FAQ

Appraisal

What is a home appraisal?

A home appraisal is an independent estimate of a property’s value. It’s ordered by the lender to confirm the home is worth the purchase price, helping ensure the loan is properly supported by the property.

What does it mean when the appraisal comes in below the contract price?

If you have an appraisal contingency in your sales contract, you can attempt to negotiate the price of the home lower. The seller does not have to accept that, and can void the deal, return your earnest money deposit, and put the property back on the market. For more on low appraisals read this blog.

Is the appraiser an employee of the mortgage lender, or are they a third-party vendor?

An appraiser is not an employee of the mortgage lender. They are always a third-party vendor. It’s a federal requirement. They do this to remove the relationship between mortgage lenders and appraisers, to enforce impartiality in assessing the value of a property.

How do I challenge a low appraisal?

Different lenders may have slightly different processes on how to challenge a lower appraisal. Most mortgage lenders are going to require that you come up with three new recent comparable sales that were not used in the appraisal. This may show the appraiser new data to see if they will adjust the evaluation. For more on challenging low appraisals read this.

What is a sales comparable in an appraisal?

A sales comparable (“comp”) is a recently sold, similar property used to estimate value. Appraisers compare the subject home to nearby properties with similar size, features, and condition to determine a fair market value. But determining what is comparable can be difficult, even for Realtors and appraisers. For more on this read this and this.

Assets

What type of assets am I allowed to use for down payment on a mortgage loan?

Most mortgage programs allow several types of assets for a down payment. Commonly accepted assets include checking and savings accounts, investment accounts, retirement funds (sometimes with restrictions), and eligible gift funds from approved sources, as long as they’re properly documented and sourced. Cryptocurrency can be difficult to document and use, but it may be possible to use. And you can use a loan against assets, like a loan against the 401(k) account, or a margin loan against an investment account. Read more details here.

What is the minimum down payment needed for an FHA loan?

3.5% down is the minimum down payment. Larger down payments may yield less expensive monthly mortgage insurance.

What is the minimum down payment needed for a VA Loan?

A veteran is allowed to have 0% down payment on a VA loan. A larger down payment may reduce the VA Funding Fee. You can see VA Funding Fee costs and information at this link.

Do I need 20% down to buy a home?

No, a 20% down payment is not required. Many loan programs allow lower down payments—such as 3–5% down for conventional loans, 3.5% for FHA, and 0% for VA—though putting less down may require mortgage insurance or higher monthly costs.

Should I borrow against my 401(k) account for a down payment on a home?

Borrowing from a 401(k) for a down payment has both pros and cons. A 401(k) loan does not count toward your debt-to-income ratio, which can make qualifying easier. However, it may reduce retirement growth and ties repayment to your employment. For some buyers, the trade-off can make sense if homeownership helps build long-term wealth and equity, but it should be evaluated carefully based on individual circumstances. Read this article for more details.

What are the guidelines to use gift money for a down payment on a new home?

Gift funds are allowed for down payments, but they must meet specific guidelines. Most loan programs require the gift to come from an approved source—such as a family member—and be documented with a signed gift letter and a clear paper trail showing the transfer of funds. The exact rules vary by loan type. Read this article to see all the detail details on gift rules by various loan type. And this article should be read related to tax implications on gift money.

Closing Costs

What is an origination fee?

An origination fee is a lender charge for processing a mortgage loan. It typically covers underwriting, document preparation, and administrative costs and is usually expressed as a flat fee.

How do closing costs work in the Washington DC metro?

In the Washington DC metro, closing costs can include lender, title, escrows for property taxes, and homeowners insurance, per diem interest, and state-specific fees. They typically cover items like lender charges, appraisal, title insurance, recording fees, and transfer and recordation taxes, depending on the transaction. Closing costs are paid at settlement. They sometimes can be negotiated to be paid by the seller. But there are dollar limits on seller credits, and it is a negotiation. In a seller’s market, they will not want to pay anything towards your closing costs.

Will I be required to purchase title insurance?

Yes, lender’s title insurance is required. It protects the lender against title defects or ownership issues, and buyers can also choose to purchase optional owner’s title insurance for their own protection. Click here for more articles on title insurance.

What are discount points?

Discount points are upfront fees paid to lower your interest rate. Each one point costs 1% of the loan amount and can reduce your rate, which may save money over time if you plan to keep the loan long enough. For more information, read this.

What is the difference between APR and interest rate?

The interest rate is the cost of borrowing, while APR reflects the total loan cost. APR includes the interest rate plus certain lender fees and points, making it a tool for comparing overall loan costs between offers. Read this for more details on APR.

If I can negotiate it, how much is a seller allowed to contribute towards my closing costs?

For conventional loans, sellers can typically contribute 3%–9% of the purchase price depending on down payment and occupancy. FHA allows up to 6%, VA up to 4% plus certain fees. Read the details here.

Credit

What credit score do I need for a Conventional loan?

Most conventional loans require a minimum credit score of 620. Higher scores generally qualify for better interest rates, lower fees, and more flexible approval guidelines. Be aware that minimum credit score requirements can change at any time, and different lenders may have different requirements.

What credit score do I need for an FHA loan?

FHA loans allow lower credit scores than conventional loans. You may qualify with a score as low as 580 with a 3.5% down payment, and in some cases with an even lower score with a larger down payment, depending on lender guidelines. Be aware that minimum credit score requirements can change at any time, and different lenders may have different requirements.

What credit score do I need for a VA loan?

VA loans do not set a minimum credit score. However, may have their own overlay guidelines. Most lenders look for scores at 620 or higher.

What is a rapid rescore, also called a credit rescore?

A rapid rescore is a fast update to your credit report. It allows lenders to work with credit bureaus to quickly reflect recent changes—such as paying down debt balances or correcting errors—potentially improving your credit score. Read more details here.

How does a monthly payment on a car loan affect my mortgage application?

A car loan affects your mortgage by increasing your debt-to-income ratio. Your monthly auto payment is counted as debt, which can reduce how much you qualify for or, in some cases, impact approval if your ratios are too high. Click here for all of the details.

How can I improve my credit score?

Improving your credit score comes down to a few high-impact habits. Pay all bills on time, reduce credit card balances to 30% or ideally 10% of the credit limit, avoid opening new accounts before applying for a mortgage, correct errors on your credit report, and keep older accounts open—these steps typically deliver the biggest gains over time.

Loan Approval

How does the mortgage loan process work?

It typically starts with pre-approval, followed by home shopping. Then you make an offer and provide the signed sales contract to your mortgage loan officer. After that come underwriting, appraisal, final approval, and closing—where the loan is funded and ownership is transferred.

What are the various stages of Mortgage loan approval?

Mortgage approval happens in several key stages. It typically includes pre-approval, loan application, underwriting review, conditional approval, final approval (clear to close), and closing. Each step verifying information and reducing risk before the loan is funded. For more details, read this.

How do I start a mortgage loan application?

You can start a mortgage application in just a few steps. Begin by completing a loan application—usually online. You’ll provide basic financial information such as income, assets, and credit history. Then you’ll upload supporting documents. Once submitted, your lender reviews the details and guides you through next steps.

What are the loan approval conditions?

Loan approval conditions are specific items required before final approval. They usually include documents or actions such as income questions, assets sourcing and large deposits, appraisal, title documents, and insurance review. Once all conditions are satisfied, the loan can move to closing.

How do I get pre-approved, and what constitutes a valid pre-approval?

You get pre-approved by completing a full loan review. A real pre-approval means a lender has reviewed your credit, income, assets, and debts—not just run a quick credit check. If your mortgage loan officer says your loan has been underwritten up front, then you have a valid pre-approval. Then the lender issues a written pre-approval subject to a property appraisal, title work, and final conditions.

What can make a mortgage loan application get rejected?

Mortgage applications are usually rejected due to financial or documentation issues. Common reasons include low credit scores, high debt-to-income ratios, unstable income, insufficient assets, appraisal problems, or missing or unverifiable documentation.

What steps can you take to overcome a mortgage loan rejection?

Many loan rejections can be overcome with the right steps, but may take time. This may include improving your credit score, paying down debt, increasing savings, correcting errors, providing additional documentation, or adjusting the loan program or purchase price with guidance from a mortgage loan professional. Read more details here.

What is a debt-to-income ratio?

A debt-to-income (DTI) ratio compares your monthly debts to your gross income. Lenders use it to assess affordability by dividing total monthly debt payments, including your new mortgage payment, by gross monthly income.

What’s the difference between pre-qualified and pre-approved?

Pre-qualification is an estimate; pre-approval is a verified review. Pre-qualification is based on self-reported information, while pre-approval involves reviewing documentation for credit, income, and assets and results in a stronger, more reliable pre-approval letter. Most sellers insist on a pre-approval letter.

Should I ever waive my contract contingencies?

Waiving contingencies can strengthen an offer but increases risk. It should only be considered after careful review of your finances, inspections, and loan approval. And with guidance from your real estate and mortgage professionals. Click here for more detail on waiving contingencies, such as financing, appraisal, condo review, home inspection, etc.

Can I use my retirement account as income for a mortgage

Yes, retirement accounts can sometimes be used as income for a mortgage. Lenders may allow qualifying income to be calculated from eligible retirement assets—such as IRAs or 401(k)s—by determining a sustainable monthly distribution, even if you’re not currently taking withdrawals. Eligibility depends on loan type and documentation. Read this for more details.

Loan Types

Is a 15-year mortgage worth it?

A 15-year mortgage can be worth it if you want to pay less interest overall. It usually offers a lower interest rate and builds equity faster, but comes with higher monthly payments compared to a 30-year loan.

What is a jumbo loan?

A jumbo loan is a mortgage that exceeds conventional conforming loan limits. These loans are used for higher-priced homes and typically require stronger credit, higher income, and larger reserves than conforming loans.

What is Private Mortgage Insurance (PMI)?

Private Mortgage Insurance (PMI) protects the lender, not the borrower. It’s typically required on conventional loans when the down payment is less than 20% and allows buyers to purchase a home with a lower down payment, though it adds to the monthly cost.

How do I get rid of Private Mortgage Insurance (PMI)?

PMI can be removed once you reach sufficient equity. On most conventional loans, PMI is automatically canceled when your loan balance reaches 78% of the home’s original value, or you can request removal at 80% with an appraisal and a good payment history. Read this for more detailed information on getting rid of your mortgage insurance.

What’s an Adjustable Rate Mortgage (ARM)?

An Adjustable Rate Mortgage (ARM) has an interest rate that can change over time. It typically starts with a fixed-rate period, then adjusts periodically based on market conditions, which can cause payments to increase or decrease. For all of the details, read this.

Can You Get A Bank Statement Mortgage In The Washington DC Area?

Yes you can. This is a type of non-QM (non-qualified mortgage) that lets you qualify based on your bank statements instead of traditional income documents like W-2s, pay stubs, or tax returns. Lenders will review 12–24 months of personal or business bank statements to verify your income and determine eligibility, though requirements (like down payment, credit score, and documentation) can vary by lender. More details are here.

What are DSCR Loans for Real Estate Investors?

DSCR loans are mortgages designed for real estate investors. They qualify borrowers based on the property’s cash flow—using the Debt Service Coverage Ratio (DSCR)—rather than personal income, making them popular for rental and investment properties. More details here.

Rates

What should I be looking out for when shopping mortgage rates?

Focus on the full cost of the loan—not just the headline rate. Compare interest rate, APR, points or lender fees, lock terms, loan program details, and whether the quote is based on a fully underwritten scenario to ensure you’re comparing apples to apples. Read this article for more details.

How frequently do mortgage interest rates change?

Mortgage interest rates technically can change multiple times per day. They usually adjust once a day, even if it is just a small amount up or down. Mortgage rates are driven by financial markets—mostly the bond market. They can move based on economic data releases, inflation reports, Federal Reserve signals, and overall market sentiment. That’s why the rate you see in the morning may not be the same one available later in the day.

What is a mortgage rate lock-in?

A mortgage rate lock-in locks your interest rate for a period of time, protecting you from market increases while your loan is processed. It is typically for 30–60 days, though longer lock periods may be available. Read more details here.

What is APR when looking at a mortgage rate quote?

APR shows the total cost of a mortgage, not just the interest rate. It combines the interest rate with certain lender fees and points, helping you compare loan offers on a more standardized, apples-to-apples basis. You can read this article and this article for more details on APR.

What is the average interest rate historically?

Historically, mortgage interest rates have averaged around 6–6.5% over the long term. Rates have fluctuated widely over time. Rates have ranged from the low single digits in the early 2020’s to double digits in the early 1980’s. However, over many decades, the long-term average falls in that mid-single-digit range. Click here to see a historical chart and more analysis.