12 Mortgage Mistakes to Avoid (And How to Stay on Track)

Informational, List

Too often, we see borrowers who've unknowingly sabotaged their own mortgage applications with moves that seemed perfectly reasonable at the time.

The mortgage process isn't just about qualifying once and coasting to the finish line. From the moment you start thinking about buying a home until you're holding those keys, every financial decision you make is being watched, measured, and evaluated.

Understanding what not to do is just as important as knowing what you should do. That's exactly why we've broken down the 12 most common mistakes that derail home loan approvals — and more importantly, how to avoid them at every stage of your homebuying journey.

Before You Even Apply: Foundation Mistakes

1. Not Checking Your Credit Score First

Walking into the mortgage process without knowing your credit score is like going to a job interview without reading your own resume. You might think you know what's on there, but credit reports contain surprises — and not the good kind.

Many applicants make the mistake of not checking their credit score early in the process, according to American National Bank. The fix is simple but critical: Check your credit score at least six months before you plan to apply for a mortgage. This gives you time to address any discrepancies or improve your score if needed.

You can get your free annual credit report at annualcreditreport.com, but for active monitoring during your homebuying journey, consider services that provide monthly updates. Those few extra points you gain by fixing errors or paying down debt could save you thousands in interest over the life of your loan.

2. Skipping Pre-Approval

Skipping the pre-approval process can lead to disappointment and delays. Pre-approval gives you a clear idea of how much you can afford and shows sellers that you are a serious buyer.

In today's competitive market, cash offers and pre-approved buyers often win over those still figuring out their financing. Getting pre-approved isn't just about knowing your budget — it's about proving to sellers that you're not going to waste their time with financing delays or surprises.

Our first step process walks you through exactly what pre-approval involves and how to position yourself as the strongest possible buyer from day one.

3. Maxing Out Credit Cards

High credit card balances destroy both your credit score and your debt-to-income ratio — two critical factors mortgage companies evaluate.

The math that hurts you: If you owe $5,000 on a card with a $6,000 limit, you're using 83% of your available credit. Loan officers want to see that ratio below 30%, and ideally under 10% for the best rates.

Keep your credit usage low to get a better mortgage rate and stronger approval odds. Your credit utilization affects your score immediately, so paying down balances before you apply can make a real difference in your loan terms.

During the Application Process: Timing Is Everything

4. Making Large Purchases

Getting a new line of credit or buying big-ticket items like cars, furniture, or appliances changes your debt-to-income ratio (DTI). That new monthly payment affects your qualifying ratios.

Here's what happens: People with new debt have higher DTI ratios compared to their monthly income. Since higher ratios make for riskier loans, borrowers may no longer qualify for their home loan.

The temptation is real — you're excited about your new home and want to start planning. Resist the urge to splurge on furniture or appliances until after closing.

5. Opening New Credit Accounts

When multiple organizations run your credit report, it impacts your FICO® score. Lower credit scores can determine your interest rate and possibly even your eligibility for approval.

Every hard inquiry can drop your score by a few points. Multiple inquiries in different categories (like auto loans plus credit cards) compound the damage.

Smart strategy: If you need to shop for mortgage rates, do it within a 14 - 45 day window when multiple mortgage inquiries count as a single inquiry.

6. Changing Jobs

Why this matters: Switching employers or changing to a new pay structure affects your ability to repay the loan. Your mortgage lender will verify your employment just days before closing.

Without a guaranteed source of income, you could lose your entire approval. Even if your new job pays more, income changes require documentation and explanation that can delay closing.

The fix: If possible, avoid changing jobs during your mortgage application. If a job change is unavoidable, inform your loan officer immediately so they can assess how it affects your approval.

7. Moving Money Without Documentation

The problem: Any significant bank transfers, even between your own accounts, must be documented to comply with underwriting guidelines.

Large deposits especially raise red flags. An unusually large deposit may suggest your balance doesn't reflect your actual situation.

Before you move any money, speak with your loan officer. Even transferring your own funds between accounts creates paperwork headaches that can delay closing.

After Pre-Approval Through Closing: Don't Coast To the Finish Line

8. Co-Signing for Others

When you co-sign a loan, you become legally responsible for that debt. This increases your DTI ratio, even if you promise you won't make the payments.

From your loan officer's perspective, you're now responsible for both your mortgage payment and whatever you co-signed for. That favor for your college-bound kid or family member with credit challenges can torpedo your own mortgage approval.

Wait until after closing to help others with their credit needs.

9. Closing Old Credit Cards

Many buyers believe having less available credit makes them less risky and more likely to be approved. This isn't true. A major component of your score is your length and depth of credit history (as opposed to just your payment history) and your total usage of credit as a percentage of available credit. Closing accounts has a negative impact on both of those parts of your score.

Keep those old accounts open and active with small, regular purchases. Your credit score depends on both the length of your credit history and your total available credit.

10. Making Late Payments on Anything

Even a 30-day late on a $12 bill can derail your entire application. Payment history is a huge part of your credit score. Your payment history accounts for 35% of your credit score, according to FICO, so paying bills on time and in full can prime your credit before you file a mortgage application.

Set up autopay for everything during your mortgage process. Yes, even that small utility bill or subscription service. Lenders pull credit again right before closing, and any new late payments can halt everything.

11. Large Undocumented Deposits

Lenders generally require documentation for funds held in bank accounts to ensure transparency and accuracy in assessing your financial situation. Cash deposits are particularly problematic because lenders need to source your money, and cash isn't easily traceable.

Whether it's cash gifts from family, side income, or money you've been keeping under the mattress, get documentation before depositing anything substantial. Gift letters, deposit slips, and paper trails make everyone's life easier.

12. Not Communicating Changes Immediately

Transparency prevents disasters. Be upfront about any changes that occur during your mortgage process: income blips, asset changes, or credit issues should be reviewed immediately.

This is where having the right team makes all the difference. Consistent, honest communication with your mortgage loan officer can prevent most problems before they derail your approval.

Our experienced team has guided thousands of first-time homebuyers through every possible scenario. We'd rather troubleshoot a potential issue early than scramble to fix problems at closing.

Staying on Track: Your Action Plan

Getting organized early prevents most of these mortgage mistakes from happening in the first place. Our documentation guide walks you through exactly what you'll need and when you'll need it, so you're never caught off guard by last-minute requests.

The bottom line: The mortgage process doesn't have to be a minefield of potential mistakes. With the right preparation, clear communication, and a team that treats your homeownership goals seriously, you can navigate from application to closing without the stress and surprises that derail other buyers.

Ready to start your home loan journey the right way? Take the first step with confidence, knowing you've got guides who've seen every possible scenario and know exactly how to get you home.

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How Income, Assets, and Property Type Affect Your Mortgage Options

Informational

What Affects My Mortgage Options?

Breaking down how lenders assess risk and loan amounts

It's surprisingly common: successful consultants and other high-earners assume their strong income will guarantee approval for any property type they want.

What they often discover is that 1099 income documentation, combined with interest in properties like non-warrantable condos, creates a completely different lending landscape than expected. What seems like a straightforward purchase becomes a strategic puzzle requiring the right lender match and loan program selection.

This scenario highlights something we see regularly in our work with 40+ lenders: income, assets, and property type don't exist in isolation.

How lenders evaluate these three factors together determines:

Whether you get approved
Which loan programs you can access
What rates you'll qualify for
How smooth your closing process will be

Most borrowers focus on one element at a time "Do I make enough?" or "What property can I afford?" without understanding how these factors interact in lenders' risk assessment models.

After 27 years in the mortgage industry, we've learned that strategic borrowers who understand these connections consistently get better loan terms and smoother transactions.

The Real Risk Assessment Picture

When lenders evaluate your mortgage application, they're not checking boxes on income, assets, and property type separately. They're looking at how these three elements work together to create your overall risk profile.

The Income-Assests-Property Triangle

Your income demonstrates your ability to make monthly payments. Your assets show your financial stability and ability to weather unexpected circumstances. Your property type affects both the loan programs available and the risk level lenders assign to your transaction.

Key Insight: Each element can compensate for challenges in the others. Strong assets might offset irregular income patterns. Certain property types can actually enhance your qualification when you have the right income documentation.

We regularly see applications that get declined not because the borrower is unqualified, but because the wrong loan program was selected for their specific income-assets-property combination.

Common Mismatches We Encounter:

Self-employed borrower with significant assets struggling with traditional income-based programs (should explore asset-depletion lending)
Investor with steady W-2 income facing unnecessary hurdles buying a non-warrantable condo (needs portfolio lenders)
First-time buyer with excellent credit but limited assets choosing complex property types

Why Lender Perspective Matters

Different lenders have different appetites for various risk combinations:

Bank A: Specializes in self-employed borrowers but avoids condos entirely
Bank B: Loves condo transactions but requires traditional income documentation
Bank C: Offers asset-based programs but only for single-family properties

This is why working with a mortgage broker provides strategic advantages — we monitor which lenders are actively seeking specific borrower profiles and property types, helping you avoid the trial-and-error approach that wastes time and potentially impacts your credit.

Property Type Deep Dive: Beyond the Obvious Differences

Property type affects far more than most borrowers realize. It's not just about the purchase price or monthly payment—it influences which loan programs you can access, what documentation you'll need, and how lenders evaluate your entire financial picture.

Single-Family Homes: The Lending Sweet Spot

Single-family detached homes represent the safest bet for most lenders. You'll have access to:

Widest range of loan programs
Most competitive rates
Most flexible underwriting guidelines

Strategic advantage: If you're self-employed, have complex income, or limited assets, choosing a single-family home maximizes your loan program options and improves your negotiating position with lenders.

Condominiums: Navigating the Warrantable Divide

Condo financing splits into two distinct categories that create completely different lending experiences:

Warrantable Condos

Meet Fannie Mae and Freddie Mac guidelines
Qualify for most traditional loan programs
Financially stable condo association
Adequate reserves maintained
Key requirement: No single entity can own more than 20% of units in larger developments

Non-Warrantable Condos

Fall outside guidelines due to factors like:

High investor concentration
Insufficient HOA reserves
Unusual fee structures
Result: Require specialized lenders, higher rates, larger down payments (often 25-30%)

Pro Tip: Always verify condo warrantability status early in your property search. We encounter situations where borrowers fall in love with a specific condo unit without realizing it's non-warrantable until they're deep into the loan process.

Investment Properties: When Everything Changes

Investment property transactions operate under fundamentally different rules:

Down Payment Requirements:

Investment properties: 20-25% minimum
Primary residence: 0-5% possible

Credit Score Standards:

Investment properties: 680+ typically required
Primary residence: 580+ often acceptable

Interest Rate Pricing:

Investment properties: +0.50-0.75% premium above standard rates
Primary residence: Standard market rates

Cash Reserve Requirements:

Investment properties: 6+ months of payments required
Primary residence: Often not required

What we see work: Borrowers with strong W-2 income and substantial assets often find investment property financing straightforward. Self-employed investors or those with complex income structures may need specialized portfolio lenders or alternative documentation programs.

Condotels and Mixed-Use: Specialty Territory

Properties that combine residential and commercial use, or condos that operate as short-term rentals (condotels), require specialized financing approaches.

Important note: These properties typically don't qualify for conventional financing and need portfolio lenders who keep loans in-house rather than selling them to Fannie Mae or Freddie Mac.

Income & Asset Strategies for Complex Situations

The mortgage industry has evolved far beyond simple W-2 income verification. Lenders now offer multiple pathways to qualify, but understanding which approach works best for your situation requires strategic thinking about how your income and assets interact.

Self-Employed Borrowers: Beyond Tax Returns

Traditional self-employed documentation relies heavily on tax returns, which often show lower income due to business deductions. But several alternative approaches can work better:

Bank Statement Programs

Analyze your business cash flow directly
Use 12-24 months of business bank statements to calculate qualifying income
Best for: Borrowers whose business generates consistent deposits but shows limited profit on tax returns due to depreciation or other write-offs

Profit & Loss Documentation

Supplement tax returns when business income has grown significantly
Current P&L statements help lenders understand earning trajectory beyond historical tax data

Asset-Based Qualification

Use liquid assets and investment accounts to demonstrate payment ability
Works well for: Business owners who prefer to keep cash in business investments rather than take regular salaries

Strategic Consideration: The key is matching your documentation strength to the right loan program. If your bank statements show strong, consistent deposits, bank statement loans might offer better qualification than traditional tax return analysis.

Non-Traditional Income Sources: What Actually Counts

Lenders accept far more income types than most borrowers realize:

Investment Income

Dividends, interest, and capital gains qualify with proper documentation
Lenders typically average 2 years and may apply discount factor for volatility

Rental Income

From existing properties can count toward qualification for your next purchase
Lenders typically use 75% of rent (accounting for vacancy/maintenance)
Requires lease agreements or rental history

Retirement Distributions

Some accounts allow penalty-free distributions that count as qualifying income
Even before retirement age in certain circumstances

1099 and Contract Income

Requires consistent history and documentation
Can qualify similar to traditional employment when properly presented

What we encounter: Borrowers often assume their non-traditional income won't qualify them for mortgage financing, but with proper documentation and the right lender, these income sources can be just as valuable as W-2 wages.

Asset Optimization Strategies

Your assets serve multiple purposes in mortgage qualification beyond just covering down payment and closing costs:

Compensating Factors Large asset balances can help offset:

Higher debt-to-income ratios
Other qualification challenges
Lenders view substantial liquid assets as evidence of financial stability

Gift Documentation

Family assistance with down payments requires specific documentation
Can significantly expand purchasing power when properly structured

Asset Depletion Programs

Allow you to "spend down" liquid assets mathematically to create qualifying income
Work well for: Retirees, investors, or anyone with substantial assets but limited traditional income

Strategic Integration & Market Timing

Understanding how income, assets, and property type interact becomes most valuable when you use this knowledge strategically. The mortgage market constantly shifts, with different lenders tightening or loosening guidelines based on their current loan portfolio needs.

Timing Your Application

We monitor these market shifts daily, helping borrowers time their applications when their specific profile is most in demand:

Self-employed borrowers might find better options during quarters when certain lenders are actively seeking business income loans
Condo buyers might discover promotional programs that temporarily improve rates or reduce down payment requirements

Investment property buyers can benefit from timing applications when lenders need to fill specific loan quotas

Building Your Strongest Case

The most successful borrowers understand that mortgage approval isn't just about meeting minimum requirements—it's about presenting your financial picture in the strongest possible light.

This might mean:

Timing your application when your bank statements show the most favorable cash flow patterns
Choosing property types that complement rather than complicate your income situation
Working with lenders whose current business objectives align with your borrower profile

Strategic Insight: Every borrower situation has unique advantages that experienced mortgage professionals can identify and leverage. The difference between a good mortgage and a great mortgage often comes down to strategic positioning rather than just raw qualification.

Making These Factors Work for You

The mortgage landscape offers more options today than ever before, but navigating these choices requires understanding how lenders evaluate the complete picture of your income, assets, and property goals.

Whether you're:

Self-employed
Investing in real estate
Buying your first condo

The key is aligning your strengths with the right loan program and lender.

This might mean adjusting your property search based on your income documentation, or exploring alternative qualification methods that better showcase your financial stability.

The Volunteer Home Mortgage Advantage

At Volunteer Home Mortgage, we use our relationships with 40+ lenders to find the combinations that work best for your specific situation.

Our 27 years of experience in the Tennessee, Georgia, Florida, and Arkansas markets gives us insight into:

Which lenders are actively seeking borrowers with your profile
How to present your application for the strongest possible approval terms
Strategic timing opportunities that can save thousands over your loan's lifetime

The mortgage you choose today affects your finances for years to come. Make sure you're making that decision with complete information about all your options and someone who genuinely understands how these complex factors interact in today's lending environment.

Ready to explore your mortgage options? Contact Volunteer Home Mortgage to discuss how your unique combination of income, assets, and property goals can work together for your strongest possible approval.

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Should You Work with a Mortgage Broker?

Informational

5 Key Benefits to Consider

Ask three different lenders for a mortgage quote, and you'll likely get three completely different explanations of why their option is "best for you." Meanwhile, the rate that makes the most financial sense for your situation might not even be offered by any of them.

Every borrower situation has unique challenges, and the mortgage market shifts faster than most people realize. It's like sitting down to play poker when everyone else at the table can see your cards, knows each other's tells, and understands house rules that nobody bothered to explain to you. You might still win a hand, but you're definitely not playing with the same advantages.

At Volunteer Home Mortgage, we work to avoid these all-too-common situations.

First-time buyers get overwhelmed by conflicting advice. Growing families discover their "pre-approved" loan has hidden limitations. Military families find lenders who don't understand VA benefits.

The question isn't whether you can get a mortgage — it's whether you're getting the right one.

What's the Difference Between a Mortgage Broker and a Bank?

Bank

You're shopping at one store. They show you everything on their shelves and help you apply for what they offer. You might get a good deal, especially if you've been a loyal customer for years.

Mortgage Broker

We work like a buyer's agent, using relationships with 40+ lenders to advocate for you. When Bank A offers 6.75%, we might find Bank B's promotion at 6.50% with better closing costs—something you'd never discover shopping alone.

But here's what most articles about mortgage brokers miss: the real value is having someone who understands how the entire mortgage market works, who can guide you through decisions that impact your finances for decades.

Banks employ loan officers who are extremely knowledgeable about their own products but may not have insight into what's happening across the broader market. Mortgage brokers develop different expertise: we see patterns across multiple lenders, understand which companies are loosening or tightening guidelines, and know which loan programs actually deliver on their promises versus which ones look good on paper but create problems down the line.

5 Key Benefits of Working with a Mortgage Broker

True Client Advocacy When It Matters Most
Real-Time Market Intelligence and Strategic Timing
Customized Solutions for Complex Situations
Objective Guidance Through Information Overload
Negotiating Power and Fee Transparency

1. True Client Advocacy When It Matters Most

The difference between shopping for options and having someone advocate for you becomes clearest when something goes wrong:

Scenarios we handle regularly:

Appraisals coming in low and needing flexible underwriting
Employment complexities (self-employed, commission, job changes)
Lenders pulling out days before closing
Unexpected credit issues during underwriting
Property complications requiring specialized loans

We've helped clients navigate scenarios where their original lender pulled out three days before closing, where unexpected credit issues surfaced during underwriting, and where property complications required finding specialized loan programs most borrowers don't even know exist.

But advocacy goes beyond crisis management. It's also about timing and strategy. Different lenders price their loans differently based on loan amount, property type, credit score bands, and dozens of other factors. We monitor these changes constantly, identifying opportunities that save clients thousands over their loan's lifetime.

True advocacy means someone fighting for your interests, as well as presenting options.

2. Real-Time Marketing Intelligence and Strategic Timing

Most borrowers don't realize: Mortgage pricing varies significantly between lenders and throughout each day. Lenders adjust rates based on bond market movements, current loan volume, and their need for specific types of loans. What costs 6.75% this morning might be available at 6.50% this afternoon from the same lender—or you might need to look at a different lender entirely.

We track these movements across our entire network, helping you lock rates when timing is advantageous rather than just when you happen to call. This kind of market intelligence is particularly valuable in volatile rate environments, where waiting an extra day might cost you or save you significantly.

3. Customized Solutions for Complex Situations

If your situation fits neatly into a standard box—steady W-2 income, excellent credit, 20% down, typical property—you might do fine working directly with a bank. But most real-life situations are more complicated than that.

Common complex scenarios we navigate:

Self-employed borrowers: Need lenders who understand business income analysis, not just tax return requirements
Unique properties: Rural land, historic homes, investment properties requiring specialized programs
Credit challenges: Recent life changes, past financial difficulties, or thin credit files
Military families: Navigating VA loan requirements and benefits
First-time buyers: Using down payment assistance and special programs
Relocating professionals: Bridge financing and timing coordination

Each situation requires understanding not just which loan programs exist, but which lenders actually approve them consistently and handle them well. We've worked with borrowers who were told "no" by their bank, only to find multiple viable options through our network.

4. Objective Guidance Through Information Overload

The problem: The mortgage industry overwhelms borrowers with information designed to sell specific products rather than help make informed decisions.

Bank Perspective

You're getting advice from someone whose job depends on selling their institution's products. That doesn't necessarily mean they're trying to take advantage of you, but their perspective is inherently limited to what they offer.

Broker Advantage

Our job is to help you understand the real differences between programs and lenders, not just marketing differences. When does a higher rate actually save money? When do points make sense? We explain based on your specific situation and how long you plan to stay in the home.

This guidance is particularly valuable for first-time buyers navigating an entirely new process, but it's equally important for experienced homeowners who might not realize how much the mortgage landscape has changed since they last purchased or refinanced.

Objective advice means recommendations based on your situation, not our sales targets.

5. Negotiating Power and Fee Transparency

Volume matters in the mortgage business. Because we work with multiple lenders regularly, we often access better pricing and flexibility than individual borrowers can negotiate alone. Lenders value brokers who send them quality loans consistently, and they're often willing to waive fees or offer better terms to maintain those relationships.

More importantly, we have no incentive to steer you toward unnecessarily expensive options. Our compensation is regulated and disclosed upfront, and it's typically the same regardless of which lender you choose from our network. This means our recommendation is based on what's actually best for your situation, not which option pays us more.

Questions to Ask When Choosing a Broker

Not all mortgage brokers operate the same way, so it's important to understand what you're getting into before you start working with someone.

About Experience and Network:

How long have they been in the mortgage business? (Look for 3+ years minimum)
How many lenders do they work with regularly?
Do they have experience with your specific loan type and situation?
Can they provide references from recent clients?

About Process and Communication:

How do they handle rate locks, and what happens if your original lender runs into problems?
What kind of communication can you expect throughout the process?
Who will you talk to if your primary contact is unavailable?
How do they typically handle unexpected issues or delays?

About Compensation and Transparency:

How are they paid, and by whom?
Can they explain their fee structure clearly and provide this information in writing?
Are there any upfront costs you should know about?
Will they disclose all costs before you commit?

About Specialty Areas and Local Knowledge:

Do they have relevant experience with your type of loan (VA, USDA, jumbo, investment property)?
Are they familiar with your target market areas and local lending preferences?
Do they understand the property types and price ranges in your area?

Questions to Ask When Choosing a Broker

Whether working with a mortgage broker makes sense for you depends largely on how much you value having an advocate versus how much you prefer handling things directly.

Direct bank approach works best if:

You have a straightforward financial situation
Strong existing relationships with local banks
You enjoy researching and negotiating on your own
Your bank offers competitive rates for your specific scenario

Mortgage broker makes sense if:

You want someone who understands the broader market
You need guidance through complex decisions
Your situation requires specialized expertise or programs
You value strategic timing and access to wholesale pricing
You prefer having an advocate throughout the process

Consider both approaches: There's nothing wrong with getting quotes from both your existing bank and a mortgage broker. This gives you the best chance at securing the most favorable terms while understanding all your options.

The mortgage you choose today stays with you for decades. Make sure you're deciding with complete information and someone genuinely on your side.

At Volunteer Home Mortgage, we see the real impact these decisions make in our clients' lives. The difference between a good mortgage and a great mortgage might be $50,000 in lifetime interest savings — or the difference between getting approved for your dream home and having to settle for something less. Every situation is unique, which is why we take time to understand not just your current financial picture, but where you want to be in five or ten years.

The mortgage market is complex, rates change constantly, and lenders have different strengths and weaknesses. Having someone who monitors these changes daily and understands how they impact your specific situation can make the difference between a transaction and a truly strategic financial decision.

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How to Get Pre-Approved for a Mortgage

Informational, List, Loan Type

Mortgage Pre-Approval Process

Picture this: You've found the perfect home. The location is ideal, the price feels right, and you can already envision your life there. For the first time in years, you actually have the upper hand as a buyer — you’re closer than ever to becoming a homeowner!

According to Calculated Risk's latest housing market analysis, active listings jumped 28.9% compared to last year, with homes for sale topping 1 million nationally for the second consecutive month. In Tennessee, homes now average 75 days on the market, giving you time to think, compare, and negotiate. In Georgia, nearly half of all homes are selling below asking price. This represents the kind of buyer leverage that seemed impossible just two years ago.

After 27 years in the mortgage industry, we've guided thousands of borrowers through various market cycles across Tennessee, Georgia, Florida, and Arkansas. What we've learned is that getting pre-approved positions you to fully capitalize on these favorable market conditions. With sellers adjusting their expectations and buyers finally having choices, a strong pre-approval becomes your tool for confident negotiation. You can take your time, evaluate multiple properties, and often secure better terms than the asking price suggests.

Understanding Mortgage Pre-Approval

Mortgage pre-approval is a lender's conditional commitment to loan you a specific amount for a home purchase, based on a thorough review of your financial situation. Unlike pre-qualification (which relies on self-reported information), pre-approval involves document verification, credit checks, and underwriter review.

What makes pre-approval powerful:

It transforms you from a "maybe" buyer into a "ready" buyer in the eyes of sellers and real estate agents. We regularly see our pre-approved clients' offers accepted over higher offers from buyers without solid financing in place.

Pre-Approval vs. Pre-Qualification

While some lenders use these terms interchangeably, they represent very different levels of commitment:

Pre-Qualification:

Gives you a rough estimate based on the basic information you provide. It's helpful for initial budgeting but carries little weight with sellers.

Pre-Approval:

Involves actual underwriting review. A lender examines your documentation, verifies your information, and issues a conditional commitment. This is what sellers and agents want to see.

Your Complete Pre-Approval Document Checklist

After reviewing thousands of applications, we've learned that preparation separates smooth pre-approvals from delayed ones. Here's what you'll need, organized by category:

Income Documentation:

W-2 forms from the past two years
Pay stubs covering the most recent 30 days
Tax returns (personal and business if self-employed) for two years
1099 forms for any contract or freelance income
Bank statements showing direct deposit of wages

Asset Verification:

Bank statements for all checking and savings accounts (60 days)
Investment account statements (401k, IRA, stocks, bonds)
Documentation of down payment source (savings, gifts, asset sales)

Debt and Credit Information:

Current statements for all credit cards, auto loans, and student loans
Divorce decrees and child support documentation (if applicable)
Bankruptcy or foreclosure documentation (if applicable)

Employment and Identity:

Government-issued photo ID (driver's license or passport)
Social Security card
Employment verification letter from HR or a supervisor

Gather these documents before you start shopping for lenders. Having everything ready allows you to move quickly when you find the right mortgage professional and can expedite your pre-approval by several days.

The Step-by-Step Pre-Approval Process

Understanding the timeline helps you plan effectively and set realistic expectations. Here's how the process typically unfolds:

Week 1: Application and Initial Review

Submit your application with initial documentation
Credit report pulled
The initial debt-to-income ratio calculated
Preliminary approval amount determined

During this phase, we often discover opportunities to optimize your application, perhaps by paying down specific debts or timing the application strategically.

Week 2: Document Verification and Underwriting

Income and asset verification completed
Employment confirmation with current employer
Detailed underwriting review of your complete financial picture
Pre-approval letter issued (if approved)

As mortgage brokers, we work with multiple lenders, which means if one lender's guidelines don't fit your situation perfectly, we can often find another that will. Direct lenders can only offer their own programs.

Timeline Considerations

Most pre-approvals are completed within 10-14 business days, though complex financial situations may take longer. If you're self-employed, have multiple income sources, or have credit concerns, allow extra time.

Strategic timing insight: Get pre-approved before you start seriously house hunting, but not so early that your letter expires before you find a home. Pre-approval letters typically last 60-90 days.

Leveraging Your Pre-Approval in Today's Market Conditions

Having a pre-approval letter is the starting line. How you use it in today's market can maximize your buying power and negotiating position. Here's what we've learned from working in the shifting Tennessee, Georgia, Florida, and Arkansas markets:

Taking Advantage of Current Market Dynamics

Negotiate with confidence: With inventory up significantly across our markets and many homes selling below asking price, pre-approved buyers can take their time and negotiate favorable terms. You'll know exactly what you can afford and can make strategic offers based on market conditions rather than fear of missing out.

Leverage increased options: The current market gives buyers choices we haven't seen in years. Pre-approval allows you to move decisively when you find the right property at the right price, without the pressure of rushed decisions that characterized recent years.

Access motivated sellers: Many sellers are adjusting to the new market reality. Your pre-approval letter demonstrates serious intent and financial capability, which can be especially valuable when sellers are eager to close.

Current Market Psychology Insights

With inventory up 16.3% in Tennessee and homes staying on the market longer, sellers are becoming more realistic about pricing and terms. Your pre-approval letter signals that you're a qualified buyer in a market where sellers appreciate serious interest.

Regional market considerations: In the Southeast markets where we operate, the dynamics have shifted significantly. With 58% of Arkansas homes and 49% of Georgia homes selling below list price, buyers now have negotiating leverage that hasn't existed in years. A strong pre-approval helps you take advantage of these conditions while demonstrating your ability to close efficiently.

Common Pre-Approval Pitfalls and How to Avoid Them

Credit Card Surprises

The problem: Many borrowers don't know their actual credit score or haven't reviewed their credit report recently. The solution: Pull your free credit report at annualcreditreport.com at least 60 days before applying. This gives you time to address any errors or concerns.

Debt-to-Income Ratio Miscalculations

The problem: Borrowers often forget about smaller monthly obligations or underestimate their debt-to-income ratio. The solution: Calculate your DTI before applying. Include all monthly debt payments (credit cards, auto loans, student loans, child support) divided by your gross monthly income.

Employment Changes During the Process

The problem: Job changes, even lateral moves, can complicate or delay pre-approval. The solution: If possible, avoid changing jobs during the pre-approval and home-buying process. If you must change jobs, inform your mortgage professional immediately.

Down Payment Documentation Issues

The problem: Borrowers can't properly document the source of their down payment funds. The solution: Maintain clear paper trails for down payment funds. Avoid large cash deposits that can't be explained.

Making the Most of Your Pre-Approval

Once you receive your pre-approval letter, you're ready to househunt with confidence! Here's how to maintain your pre-approved status and use it effectively:

Protecting Your Pre-Approval

Don't make large purchases or take on new debt
Keep your employment status stable
Continue making all payments on time
Save additional funds for closing costs and moving expenses

Working with Real Estate Professionals

Share your pre-approval letter with your real estate agent early in the relationship. This helps them understand your true budget and focus on appropriate properties. In our experience, agents work more effectively with pre-approved buyers because there's less uncertainty about financing.

Making Competitive Offers

Your pre-approval letter should accompany every offer. In multiple-offer situations, consider having your mortgage professional provide additional assurance to the listing agent — sometimes a quick conversation between professionals can make the difference.

Ready to get started? The strongest offers come from well-prepared buyers who understand both the process and their position in the market. With the right preparation and professional guidance, your pre-approval becomes a powerful tool for achieving your homeownership goals.

How to Get Pre-Approved for a Mortgage Read More »

What’s the Difference Between FHA, Conventional, USDA, or VA Loans?

Informational, Loan Type

Walking into a mortgage conversation without understanding your loan options is like showing up to a job interview without researching the company — you might get through it, but you're not setting yourself up for the best possible outcome.

Every week, we see borrowers who've been steered toward the "easy" option by well-meaning loan officers, only to discover later that a different loan type could have saved them thousands or helped them qualify for the neighborhood they really wanted.

The truth is, mortgage loan types aren't one-size-fits-all solutions, and what works for your colleague who just bought a house might not be the best fit for your unique situation. That's exactly why we spend time with each client understanding not just their current financial picture, but their long-term homeownership goals and life circumstances.

The Four Main Loan Types: Your Options Explained

When you're shopping for a mortgage, you'll encounter four primary loan types. Each has specific eligibility requirements, benefits, and potential drawbacks that can significantly impact your monthly payment and long-term financial picture.

Conventional Loans: The Flexible Workhorse

What it is: A conventional loan is any mortgage that's not backed by a government agency. These loans are typically sold to government-sponsored enterprises like Fannie Mae or Freddie Mac, which allows lenders to free up capital for more loans.

Who it's best for: Borrowers with solid credit scores (typically 620 or higher), stable income, and the ability to make a down payment of at least 3-5%. This often includes established professionals looking to upgrade homes, growing families who've built some savings, or experienced buyers seeking investment properties. According to the Consumer Financial Protection Bureau, conventional loans offer the most flexibility in terms and structure.

Key Benefits:

Down payment as low as 3% for first-time buyers, 5% for repeat buyers
PMI drops off automatically at 22% equity (unlike FHA loans)
No upfront funding fees and flexible property types

Eligibility Requirements:

Credit score 620+ (740+ for best rates)
Debt-to-income ratio below 43%
Down payment 3-20% depending on program
Primary residence, second homes, investment properties

Potential Drawbacks:

Higher credit requirements than FHA
PMI required if down payment under 20%

FHA Loans: The Accessible Option

What it is: Federal Housing Administration loans are government-backed mortgages designed to help borrowers who might not qualify for conventional financing. The FHA insures these loans, which reduces risk for lenders and allows them to offer more flexible qualification standards.

Who it's best for: First-time homebuyers, borrowers with lower credit scores, or those who've had past financial difficulties. Whether you're a recent graduate buying your first home or someone rebuilding after a financial setback, FHA loans provide accessible pathways to homeownership. The U.S. Department of Housing and Urban Development reports that FHA loans have helped over 40 million families achieve homeownership since 1934.

Key Benefits:

Lower credit requirements (580+ with 3.5% down)
Just 3.5% down payment for qualified borrowers
More forgiving of past credit issues
Down payment can come from family gifts

Eligibility Requirements:

Credit score 580+ for 3.5% down option
Credit score < 580 require 10% down
Primary residence only
FHA loan limits vary by county (check current limits here)

Potential Drawbacks:

Mortgage insurance premium (MIP) typically lasts for life of loan
Loan limits vary by area
Stricter property condition standards

VA Loans: The Military Advantage

What it is: Department of Veterans Affairs loans are available to eligible service members, veterans, and surviving spouses. These government-backed loans offer some of the most favorable terms available in the mortgage market.

Who it's best for: Active-duty service members, veterans, National Guard and Reserve members, and qualifying surviving spouses. Whether you're a first-time buyer taking advantage of this earned benefit, a military family relocating to a new duty station, or a veteran ready to settle down after years of service, VA loans offer unmatched advantages. The VA's official website provides detailed eligibility requirements.

Key Benefits:

No down payment required with 100% financing
No private mortgage insurance regardless of down payment
Competitive interest rates and no prepayment penalties
Assumable loans for qualified buyers

Eligibility Requirements:

Service requirements vary by type and length
Certificate of Eligibility (COE) required from VA
Primary residence only
VA funding fee typically 2.15-3.3% (some veterans exempt)

Potential Drawbacks:

Limited to eligible veterans and service members
Upfront funding fee (can be rolled into loan)

USDA Loans: The Rural Development Option

What it is: United States Department of Agriculture loans are designed to promote homeownership in rural and suburban areas. These government-backed loans offer attractive terms for qualified borrowers in eligible locations.

Who it's best for: Moderate to low-income borrowers looking to purchase in rural or suburban areas. If you're tired of city life and dreaming of more space, or if you work remotely and want to stretch your housing budget further, USDA loans can make homeownership possible in areas you might not have considered. Check USDA's eligibility map to see if your target area qualifies.

Key Benefits:

No down payment required with 100% financing
Below-market interest rates
Flexible credit requirements
Lower mortgage insurance than FHA

Eligibility Requirements:

Property must be in USDA-eligible rural/suburban area
Income cannot exceed 115% of area median income
Primary residence only
Typically 640+ credit score preferred

Potential Drawbacks:

Geographic restrictions to eligible areas
Income limits exclude high earners
Longer processing times

How to Choose the Right Loan for Your Situation

Selecting the best loan type requires understanding both your current financial position and long-term homeownership goals.

Assess Your Financial Foundation

Credit Score Impact: Your score affects both loan options and interest rates:

740+ credit: Best rates on any loan type
620-739 credit: Good conventional candidate, excellent for VA/FHA, USDA
580-619 credit: FHA likely your best option
Below 580 credit: Limited to FHA with 10% down or focus on credit improvement

Down Payment Strategy: Consider both affordability and financial impact:

20% down: Eliminates PMI, shows financial strength
10-19% down: Good middle ground with manageable PMI
3-5% down: Preserves cash for moving costs and emergencies
Zero down: VA and USDA options preserve cash but may increase monthly payments

Consider Your Goals and Constraints

Location and Property Type: Your target area and property goals influence loan options. Rural areas may qualify for USDA financing, while urban markets often favor conventional loans. Investment properties require conventional financing with higher down payments.

Long-Term Strategy: Consider mortgage insurance duration and cancellation options. Conventional PMI cancels at 22% equity, while FHA MIP typically lasts for the loan's life. VA loans require no mortgage insurance, and USDA guarantee fees are lower than FHA but permanent.

Consider Your Goals and Constraints

The best loan type for your situation depends on factors that go beyond simple qualification — it's about finding the option that aligns with your financial goals, timeline, and long-term plans.

Every situation is unique, which is why we take time to understand not just your current financial picture, but where you want to be in five or ten years. We shop our network of lenders to find the combination of loan type, rate, and terms that works best for your specific situation.

Ready to explore your options? Contact Volunteer Home Mortgage today to discuss which loan type makes the most sense for your homeownership goals. We'll walk through the real numbers, explain the trade-offs, and help you make an informed decision that sets you up for long-term success.

What’s the Difference Between FHA, Conventional, USDA, or VA Loans? Read More »

6 Things To Know About Conventional Loans

Informational, List, Loan Type

What is a Conventional Loan?

We’ve all been at the stage of our adolescence where we watched TV shows and movies and thought to ourselves, “That’s the house I want one day.”

We genuinely believed that those “dream” houses on the screen were affordable for the average person because, well, the average person in the show lives there.

Before we knew it, we had grown up, paid our dues in life, and soon realized that it was time to buy a house.

You quickly became aware of down payment requirements that you wish someone would have told you about years ago, credit scores that have more control over your life than you realized and something called PMI that everyone hates but always talks about.

How did those average people on TV afford such incredible houses?

We want you to get the dream home that you’ve had your heart set on for all these years. Although it may seem unattainable now, with our help at Volunteer Home Mortgage we will work with you every step of the way to get you there.

First things first though, we need to understand all of your options as well as which one is right for you.

After we get through the groundwork, the young grasshopper will become the master and you’ll be ready to call your Realtor to go find your dream house...after we get you qualified, of course!

In this post, we’ll talk about the 6 things you need to know about conventional loans.

1. Down Payment

“Down payment” can sound like a scary term, but a huge benefit to this requirement is a lower monthly payment. The higher amount of your down payment, the lower your monthly payment will be, however, the lower your down payment, the higher your monthly payment will be.

A first-time home buyer can qualify for a conventional loan and there’s even a benefit for them with the opportunity to put as low as 3% down. Just know that your payment will most likely be higher vs someone who put down 5% or 10%.

For someone not a first-time home buyer, the down payment minimum is 5%, which is still very low.

Some restrictions:

If the home is not a single-family home, which is more than one unit, the down payment requirement could be 15% or more.
Rental properties or a second home will require a minimum of 10% down
Jumbo loans require 20%-40% down
Adjustable rates require 5% down

Try a mortgage calculator if you want an idea of what you can afford as your monthly payment. The worst thing you could do when purchasing a home is blindly taking out a loan just because you “qualify” for a certain amount. The monthly payment is the most important part of taking out a loan.

Rental or investment properties require 20% down. Second homes 10%

Here’s a loan calculator that we trust.

2. Interest Rates

The beauty of the conventional loan is that it is so versatile.

A 30-year term with a fixed interest rate is typical for a conventional loan, but that is not your only option.

15-year loans at a fixed rate are one option, as well as 15 or 30-year loans with an adjustable rate.

If you can take on a higher payment, a 15-year loan may be the right option for you and you’ll most likely receive a lower interest rate.

Conventional loan rates change daily
You don’t have control over adjustable rates and your mortgage could be higher or lower at different times of the year

Each loan varies based on personal situations. You won’t get an accurate idea of what your payment would be until applying for the loan. When you apply with Volunteer Home Mortgage, we show you what your interest rate will be as well as your monthly payment so you know exactly what type of home to look for.

3. Credit Score

Credit scores are two things in life, your best friend or your worst enemy.

The higher your score, the better your interest rate will be. This will translate into what your monthly payment will be. Typically, a score of 620 or more is preferred for a conventional loan.

The sweet spot = over 740

One rule of thumb, you’ll never regret working on your credit, no matter how old you are.

4. PMI

As a result of conventional loans not having government backing like their counterparts, the FHA loan and the VA loan, the lender offering the conventional loan is sticking their neck out for you. Meaning, this type of loan is not insured and if the borrower defaults on their loan, the lender will not have any protection and will ultimately be responsible financially.

This leaves the lender exposed and vulnerable, to soften that potential blow, the lender can choose to add PMI to your mortgage payment if you put down less than 20%, you’ll be required to pay private mortgage insurance (PMI).

The amount of your PMI will ultimately be decided based on the type of conventional loan you get, your credit score, and the amount of your down payment.

Helpful Tip:

Don’t want to have PMI added to your monthly payment? No problem. Buyers can oftentimes pay an upfront cost to cover the PMI or some buyers pay it by slightly increasing their interest rate.

PMI is an important part of the loan process and you’ll need a lender you can trust to walk you through all the options and figure out which one is best for you.

Don’t lose hope!

PMI is not forever. You heard that right.

And you will not need to refinance your house to make the PMI go away.

Once you achieve 20% equity in your home, you can request that your PMI be removed from your payments. So make sure you are paying attention to your loan as time goes on. Once the home acquires 22% equity, your PMI will be removed automatically. But who wants to wait until 22%? Not us.

Stay alert and don’t be afraid to ask once you reach 20%.

Loophole:

Pay attention to the value of your home. If you reach 20% equity in the home because of an increase in value (for whatever reason), be sure to contact your lender to get an appraisal and recalculate your PMI requirement.

Here’s a great reference for what could increase the value of your home. Hint It isn’t just adding upgrades to your house!

5. How is it Different?

So, do conventional loans stack up against the VA loan or FHA loan?

The VA loan is limited to veterans, active-duty military members, and their surviving spouses.

Pros of the VA loan:

A down payment is not required
No PMI requirement regardless of how much your down payment is

Cons to VA loan:

Cannot use it for a second home, you need to either pay off that loan or sell the current home to use the VA loan again
Have an allotted loan amount based on the location of the home

The FHA loan has its pros and cons as well.

Pros of the FHA loan:

Lower credit score requirement than a conventional loan
Minimum down payment of 3.5%, even with a low credit score

Con to the FHA:

PMI is required for FHA loans if the down payment is less than 10% and will last for the entirety of the loan, regardless of how much equity is in the home. Whereas, for conventional loans, PMI drops off after reaching 22% equity in the home

6. Different Types?

To add to the complexity of mortgage loans, there are different types of conventional loans.

Conforming Conventional loans

If a lender would like to sell a loan to a government-sponsored enterprise like Fannie Mae or Freddie Mac, they have to meet certain requirements.

Why would a lender want to sell a loan? This frees up lenders’ funds which allows them to bring in more qualified buyers and put them into homes.

Nonconforming Conventional loans

Simply put, nonconforming is the opposite of conforming loans. These do not meet Fannie Mae’s or Freddie Mac’s guidelines.

Jumbo loans are an example of this. These loans exceed conforming loan limits, which are typically $548,250 in most counties across the country.

Fixed-rate Conventional loans

As we mentioned earlier in this post, there are fixed-rate loans and are typically 30-year mortgages, due to the more affordable monthly payment. This interest will stay the same for as long as you have the mortgage.

Adjustable-rate Conventional loans

An adjustable-rate mortgage, also known as ARM, are rate that will fluctuate over time. After an initial fixed-rate period ranging from three-10 years, the ARM rates usually adjust annually.

Low-down-payment Conventional loans

There are opportunities to pay a lower down payment but the lower you go, the more risky it is, and will ultimately take you longer to build equity in your home vs someone who makes a larger down payment, as well as additional interest.

You could put down as little as ZERO for your down payment, but your debt-to-income ratio plays a significant role in this as well as your credit. This is very risky, so it is not always advised.

Conventional Renovation loans

Chip and Joanna Gaines aren’t the only ones who can fix up a house and do it well. Oftentimes it can be hard for buyers to find the house they want in the budget they have.

Luckily, certain loans assist with buying a fixer-upper if the market is high or when inventory is low for good-quality homes.

The CHOICERenovation loan and HomeStyle loan are two great options that allow the right buyers to purchase a home, make it their own, AND increase the value of the neighborhood.

Summary

If you qualify for the credit score requirement, with a downpayment of at least 3-5%, and have a lower debt-to-income ratio, the conventional loan may be the best option for you.

Volunteer Home Mortgage can help you decide if this is the best fit for your situation, give us a call!

Jerri Ingram

6 Things To Know About Conventional Loans Read More »

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What are FHA Loans?

Informational, Loan Type

Is An FHA Loan Right For Me?

The thought of buying a home can be scary. All the paperwork, getting your credit in order, building up your savings for a down payment, getting approved, or having the chance of getting denied for a loan. It’s all so… BIG.

But, did you know that your down payment doesn’t need to be so big? Did you know that even if you already own a house, you can use the FHA loan?

MYTH-BUSTER:

FHA doesn’t stand for “first-time home buyer” but actually, “Federal Housing Administration!”

There has been a major misconception about FHA loans over the years with buyers thinking that only first-time buyers can utilize it. This couldn’t be further from the truth!

Why is an FHA ideal?

More lenient on your credit than a conventional loan
5% down payment (This can be a gift) with a credit score of 580 or higher (nerdwallet.com)
You are eligible even if you had a foreclosure 3 years ago. Conventional loans require you to wait 7 years
Possibility for lower mortgage insurance payments than conventional loans.
Typically have lower interest rates, leading to lower mortgage payment
In this area, the seller will typically help pay closing costs which is ideal for buyers who do not have large savings built up

So, Who Can Qualify for FHA Loans?

Individuals with lower credit scores. Life happens, right? Sometimes credit scores take a dive when you least expect it or at the worst times. Luckily, an FHA loan allows for as low as 500. Just be aware that the closer you are to 500, the higher the down payment will need to be.

Anyone who had a foreclosure over 3 years ago. This may seem like a big number if you had a foreclosure, but conventional loans actually require you to wait 7 years before qualifying for a loan if you had a foreclosure.

Someone with a steady income. To qualify, the individual needs to have had a steady income over the past two years, a valid social security number and you need to lawfully live in the United States.

What can I buy?

Single-family homes, modular homes, and manufactured homes!

The Down Payment

Why is it important that your down payment can be gifted to you? It might seem miniscule that the minimum 3.5% down payment can be a gift, but this is prohibited with other loans.

Buyers with low savings built up who still would like to or need to buy a house can have family members gift them the money to cover the down payment.

For areas where the renters market is much less affordable than the prices of homes for sale, this is ideal. As rent goes up, it becomes increasingly hard for younger or low-income families to have a good quality of life.

Having the chance to be gifted your down payment AND have a mortgage more affordable than renting a home that is not your own...how can you lose?

What's the catch?

Some things just sound too good to be true, right? So what’s the catch with the FHA loan? One aspect that someone could see as a downside to the FHA loan is that the property has to be your primary residence.

Meaning, you cannot use the loan to purchase a rental property that would bring you income. This is why you are not able to purchase multi-family properties since they are typically used for rental income.

FHA borrowers are also required to pay FHA mortgage insurance. This insurance is very much like Private Mortgage Insurance (PMI) which is what lenders require with other types of mortgages when a buyer has a down payment of less than 20%.

The FHA mortgage insurance works in two different ways:

Wrapped up in your monthly payment
Pay the amount upfront as part of your closing costs

The monthly cost included in your monthly payment can vary based on the amount that you put down, the length of your loan (typically 30 years), and the original loan-to-value ratio. This could be .45% of the loan or as much as .85% of the loan.

If you pay the amount upfront, the cost is 1.75% of the total loan amount

These extra costs are how FHA protects itself. Those premiums are put into a fund which is used to pay lenders in case of any defaults. These premiums increased after the FHA experienced a major loss in 2013.

Due to this loss, the FHA also made a change to how long their mortgage insurance remains on the loan payment. If the borrower puts down at least 10%, they will only have their mortgage insurance on the loan for 11 years. Whereas, if a borrower puts down less than 10%, like the minimum 3.5%, it will remain for the entire life of the loan.

If the borrower eventually wants to take off that mortgage insurance, they have the option to refinance when they are qualified to do so.

In Summary

As with any loan, the pros and cons depend on what stage of life you’re in.

Volunteer Home Mortgage prides itself on our expertise in looking out for our clients. We always want to guide our clients in the right direction and make sure that our clients are fully informed and know what they are getting into.

FHA loans are a fantastic option for the right borrower, just like any other kind of loan! If you feel as though the FHA loan sounds like something you want to learn more about, we’d love to help you.

Jerri Ingram

What are FHA Loans? Read More »

What is a USDA Loan?

Informational, Loan Type

Are USDA Loans The Way To Go?

As more people flock to suburbs and major cities, the rural communities in the nation are often left with a dwindling economy and lower job opportunity. Because of this, families in rural areas typically have a lower income vs a family living in a popular suburb with a booming economy.

The USDA loan is designed to help lower-income families in rural communities, because of it’s zero down payment requirement.

The USDA loans are issued through the USDA Rural Development Guaranteed Housing Loan Program, by the United States Department of Agriculture.

USDA Loan Differences

The USDA loan program consists of three different kinds of loans.

Home improvement loans and grants

Much like the conventional renovation loan, the USDA also offers an option for those who would like to or need to update/repair their home.

This program can also combine a loan and a grant for increased amounts.

This is perfect for those in an older community where the standard of housing is very low and their options are bleak whether they stayed in their current home or left.

Loan Guarantees

This is when the USDA guarantees a mortgage issued by your lender and needs to be a local lender. This will ensure that you get low mortgage interest rates and can do so even if you don’t have a down payment.

That guarantee acts as a form of insurance protecting USDA lenders, so they’re able to offer below-market interest rates and zero-down home loans.

Direct Loans

Designed for low and very low-income applicants, direct loans will vary by region, and income requirements will differ.

Thanks to Uncle Sam, subsidies are the reason that interest rates for these loans can be as low as 1%!

How Do I Qualify?

Like other loans, the USDA loan income limits will vary based on your location. Each country is different and sets its limitations. This will also depend on the size of your household.

Income

The applicant is required to have a steady income, but you cannot make more than 15% of the median income in your county.

Home as the primary residence

The property for this loan needs to be your primary residence and not a rental home or a second home.

feels-good-to-be-home-its-good-to-be-back

Credit Score

An applicant needs to have at least a 640 credit score to qualify, although this can vary per lender at their discretion.

Debt

Applicants cannot surpass 41% of a debt-to-income ratio. This is due to trusting an ability to pay back the loan, if your debt is too high compared to your income it will look like you will not be able to pay your mortgage.

Where Do I Need to Live?

You’ll need to reside in what is categorized as a rural area and is known as a town with less than 20,000 residents.

Important to know

PMI is included in USDA loans

You can find a more in-depth dive into what PMI is here if you don’t have a solid understanding of it.

If you know what it is, we know you just took a deep breath of disappointment. But don’t worry, mortgage insurance is much lower than if you were to have an FHA loan or conventional loan.

The buyer will need to front 1% of the entire loan as an insurance cost, and will then have an added monthly payment of that mortgage insurance wrapped up into the mortgage payment.

This is where it gets good.

FHA loans typically have a .85% annual fee for mortgage insurance, and conventional loans even up to as high as 1% and sometimes higher.

However, the USDA loan only has a .35% annual fee, based upon the remaining principal balance on the mortgage.

This just means that your mortgage insurance payment which is included in your monthly payment will be much lower than it would be otherwise.

Mortgage rates are lower with USDA loans

USDA interest rates are among the lowest of any other kind of loan. Typically, they can even be an entire 1% lower than your more common loans.

The better your credit score, the lower your rate, BUT the USDA loan is meant to help those with lower incomes and those with scores as low as 640. This helps so much for those who are struggling financially and need a home!

If you meet the other requirements but your credit score just isn’t quite at 640, please call us. We’d love to sit down and help you come up with a plan to bring your credit score up!

Summary

Living in East Tennessee can be tricky for some. Although Maryville is not a town of less than 60,000 people, we know many towns in the region are!

It’s important to us that we serve those who need these kinds of loans the most and many people do not know they exist.

We’re thankful our nation has programs like this to cater to small-town folk who are the backbone of this great country.

Jerri Ingram

What is a USDA Loan? Read More »