Important Terminology in Mortgage Lending
Mortgage Score – A specialized FICO Score version (usually FICO 2, 4 or 5) that lenders use to evaluate the risk of lending for a mortgage. This scoring model has a different focus than the more commonly used FICO 8 or 9 used by retailers.
Down Payment – An upfront, partial payment paid directly by the buyer toward the purchase of a property
Closing Costs – Fees and expenses paid to finalize a mortgage (comprised of administrative, 3rd party, and prepaid costs to include loan origination fees, title insurance, appraisal fee, and property tax)
Debt-to-Income Ratio (DTI) – Total Monthly Debt (housing payment + credit card minimum payments + loan payments + child support) divided by Gross Monthly Income
Assets – Liquid funds such as money in checking, savings, money market accounts, Certificates of Deposit (CD’s), brokerage accounts, stocks, bonds, mutual funds, retirement accounts, real estate equity, vehicles
Reserves – Assets remaining after paying the down payment and closing costs
The first step in the Home Buying Process is getting pre-qualified.
Unless you are buying a property in cash, you’ll need a lender to provide a Pre-qualification Letter. This is an estimate of how much money you’re approved to borrow based on a preliminary review of your financials and credit.
The most common mortgage loan types are–
Conventional Loan – typical credit requirement of 620+, 3%-5% down payment, DTI Ratio of 45%-50%
Government-backed Loans
FHA (Federal Housing Administration) Loan – loan for a primary residence, typical credit requirement of 580+, 3.5% down payment, DTI Ratio under 50%
VA (Veterans Administration) Loan – loan for a primary residence, no down payment requirement, typical credit requirement of 620+, DTI Ratio of 41% or less
USDA (U.S. Department of Agriculture) Loan – for a primary residence located in a USDA-eligible rural or suburban area, for borrowers with household income that does not exceed 115% of the median household income for the area, typical credit requirement of 620+, DTI Ratio of 41% or less
Other typical requirements for a mortgage loan
- Employment – 2 years of steady employment (or self-employment) in the same field of work with income stability
- Assets – verifiable funds to be sourced for 2 to 3 months back
- Reserves – 2 to 3 months commonly required for multi-family and investment properties
Contact us to be connected with a preferred lender to begin the pre-qualification process.
Additional Credit Evaluation Resource
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