Mortgage FAQ

Last Updated: April 20, 2020

Our Mortgage FAQ will help you clear up all your home purchase questions.

Mortgage FAQ

I. Mortgage FAQ: General Information

1. What is a mortgage, and how does it work?

A mortgage is money borrowed from a financial institution (like a bank, or online lender) to buy a home. Like most other loans, you will need to secure it with collateral. For a mortgage, this is the home that is purchased. The value of the mortgage is equal to the sales price minus any money paid up-front (the down payment).

Paying off a mortgage is usually a long-term activity. Most lenders make mortgage agreements with payoff periods of 30, 20, 15, or 10 years. During the payoff period, the lender has possession of the deed to your home. If you were to pay the loan in full, the bank would transfer the deed to you. Should you stop paying the mortgage, the lender can take back the home (a process known as foreclosure).

2. What are the different types of mortgage loans?

There are several different types of mortgages. Mortgages will differ based on a few factors. These include the length of the loan term, the loan amount and interest rate terms, and if the government secures it or not. For a comprehensive overview of common mortgage types, check out this article.

3. Do I need mortgage insurance?

The simple answer is that it usually depends on your down payment. Generally, lenders require that a borrower has a down payment of at least 20% of the price of the property. If you can’t afford that much, the lender views the loan as a riskier investment. As such, they will insist that the borrower needs to get Private Mortgage Insurance (PMI).

PMI costs 0.5%-1% of the entire loan amount and will be rolled up into the monthly mortgage payment.

It is possible to avoid paying PMI without needing a 20% down payment in cash.

  • One standard method is to take out a second smaller loan that covers the down payment.
  • Another option to avoid PMI entirely is to purchase a smaller home where the 20% down payment is easier managed.

Homeowners may prefer to avoid PMI because it is difficult to cancel once applied to the loan. In some loans, the PMI may be removed once a certain amount of the loan’s principal is paid off.

4. Is mortgage insurance tax deductible?

In the past, you could deduct your mortgage insurance from your taxes, but not anymore. Due to the Tax Cut and Jobs Act (TCJA), you can no longer deduct PMI from your taxes. This has been true for the 2018 tax filings and will continue to hold for the foreseeable future.

Congress may revive this tax deduction for later tax years. (It has done so in the past.) To verify for sure, check out A before you file your taxes.

II. Mortgage FAQ: Mortgage Rates

1. How does mortgage interest work?

Mortgage interest is the annual cost of borrowing money from your financial institution (for example, bank, lender, credit union). The rate quoted is a percentage of the total mortgage loan. Mortgage interest is combined with your principal payment and paid every month until you pay the loan completely.

Mortgage rates are dependent on factors like economic trends and policy, and general investment activity. How much you will personally pay is influenced by your financial situation. For determining your rate, a lender will look at your:

  • credit history, including your payment history and any negative factors, such as collections and bankruptcies;
  • credit score;
  • debts owed;
  • employment history and income;
  • down payment;
  • assets, including cash reserves;
  • loan type, amount, and term;
  • where the property is located.

The above criteria form a profile of who you are as a borrower. The riskier you are, the more the loan will cost, and the higher your interest rates will be.

Various lenders may offer you different rates, depending on how they value specific criteria. Their overhead and operating costs may differ, and they will need to charge different rates to remain profitable. Thus, you should shop around when choosing a mortgage.

There are a few main types of mortgages that a lender will offer, and the interest rate will operate differently for each one.

  • A fixed-rate mortgage will have a constant interest rate for the length of the loan.
  • Adjustable-rate mortgages have an interest rate that will change when certain conditions are met.
  • Interest-only mortgages are an uncommon type of mortgage where the borrower pays only the interest for the loan term. At the end of the mortgage term, the borrower may refinance, or pay the principal in a lump sum.

Want to know more about each mortgage type? Check out this article for more information.

2. What is a fixed mortgage rate?

In a fixed-rate mortgage, the interest rate on the mortgage loan remains constant for a set period. This is usually the length of the loan but may be different depending on the terms in your mortgage contract. As a result, the contacted payments remain the same. It makes it easier to budget your finances for a long time. You can find more information about fixed-rate mortgages here.

Want to find out how much you could pay in interest throughout your fixed-rate mortgage? Try out our 15-year and 30-year fixed-rate mortgage calculators.

3. What is a floating mortgage rate?

A floating mortgage rate is the same as an adjustable or variable mortgage rate. The interest rate is variable because it tracks a market on a fiscal index, like the S&P 500.

For example, a mortgage with a floating rate of 4% may initially start at that rate. As the market it’s tied to goes up or down, the rate may rise or fall to match. Your monthly payments will change to reflect the fluctuating interest rate. A fixed-rate mortgage at 4% interest will have the same rate and monthly payments for the entire loan.

To learn more about floating rate mortgages, read this article.

Click here if you want to estimate the total interest paid with an adjustable-rate mortgage.

4. Are mortgage rates negotiable?

You can always try to negotiate interest rates with your lender. Your success will be determined by how much risk you carry as a borrower. Less risky borrowers have the following traits:

  • A solid credit score
  • Strong credit history
  • Minimal debt (or the right kinds of debt)
  • Has the cash for a 20% down payment
  • Sufficient income for the mortgage loan.

If you don’t meet the above criteria, you may be able to reduce your mortgage rates with mortgage discount points. The choice to use points may or may not be the better option.

5. What are points on a mortgage loan?

A mortgage point is equivalent to 1% of the mortgage amount. For a mortgage loan of $160,000, a point would cost $160,000÷100, or $1,600. Some lenders charge you one or more points when taking out a mortgage. Others charge no points at all.

Points come in two forms:

  • Discount points: this is prepaid mortgage loan interest. The more points paid, the lower the interest rate tacked onto your monthly payments. It’s sometimes referred to as “buying down the rate.” A zero-point loan will cost more than a loan with points. The degree to which you can lower your interest rate varies by lender, loan type, and mortgage market. A point will usually lower your interest rate anywhere between 1/8th and 1/4th of a percent. Discount points may not be recommended for homeowners who plan to move or refinance within a few years.
  • Origination points: these are used to pay the costs the lender incurs for processing the loan. They can be used to pay closing costs. You can negotiate origination points (also called loan discounts or maximum loan charges). Different lenders may charge different origination points based on their expenses related to loan processing.

III. Mortgage FAQ: Mortgage Payment

1. How to lower mortgage payments?

Lowering your monthly payments is not easy, but it is possible. Consider the following options.

  • Drop your Private Mortgage Insurance (PMI). If you’ve met the conditions for removing PMI (per your mortgage contract), do it. You may need to own 20% equity of your home. Once the conditions are met, contact your lender to find out how to remove the PMI. Your lender may not proceed with the removal otherwise.
  • Prolong the mortgage repayment term. Also known as re-casting or re-amortizing, it merely extends the length of your mortgage. It’s a relatively simple procedure that may not require refinancing. Many lenders will let you do this by paying a fee of about $250. Re-casting a 15-year mortgage to a 30-year one will have your monthly payments decreased. Re-amortizing will increase the total interest paid over the life of the loan. It is better suited for borrowers with a need for immediate cash flow.
  • Refinance your mortgage. Has the mortgage rate fallen since you took out your loan? If yes, and you are a well-qualified borrower, you could lower your monthly mortgage payments through refinancing. Your lender may require you to refinance to extend your loan to a longer term. This option requires substantial closing costs, usually around 3%-6% of the new mortgage principal. Your new interest rate may be rolled up into your new monthly payment. To see how much you can save by refinancing, check out this calculator.
  • Redo your home’s tax assessment. This option is best if you have strong reasons to believe that the current tax assessment on your home is too high.
    • First, gather your evidence you’ll need to support your claim. Supporting evidence can include information on recently sold homes in the area for benchmarking. You may consider having a qualified assessor evaluate the home as well.
    • Then file an appeal with your local assessment office. You may have to appear in person to state your case.
    • Once you have successfully appealed your case, it may be worthwhile to contact your lender to remove PMI (if applicable).

Property taxes vary by location. For a property tax of 1.5%, a $10,000 reduction in assessed tax value can save you $150 per year. If you have recently upgraded your home, you may want to avoid this option. A renovated kitchen, or new pool or another upgrade may have your home assessed at a higher value than before. Your taxes will go up, and so will your monthly payments.

2. How to pay off the mortgage faster?

Here are some ways to pay off your mortgage faster:

  • Shorten your loan term by refinancing. A 30-year loan term can be reduced to 10 or 15 years. Your mortgage payments will increase, but you will pay off the loan faster. This strategy is best if you are eligible for a lower interest rate, therefore paying less interest over the loan term. If you’re not sure if it makes sense to refinance, use this calculator.
  • Increase your monthly payments. Provided your loan doesn’t have a pre-payment penalty, you may be able to increase your payments each month. This is a more accessible alternative than refinancing. When making the payments, ensure that the extra payment is applied to the principal only.
    You can use our calculators to figure out your new monthly payment with the current interest rate. For a
  • Make extra payments. You should have the ability to add an extra payment outside of your monthly mortgage obligation. Consider adding principal-only payment each month, every few months, or once a year.
  • Make a lump-sum payment. If you came into a little extra money, why not apply it to your mortgage. You can make a once-off payment to the principal to bring down your mortgage debt.

3. When is the first mortgage payment due?

Upon purchasing a home, you will be given a date for which to close the mortgage. When the mortgage is closed, the transaction is completed, and the loan officially begins. Your first mortgage payment is due one month after the final day on your mortgage closing month. Let’s say your closing date is August 10th. Your lender will expect your first payment by October 1st.

4. Can I prepay my mortgage if I have extra money?

If your mortgage does not have a pre-payment penalty, it is possible. Some loans penalize you for paying off your mortgage within the first two to four years of the loan.

If you’re committed to prepaying your mortgage, here are a few ways you can do that.

  • Use an inheritance or windfall to apply a lump sum to the principal.
  • Make an extra mortgage payment once a year.
  • Increase your monthly payment amount (and specify the difference should go to the principal).
  • Use a combination of the points above.

Any extra payments that you make should apply to the principal. The goal of making additional payments is to gain equity in your home. With the way a mortgage is amortized, the bank is likely to apply most of the payment to the interest. Paying off interest does not increase your equity.

You should also review your finances to check if there are other places that your money should be used first. Pay off high-interest debts that are not tax-deductible (for example, credit card debt). It’s also recommended that you build your emergency fund and manage retirement accounts before funding a mortgage.

There may be legitimate reasons why you may not want to prepay your mortgage, including:

  • You have an extremely low interest rate. Some of us were lucky enough to lock in an interest rate of 4% or less for a 30-year mortgage. In that case, keep the mortgage, and use your extra cash somewhere else.
  • There is a better investment elsewhere. You may choose to place your cash in a vehicle with a better interest rate, like equities. Perhaps you realize that your savings account could do with a boost. Not sure how you should proceed? Our calculator can help you decide.

5. What do I do if I’m falling behind on mortgage payments?

No one wants to be in this position, but sometimes it does happen. If you are facing this reality, you have several options.

  1. Forbearance is an agreement between you (the borrower) and the mortgage lender. With forbearance, your mortgage lender agrees not to pursue its legal right to foreclose on your property. In return, you agree to a plan to become current on your mortgage payments within a specified time frame.
  2. Lump-sum repayment allows you to become current on your mortgage by paying your arrears to the lender at once. This usually requires a lot of money, so it may better suit you if you’ve received an inheritance or another windfall.
  3. Principal reduction. You may approach your lender and ask them to reduce the principal of the loan. This is a cost-effective measure for them and maybe more favourably receive than foreclosure on your home.
  4. Lowering monthly payments.
  5. Refinancing the loan.

Both options 4 and 5 were discussed in question one of the Mortgage Payment Questions.

Remember, if you find yourself in a situation where you are missing mortgage payments, you must act immediately.

6. Can you pay a mortgage with a credit card?

It’s not common, but you can do it, and it may be expensive. Most people receive limited benefits from paying a mortgage with a credit card.

Here are some of the issues that may come up with this process:

  1. Finding a third-party payment processor which will allow you to use your credit card to pay the mortgage. Many payment processors do not allow this.
  2. Choosing a credit card where the rewards received exceeds the cost of the payment processing fee. Anything less than this and it’s not worth it.
  3. The credit card balance should be paid in full each month. It would be better if you pay it before the statement closing date. This may protect your credit utilization ratio, and prevent your credit score from dropping.

If you can find a way to navigate each of these issues, you may be able to pay your mortgage using a credit card successfully.

7. Should I refinance my mortgage?

To refinance your mortgage means that you’re using a second loan to pay off your existing one. People use refinancing for many different reasons, like to:

  • Get a lower interest rate
  • Reduce the length of the mortgage
  • Change the type of mortgage (from adjustable-rate to fixed-rate, for example)
  • Access the equity in their home (for financing a large purchase or consolidating debt).

Remember refinancing means going through the loan process for a second time. There are some consequences to your credit history and score as a result. It’s best to consider carefully both your financial and living situations before refinancing. How much longer do you plan to use the house? How much money are you saving going through the refinancing process?

The cost of refinancing is not cheap. It can range between 3%-6% of the principal of the loan and can take years to recoup the costs. This is despite the extra savings or shorter term. Refinancing makes sense if you are going to stay in the home long-term.

That’s not to say refinancing is not the best decision. Finding ways to reducing debt, save money, build equity, and eliminate a mortgage payment is what savvy homeowners do. Make sure that your actions to refinance does not work against you buy, reducing your equity in the home. If you need help understanding if you can save money by refinancing, check out our calculator here.

IV. Mortgage FAQ: Questions to Ask Before Applying for a Mortgage

1. How much mortgage can I afford?

We have a tool for this! Check out our free calculator which can help you estimate how much house and mortgage you can purchase.

2. What credit score do I need to get a mortgage?

Your credit score is one of the major factors of whether you’ll be approved for a mortgage. It also affects the interest rate you’ll pay.

The minimum score you’ll need to qualify to buy a home with a mortgage varies with the type of loan being pursued. For example, the following minimum FICO score may be acceptable scored (in 2019) for each loan type listed

Loan TypeMinimum Score

500 – 570**
VA580 – 620
Conventional Mortgage620
Jumbo Loans680

*Will need a 3.5% down payment.

**Might be possible with a 10% down payment.

3. Can I get a mortgage with a low or no credit score?

Generally, you should work to have a FICO score of 620 or higher if you’re looking for a mortgage. If your credit score is less than 500, it’s better to raise it first.

It isn’t impossible, but very difficult to get an FHA mortgage with a score as low as 500. You will have to provide compelling evidence on other parts of your application to compensate for it. This evidence help should reduce the lender’s risk, which will increase your chances of getting approved. Consider doing the following actions:

  • Put down a sizeable down payment of 10% or more
  • Have a low debt-to-income ratio
  • Earn a high income
  • Carry no outstanding debt (especially no outstanding revolving debt, like credit cards)
  • Have a large amount of cash available in reserve
  • If you are renting, show evidence that you have been paying comparable amounts in rent on-time and in full.

If you lack credit history, consider using an alternative payment history to establish financial credibility. Your rent and utility payments can be used to establish a pattern. Then, select a lender who may be more flexible in the evidence they accept.

  • FHA mortgages let lenders use non-traditional payment histories to evaluate a borrower. Even with this, there are rules.
    • It must not show late or missed rental payments.
    • No more than one 30-day delayed payment to your creditors (for example, your car insurance agent or utility company).
    • There must be no collections on the account other than those related to medical incidents.
    • Debts, including the expected monthly mortgage payment, must equal 50% or less of your total income.
    • You must have a minimum of one month’s cash in reserve after settling the down payment and mortgage costs.
  • Small lenders may be more flexible when working with borrowers and non-traditional payment histories. They may have the bandwidth to walk you through the process and help recommend other programs for which you can qualify. Some borrowers turn to independent mortgage brokers, credit unions, online lenders, or local smaller banks for assistance.

4. How to get a mortgage with bad credit?

In general, you should apply for a mortgage with a credit score of 620 or higher. If your score doesn’t meet this criterion, it is possible to still qualify for a mortgage loan. You might be able to get an FHA mortgage with a 500 credit score if you have additional factors in your favor. This would include paying 10% down and showing other compensating factors (mentioned above in question 3).

It may also be worthwhile to work with a small lender, like a local bank or credit union. Their criteria may be more flexible.

It’s best to bring your credit score up before applying for a mortgage. Lenders see low credit score applicants as higher risks and charge them accordingly. Such mortgages are generally much more expensive than the mortgage of someone with a 620+ score.

5. How to apply for a mortgage?

There are two main phases of the mortgage process.

Before you apply

  • Verify your mortgage is in an acceptable range, and that your credit report has no errors.
  • Ensure that you are preapproved for a specific loan amount.
  • Review the mortgage type for which you will apply.
  • Do your research and prequalify your lenders. You should have a few short-listed for the application process.
  • Gather your loan paperwork.

Applying for the mortgage

  • Submit an application with each lender you have prequalified (time: 45-60 minutes per application). Submit all your applications around the same time so that they will collectively affect your credit score once.
  • Compare the offers received (time: several hours). The lender will evaluate your application (credit, income, and other factors) and send you a Loan Estimate. This estimate is a short (3 page) document that explains the main components of your loan. It’s a quick way to compare lenders, as it shows:
    • The loan’s interest rate
    • All closing costs required
    • If you will receive a fixed- or adjustable-rate
    • The monthly payment
    • How much cash is needed to close on the home
    • Expected principal paid off in five years.
  • Select a lender and stick with them (time: 5 minutes). Contact the lender that you chose and let them know that you are ready to proceed. They may ask you for fees to cover a credit report and appraisal.
  • Loan processing may take 2-3 weeks. The lender uses this time to scrutinize each part of your application. There may be requests for documentation and clarification. Prompt responses keep the process moving forward.
  • Underwriting the loan can take between 24 and 48 hours. At this point, the underwriter is assessing the risk in issuing a mortgage loan to buy the home. If more information is needed, they will let you know. Answer any request promptly.
  • Clearing the loan for closure usually takes up to 24 hours. The lender will send you the Closing Disclosure, a federally required form. You must receive this form three business days before the day you’re scheduled to close on the property. The Closing Disclosure explicitly lays out the final costs and other details related to your mortgage. It’s best to compare the closing disclosure to your loan estimate for changes and ask your lender for an explanation. This is the last step before closing on the loan, and your final chance to change your mind before closing.

6. What documents do I need to get a mortgage?

Some of the documents commonly requested in the mortgage process include:

  • The social security numbers (SSNs) of every borrower listed on the mortgage loan. You may be asked to verify this using a social security card, tax form, or another document with your SSN printed.
  • Proof of employment for the last two years or more. Your lender should let you know what is acceptable proof.
  • Proof of income. There are several ways to show this, including a couple of months of your most recent paystubs showing your year-to-date earnings.
    • Self-employment documents should be provided if you run your own business. Some examples are profit-and-loss (P&L) statements, balance sheets, and federal tax statements for the past two years.
  • Tax documents (W-2 statements and tax returns) for the last two years.
  • Proof of residence, like a utility bill, insurance bill, bank account statement, or ID. It must have your name and your address listed.
  • Bank account information. You may need to provide bank account statements or balances for all your liquid accounts: checking, savings, and money market.
  • Purchase agreement (also known as the real estate contract). Present a copy of your signed contract with the seller. This will also be needed for the underwriting and final approval of the mortgage loan.
  • Credit information.
  • Gift letters. This is only applicable if you will be receiving money from friends or family members for the down payment. They will need to provide a letter stating that this gift is not a loan, and is not expected to be paid back.
  • Itemized monthly expenses, like rent, groceries, credit card bills, student loans, and utilities.

There may be additional documents required, depending on your financial situation and the type of mortgage for which you applied. Your lender should provide a list of the specific documents needed.

7. Do I need to get pre-qualified for a mortgage?

Pre-qualification is different from pre-approval. In pre-qualification, your lender does a basic (and usually free) review of your financial situation. The result is that they let you know how much home you can afford. A seller will want to see that you’ve been pre-approved, and not pre-qualified.

It is not a commitment from the lender that they will give you the money. Pre-qualification does not guarantee that you will receive the amount of the loan. All it does is start a conversation between you and the lender.

In many cases, pre-qualification is the first step of the loan process, to be followed by pre-approval. Pre-approval is a more involved process, with firmer outcomes.

8. How to get pre-approved for a mortgage?

To be pre-approved is to be qualified enough so that sellers can take you seriously. It is a promise from your lender that you can borrow a pre-set amount of money at a specific interest rate. (The letter specifies the requirements for which this holds, like a property appraisal.) During pre-approval, the lender carefully reviews your credit and income information. (In comparison, pre-qualification does not usually consider one’s income.) This review allows them to make the claims in your pre-approval letter. Holding a pre-approval letter tells the seller and real estate agent that you are likely able to make a purchase based on the lender’s criteria.

Before starting the pre-approval process for a home loan, you should revise your credit score and credit report. This step helps set the expectation for the types of loans and interest rates you may receive. It will also allow you to correct any errors or problems on your credit report before looking for a home. You can get one free credit report from each of the three credit bureaus every 12 months.

The pre-approval process is quite simple. You will need to provide your lender with the information that they need, like:

  1. Income information. You should have your pay stubs, tax returns and W-2 for the last two years prepared, at a minimum. Other supporting documents which show any additional sources of income should be readied as well. Some examples include a second job, bonuses, overtime, social security payments, federal benefits for military service, alimony, and child support.
  2. Asset information. Your lender may want to know about cash and other assets that you own. This can include bank statements and investments owned. If you are receiving money from a family member that is not a loan, they will need to prepare a gift letter. This letter can be sent directly to your lender.
  3. Personal information. Bring a copy of your identification, like a driver’s license, state ID, or passport. You must also present your social security number for the lender to run a credit check.

9. How long does a mortgage pre-approval last?

The pre-approval process usually takes 2-4 weeks. Recently, automated underwriters can respond as soon as an hour or a day. For more accurate timing, consult your lender for more information about their pre-approval process.

10. How quickly can I get a mortgage?

The simple answer is it depends. Closing a home takes 30-45 days on average. Some mortgage processes are faster, and some are slower. Some lenders take their time throughout the process; others promise a speedy resolution. Loans usually process faster if you have all the desirable qualities your lender needs when submitting your application.

11. Do I need to use a mortgage broker?

You can choose to go through the mortgage process alone. However, there are some definite advantages to working with an experienced and qualified mortgage broker.

  • Saves you time and effort. Mortgage brokers have connections to a vast network of lenders with varying benefits.
  • Brokers have more access. Some lenders work with brokers exclusively. Your broker may also negotiate special rates from lenders based on the volume of business created. You may not have access to this information on your own.
  • Brokers can save you money. Along with negotiating special rates, your broker may negotiate with your lender to waive specific fees. You may save hundreds to thousands of dollars in the origination, application, and appraisal fees.

There may be good arguments for proceeding without a mortgage broker, especially if any of the following are true:

  • Your broker may not have your best interests in mind. Your broker must represent your interests above their own. Lenders pay brokers for the clients they bring, and the payment may depend on the value of the mortgage. Unfortunately, some brokers are motivated to maximize their compensation at the expense of your financial well-being.
  • They cannot negotiate a better deal. If you could have gotten the same results on your own, paying for a broker may not make sense. Research and see if the broker is getting you the best or the regular price.
  • You may be charged a broker fee. Brokers get paid either by the lender or the borrower (you). If you are responsible for the broker fee, this is an additional expense to factor into the overall mortgage cost. Perhaps the deal isn’t so great after taking this into account. If you continue with that broker, ensure all fees are clearly stated and explained before signing or beginning new work.
  • Your broker will not guarantee any estimates you receive from the lender. The lender will make the final mortgage offer based on the application you submit.
  • The lender you choose may work with principal borrowers only, so you cannot use a broker.

12. Why might I be denied a mortgage loan?

Here are the most common reasons that you may be denied a mortgage loan:

  • Your payment history shows too many late payments. This tells lenders you have a problem paying your bills on time. It also indicates that you may struggle to meet future payment deadlines. You can avoid this by sustaining a consistent record of on-time payments for the debt you hold. Maintain this both before and after you apply for the mortgage. The older the missed payments, the less effect they’ll have on your credit score, so start correcting this problem today.
  • A change in job status. Lenders like stability. They want to see that you’ve held a steady job for at least two years. Spotty employment histories make them nervous, which makes them high-risk applicants. You can avoid this by limiting how often you jump from job to job. In general, you should not have switched between three jobs in the last two years before applying. It is recommended that you wait until after you have been approved to change employers. If you have been unemployed, you should wait until two years after working again before trying to get a mortgage.
  • Red flags in your bank account. Suspicious activities include
    • Changing addresses or P.O. boxes often.
    • Sending and receiving wire transfers to locations with lax tax laws or with other negative affiliations (like terrorism).
    • Making significant cash transactions with entities that don’t typically take cash.
    • Having sequentially numbered money orders.

You can avoid this by paying attention to your bank accounts, and all income-related paperwork. When your lender asks for the information, provide it without haste.

  • You left out a few (bad) things. You can avoid this by being upfront about all debt, judgments against you, and other financial challenges you have. If not, you risk being disqualified for the loan later.
  • You recently received new credit. Opening new credit can reduce your credit score. Using this credit may raise your debt-to-income (DTI) ratio. (DTI is the portion of your gross monthly salary used to repay debt, as a percentage.) Lenders prefer your DTI to be 43% or less; any higher, and your mortgage is likely to be denied. You can avoid this by resisting the urge to make a financial decision that will increase your debt load. Don’t do anything that will result in a credit report inquiry.
  • You need more cash to close. Closing costs range from 2-5% of the principal. You can avoid this by acquiring the money to close before applying through saving or using your gift money.
  • The home appraisal estimate is off. The home’s value is assessed using the unbiased estimate of the appraisal. Your lender will require an appraisal to verify the home’s worth. If the appraisal is equal to, or a little higher than the sales price, there is no problem. Should the appraisal come in lower, then you have a problem. You can avoid this issue if you have the financial capability to make up the difference in cash. Another option is to negotiate the sales price with the home seller.
Roman Zelvenschi

I started a digital marketing agency Romanz Media Group Inc. 12 years ago. Running my own business quickly taught me the importance of cash flow. Making sales was not enough, I had to have money in the bank to pay the vendors, staff and personal bills.

During those early stages of the company I learned how to get creative with debt and to save on interest cost. I paid for everything I could with a credit card to both get more points and to extend the payment date by 25 days (credit card grace period). I then utilized a 0% balance transfer offers to rotate this debt.

I learned a lot during this process and made a lot of mistakes. My key lesson is that the most important part of being financially independent is how much I managed to save, rather than how much I earned. Staying disciplined with savings and tracking spending is not easy and I tried many different methods to stay on track.

FinancialFreedom.Guru is a side project where I and my staff are trying to share the practical knowledge on how to understand finances and to build wealth.