan programs allow gift funds from family members for part or all of your down payment, subject to program rules. The donor usually provides a signed gift letter stating the money does not need to be repaid, and the lender will paper-trail the transfer into your account. Conventional loans may require some of your own funds for larger down payments, so confirm the rules for your program before you count on a gift.

Most pre-approval letters are good for 60 to 90 days, after which your lender will refresh your credit and documents. If your finances change in the meantime — a new job, a new debt, or a big deposit — tell your lender right away, because the approval is conditional on the file staying the same. A refresh is usually quick if nothing has changed.