Whether you’re a renter looking at ever-increasing rents or an experienced home buyer who is looking for a change, one thing is certain: you have questions. And that’s totally normal to have questions. For many people, their mortgage is their largest source of worry. But we’d like to settle those for you.
Question 1 – What is a Debt-to-Income Ratio?
A debt-to-income ratio is the proportion of your income that you owe to personal loans, vehicle loans, and revolving lines of credit (credit cards). How much of your paycheck goes to bills? In other words, how much is left over to pay your mortgage?
Your debt-to-income ratio is an indicator of your creditworthiness. Basically, do you have enough revenue coming in that you can pay your obligations plus the mortgage? For many people, a mortgage is the largest amount of debt they’ll ever take on, so banks will look at this ratio.
It’s different from your credit score or FICO score which forecasts your ability to pay based upon your activity from the past. Don’t let this scare you. You can always improve your FICO score and, according to Mortgage Technology, the average FICO score on closed loans is 730.
“67% of Americans have a good FICO score or better.” Experian
Question 2 – Do I Need to Be Pre-Qualified to Buy a House?
There is no legal requirement to be pre-qualified to buy a house, but it is a good screening process, with a soft credit check, to ensure you’re ready to buy your dream house.
To be positioned as a serious buyer, you want a pre-approval letter – a process that makes a hard inquiry on your credit and usually requires previous years’ tax returns and verification of income and assets. A pre-approval letter provides a more solid commitment from a lender.
In many real estate markets, sellers prefer buyers to have a pre-qualification or pre-approval letter before making an offer. Even though it’s not required, having one can strengthen your position as a buyer – especially in competitive markets.
“A mortgage pre-qualification can be useful as an estimate of how much someone can afford to spend on a home, but a pre-approval, often valid for 60 to 90 days, is more valuable.” Investopedia
Question 3 – What Kinds of Mortgage Loans Are Out There?
There are three main types of mortgage loans: conventional, jumbo, and government-insured loans. You have options.
Conventional Loans
Conventional loans are the kind most people think of when they hear “mortgage.” Your credit score should be at least 620 with a debt-to-income ratio of less than 45% (although some allow up to 50%). Some lenders only require a 3% down payment. However, private mortgage insurance (PMI) is required until equity reaches 20%. Conventional loans are provided by credit unions, banks, and other financial institutions.
Conforming conventional loans are governed by Fannie Mae and Freddie Mac but they are not government-insured loans. There are also non-conforming conventional loans.
“Non-conforming loans don’t necessarily meet these requirements and are not purchased or owned by Freddie Mac or Fannie Mae. Interest rates also tend to be higher on non-conforming loans.” Experian
Jumbo Loans
If you’re looking to upsize your house, a jumbo loan may be required. Jumbo loans exceed the Federal Housing Finance Agency’s (FHFA) annual limits. For 2025, that limit is $806,500. With that said, it can vary by county so you may want to check the interactive map.
Jumbo loans also require 10% down, a 720 FICO score, and a debt-to-income ratio of less than 36% (although some allow up to 43%). If you’re selling a home to buy a home, let your lender know that, too.
Government-Insured Loans
There are three main types of government-insured loans: VA, FHA, and USDA.
VA loans are offered to the military, veterans, and their families. VA loans generally require a 0% downpayment and have competitive interest rates. You’ll need a Certificate of Eligibility (COE) to begin the process. Unlike conventional loans, VA loans do not require private mortgage insurance (PMI). However, a one-time VA funding fee may apply, depending on your military status and down payment amount.
“Military past and present have a powerful benefit in the VA loan. You’ll be hard pressed to find other loan products that have the savings options and extended capabilities to buy homes as the VA loan. However, not every lender is proficient in the VA loan process.” MilitaryByOwner
Traditional FHA loans are offered to first-time homebuyers, require 3.5% down with Mortgage Insurance Premiums (MIP) for 11 years with a 10% down payment (longer if less), and allow you to finance closing costs. Your debt-to-income ratio should be under 43%. Don’t let that scare you, we can work on getting you in the right spot.
“Not all mortgage lenders like dealing with the red tape of government-backed loans, so you can only get an FHA loan from an FHA-approved bank, credit union or mortgage company.” Ramsey Solutions
USDA loans are offered to moderate-to-low-income homebuyers in eligible rural and suburban areas. Income limits vary based on local median income levels. They have a self-assessment tool to help you determine your eligibility. There are a few subtypes of USDA loans so if this looks like your dream loan, then let’s talk about it.
“To qualify, [USDA loan] applicants must be looking to finance a home in an eligible rural or suburban area. The home must be intended for use as their primary residence and the homebuyer’s income must fall below specific limits, which depend on local median income levels.” Experian
Get Peace of Mind Today
No matter where you are in your homeownership journey — whether you’re a first-time buyer, an investor, or simply looking for a new place to call home — Cyndee Easter can help you connect with a mortgage broker to help you.
Leave a Reply