Frequently Asked Questions

  • How do you get preapproved for a home loan?

    A mortgage preapproval shows sellers you are a serious buyer with the means to make a purchase. To get one, you’ll complete a mortgage application with a bank or broker. You will be asked to provide details about your finances and income, including pay stubs, tax documents, and bank statements. Note that this process differs from a mortgage prequalification, which is less stringent and requires less documentation.

  • What is an FHA loan?

    An FHA home loan is issued by a private lender and insured by the Federal Housing Administration (FHA). Because they are insured, these loans provide assurance to lenders that the loan will be repaid. They are intended for moderate- or low-income borrowers, and have several appealing features including small down payments, low credit score minimums, and assumability (which means a buyer can take over the loan, subject to lender approval).

  • What is the home loan interest rate?

    The home loan interest rate is the amount of interest charged by banks and other lenders for money borrowed to purchase a home. Rates change daily according to market forces, and the rate you may be charged for a loan when you buy a home will depend on your credit score and other factors. The Balance tracks current mortgage rates for several popular loan types, updated daily, which you can follow here.

  • What is a USDA home loan?

    This is a mortgage offered by the USDA or one issued by a private lender and insured by the USDA. Borrowers can use them to purchase, renovate, or refinance property in certain rural communities across the U.S. Direct USDA loans can be easier to qualify for than many other loans. Both types (direct and insured) have income eligibility requirements, and borrowers do not need to make a down payment.

  • What is a good credit score for a home loan?

    Your credit score is one of the most important factors in getting a home loan—and how much it will cost you. For conventional loans, required minimum credit scores range from 620 to 640, depending on the loan and the lender. Some loans backed by the U.S. government have lower minimum credit score requirements. For example, FHA-insured loans accept credit scores as low as 500, and VA-insured loans have no minimum requirements. 

  • How does the VA home loan work?

    A VA loan is a mortgage available to veterans, military members, and their spouses. These loans are guaranteed by the Department of Veterans Affairs and this extra protection for the lender encourages better terms and interest rates. However, the VA will only guarantee a portion of your loan (which the VA calls your “entitlement”), so individual lenders may institute their own maximum loan amounts to offset any lending risk.

  • How much of a home loan can I get?

    Ultimately your maximum loan amount will be determined by your financial situation (income, credit score, debt-to-income ratio, savings) and the property you want to buy. However, most lenders will follow lending caps set by the Federal Housing Finance Agency. Those caps limit the size of the “conforming” loans that lenders sell to Fannie Mae and Freddie Mac, the government-sponsored enterprises that purchase, aggregate, and resell mortgages. Maximum loan amounts vary by county and are recalculated annually.

Key Terms

Tips: making an earnest money deposit. Never give an earnest money deposit directly to the seller, obtain a receipt, authorize a release of your earnest money (or a pass-through) until your transaction closes, make the deposit payable to a reputable third party such as a well know real estate brokerage, legal firm, escrow company, or title company. Verify that third party will deposit the funds into a separately maintained trust account.
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