Mortgage 101
Everything you need to know about getting a mortgage — explained in plain English by The Loan Nerd team.
What is a Mortgage?
A mortgage is a loan that you use to buy or refinance a one to four unit single family home. The lender gives you the money to finance the home, and you agree to pay it back over time, plus interest. The home that you buy serves as collateral for the loan, which means that if you don’t make your payments, the lender can take your home.
How Do I Qualify?
Qualification for a mortgage is dependent on several factors:
- Credit score: Lenders will look at your credit score to determine your risk as a borrower. A good credit score is typically in the 680–760 range.
- Debt-to-income ratio (DTI): The percentage of your monthly income that goes towards qualifying debt payments. A good DTI is typically below 36%.
- Down payment: A larger down payment makes you a more attractive borrower and may qualify you for a lower interest rate.
- Employment history: Lenders want to see that you have a stable job history and are likely to make your mortgage payments on time.
- Assets: Lenders will want to see that you have enough assets to cover closing costs and other expenses associated with buying a home.
Get pre-approved before you start shopping for a home. Shop around for the best interest rate — rates can vary from lender to lender. Be prepared to provide documentation of your income, assets, and employment history.
What Are the Costs of a Mortgage?
In addition to monthly mortgage payments, there are other costs associated with buying a home:
Are You Ready to Buy a Home?
Buying a home is a big decision. Here are a few things to consider before you start the process:
- Do you have a stable job and income?
- Can you afford a down payment?
- Do you have a good credit score?
- Are you prepared for the unexpected costs of homeownership?
If you can answer yes to all of these questions, you may be ready to start looking for a home. If you’re not sure, it’s a good idea to talk to one of our loan officers — they can help you assess your financial situation and make sure you’re ready for the commitment of homeownership.
Credit Score & Income
Your credit score plays a major role in your mortgage qualification and the interest rate you receive.
- 740+ (Excellent): Best rates available. Most loan programs fully open to you.
- 680–739 (Good): Competitive rates. Most conventional and FHA programs available.
- 620–679 (Fair): FHA loans typically available. Rates will be higher.
- Below 620: Limited options. Talk to us — we can help you build a plan to improve your score.
Your income is a key factor lenders consider. They want to make sure you can afford your monthly mortgage payments even if your income changes. Lenders typically want your total housing payment to be no more than 28–31% of your gross monthly income.
How Much Do I Need to Put Down?
The answer depends on your individual circumstances and the loan program you choose. Here’s a general breakdown:
- Conventional loans: As low as 3% down for qualifying borrowers
- FHA loans: As low as 3.5% down with a 580+ credit score
- VA loans: 0% down for eligible veterans and active military
- USDA loans: 0% down for eligible rural and suburban buyers
- Jumbo loans: Typically 10–20% down required
Benefits of a Larger Down Payment
- Lower monthly mortgage payments
- Reduced total interest paid over the life of the loan
- Eliminate the need for Private Mortgage Insurance (PMI)
- Increased chances of getting approved and securing a better rate
Down Payment Assistance Programs
Our team is well equipped to assist families utilizing down payment assistance programs. We have experienced loan officers who can help you find the right program for your needs.
Types of Down Payment Assistance
Public Programs
- Government-appointed agency grants
- Forgivable subordinate financing
- Mortgage Credit Certificates (MCCs)
- State & local housing authority programs
Private Programs
- Nonprofit organization grants
- Employer assistance programs
- Builder & developer incentives
- Community homebuyer programs
A lower down payment means less money out of pocket upfront, which can increase your borrowing power and help you afford a better home. Making timely payments on assistance loans can also help improve your credit score over time.
Dos and Don’ts During Your Mortgage Process
Once you’ve applied for a mortgage, your financial profile is being monitored. Here’s what to do — and what to avoid — until closing day.
✅ Do These Things
- Continue making all current payments on time
- Keep your employment and income stable
- Keep bank account balances consistent
- Communicate openly with your loan officer
- Respond quickly to document requests
- Save all financial paperwork and statements
❌ Avoid These Things
- Don’t make large deposits without documentation
- Don’t open new credit cards or take new loans
- Don’t make large purchases (cars, furniture, etc.)
- Don’t change or quit your job
- Don’t co-sign a loan for anyone else
- Don’t let anyone run your credit unnecessarily
Buy vs Rent — Even When Rates Are High
If you’re a renter who wants to get into homeownership but fears today’s interest rates — this section is for you. The Loan Nerd team hears this concern every day, and here’s what we tell clients:
The Real Numbers Matter
Buying at $400K (6.5% rate)
- You build equity every month
- Fixed payment — no rent increases
- Tax deduction benefits
- Rate can be refinanced when rates drop
- “Marry the house, date the rate”
Continuing to Rent
- Zero equity built month to month
- Rents historically rise 3–5% annually
- No tax benefits
- Subject to lease changes and eviction
- Landlord builds equity, not you
Waiting for rates to drop before buying often means paying more in rent while home prices continue rising. Even at higher rates, buying now and refinancing when rates improve is often the smarter long-term financial move. Talk to our team — we’ll run the actual numbers for your situation.
Special Situations We Handle
Not every borrower fits neatly into a standard loan box — and that’s okay. Our team specializes in creative problem-solving for complex scenarios:
- Self-employed borrowers: Bank statement loans and P&L programs available
- Recent job change: We know how to document new employment correctly
- Credit challenges: We’ll build a plan to get you mortgage-ready
- Divorce or separation: Special programs and documentation pathways available
- Foreign nationals: Financing options for non-U.S. citizens
- Investment properties: DSCR loans based on rental income, not personal income
- Construction loans: Build your dream home with the right financing structure
- Reverse mortgages: For homeowners 62+ looking for retirement flexibility
If you have a situation that doesn’t fit the standard mold, call us. Our loan officers have decades of experience finding solutions that work. There’s almost always a path forward — we just need to find the right one for you.