MINNEAPOLIS — Last year, after Deb Jerikovsky’s husband died, she decided to swap the lake home where they planned to spend retirement for a house in the metro that’s closer to family.
She put that plan on hold, however, once she realized 7% mortgage rates would force her to dip too deeply into her savings. Instead, she moved in with her daughter, hoping she’d eventually score a lower rate.
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She didn’t have to wait long.
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Mortgage rates were still hovering near 7% last October when she ran across a listing for a townhouse in Coon Rapids, Minnesota, that touted a KitchenAid fridge, electronic blinds and an unexpected extravagance: a low-interest assumable mortgage.
“It was like winning the lottery,” said Jerikovsky, who assumed the seller’s 2.25% mortgage rate.
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The deal saved her about $700 a month compared with today’s rates and gave her enough room in her budget to buy a new car and spend part of the winter with her aunt in Florida. Her $349,900 townhouse is one of hundreds of listings in the Twin Cities with an assumable mortgage eligible sellers can transfer to qualifying buyers, teleporting them back to a time of record-low rates.
Though they now account for only a fraction of all house listings, these government-backed mortgages — courtesy of the Federal Housing Administration (FHA), Veteran Affairs (VA) and U.S. Department of Agriculture (USDA) — are an overlooked home-buying hack saving a growing number of buyers hundreds of dollars a month and tens of thousands of dollars through the life of their mortgages.
“Most agents aren’t even aware of what it entails and what to look for,” said Tyler Miller, a Minnesota broker who has been involved with several sales involving assumable mortgages with astoundingly low rates.
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Miller recently listed a four-bedroom house in Blaine with an assumable 2.25% FHA mortgage with a monthly payment that’s about $1,700 less than it would be at the going rate. To tout the listing, he posted a TikTok video promoting the benefits.
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“I had some people tell me I was lying,” Miller said. “I said, ‘No, this is real.’”
Assumable mortgages have been lurking in the shadows of unusually low rates in recent history. Such mortgages were last popular in the 1980s when rates hit a record 18.1%.
At the end of 2020 and into early January 2021, rates fell to record lows, hovering around 3% for much of 2021 and causing home sales and prices to soar. That buying binge locked in thousands of mortgages at rates that likely won’t be that low again for decades. An estimated 80% of all VA mortgages, like the one Jerikovsky assumed, now have a rate that’s less than 4%, and many of those rate-holders are now ready to sell.
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Today, the average 30-year fixed-rate mortgage is about 7%. Though that’s still below historical averages, there’s a generation of buyers yearning for a time of low rates that’s unlikely to re-emerge anytime soon.
An estimated one-third of all mortgages in the U.S. are assumable now. Because many owners will hold onto those rates as long as possible, assumable mortgage listings represent only a fraction of homes currently for sale, making them one of the best-kept secrets for homebuyers these days.
While some agents will include an assumable mortgage in the listing details, many homeowners don’t even know they have one — the details are buried in the fine print of their contract, which many buyers don’t carefully read. In Minnesota, just shy of 5% of the more than 30,000 houses listed on Realtor.com had assumable mortgages. The website only started including a search feature for assumable mortgages in February.
Ryan Carrillo and Louis Ortiz started their Assumable.io website, which is dedicated to assumable mortgages, after Carrillo discovered the 2.75% FHA mortgage on his own house was assumable.
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The site lets you search for listings city by city, including detailed mortgage data such as the assumable rate and payment compared with the payment at current rates. All of the more than 30,000 nationwide listings on the site have an assumable mortgage, including other key details such as the required down payment and the interest savings through the remaining mortgage.
“It’s a huge opportunity,” Carrillo said, nothing that traffic to the site has doubled every month since its launch.
A recent listing for a nearly new townhouse in Maple Grove initially priced at $485,000 came with an assumable mortgage that’s half the current rate, saving a would-be buyer about $1,000 a month. Through the life of the loan, that lower rate would save nearly $400,000 in interest payments.
Roam, which doesn’t yet post listings in the Twin Cities, is another new website focused solely on assumable mortgages. It charges buyers 1% of the purchase price to help navigate the process. On average, the company claims, buyers who use the site save $15,000 in mortgage payments annually.
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“It’s not a panacea and won’t work for every transaction and every buyer,” Ortiz said. “But it provides buyers the opportunity to afford more house if they can make the equity gap work.”
That equity gap is often the biggest hurdle. Because the buyer is essentially taking on the existing mortgage rather than receiving a new one, the buyer has to pay the seller the difference between the original mortgage balance and the current asking price.
Though it’s only been a couple years since rates spiked, that equity gap can be significant given how house prices have steadily risen. To eliminate that barrier, Ortiz and Carrillo said they’re now offering lenders willing to do a second mortgage access to their site.
Chris Birk — vice president of Veterans United Home Loans, which has a national network of agents who specialize in working with military buyers — said there’s been a 600% increase in the number of VA mortgage assumptions from 2022 to 2023.
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“We’re seeing marked increase interest in these,” he said. “But it’s a foreign concept for so many buyers but also sellers.”
He said while any lender or servicer should be able to complete the transaction, it helps to work with professionals who are familiar with the process.
Brady Holland, the agent who helped Jerikovsky buy her townhouse, said assuming a mortgage can be a bit more complex because both the buyer and seller have to provide documentation. That’s especially true for the seller, who is essentially “selling” the mortgage to the buyer.
“It was a little tricky,” he said. “I had to call [the processor] every other day to check on things. … It takes a team to make it happen.”
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Many VA mortgage holders are reluctant to let another buyer assume their mortgage because once they do, they forfeit the right to use the benefit to buy another one. Unlike FHA mortgages, VA mortgages are considered a government benefit with perks that include the ability to forgo private mortgage insurance and no, or a low down payment and competitive low rates.
A VA mortgage holder is entitled to transfer those benefits to a qualifying nonveteran, as long as the seller doesn’t plan to buy a home with another VA loan.
In the case of the house that Jerikovsky bought, the seller was a widow who moved to an apartment, enabling her to waive her right to additional VA mortgage benefits because she doesn’t plan to buy again.
Though a mortgage assumption can take longer than a new, traditional mortgage, that wasn’t the case for Jerikovsky’s purchase, which closed less than two months after she first saw the house. For her, the most challenging part of the process, she said, was filling out online forms and applications. But her tech-savvy daughter helped with that.
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“I didn’t know if I would be living with my daughter for six months or a couple years until rates went down,” she said. “That (assumable) rate made all the difference in the world.”
– Jim Buchta for the Star Tribune
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The Yahoo view:A USAA mortgage may be a wise choice if you’re eyeing a VA or conventional loan and qualify for USAA membership. The mortgage lender charges no origination fees on VA products and focuses primarily on military members and their families.
USAA is a long-standing financial institution that serves military members, veterans, and their family members. It offers banking, insurance, retirement, and investment services to these consumers, as well as VA and conventional mortgage loans.
To use any of USAA’s products or services, you must become a member. Only U.S. military members and veterans, pre-commissioned officers, and spouses or children of these are eligible.
In this article:
Key benefits
USAA offers a variety of VA loan products, including purchase loans, jumbo loans, Streamline Refinances, and cash-out refinances.
USAA also offers a low-down-payment loan for first-time home buyers and several conventional loan options.
The lender charges no origination fees on VA loan products.
The company’s Home Resource Library can help you better understand the buying and financing process.
Need to know
Only U.S. military members, veterans, precommissioned officers, or spouses/children of these parties are eligible for USAA products.
USAA offers only VA and conventional loan products. It does not have USDA or FHA loan programs.
USAA’s physical locations are limited to four states: Colorado, New York, Maryland, and Texas. It still offers mortgages nationwide, though, and you can apply online.
USAA doesn’t offer conventional loans or refinancing in Hawaii or any cash-out refinancing in Texas.
USAA for VA loan home buyers
USAA offers insurance, banking, retirement, and investment services for military members, veterans, and their families, so it’s no surprise that the VA loan — for those who are in or have served in the U.S. military — is its primary lending product. In fact, according to Home Mortgage Disclosure Act (HMDA) data, VA loans accounted for over 64% of USAA’s purchase mortgage originations in 2023.
The lender offers a variety of VA products, including VA purchase loans, VA jumbo loans, VA Streamline Refinances (IRRRLS), VA jumbo Streamline Refinances, and VA cash-out refinances. USAA requires no down payment or origination fee on any of these loans.
USAA for home equity lending
USAA doesn’t offer home equity loans or home equity lines of credit (HELOCs), but it does offer cash-out refinancing — another strategy for borrowing from your home equity. The lender offers VA cash-out options, including traditional and jumbo, and conventional cash-out refinances.
With cash-out refinancing, you’ll take out a new mortgage larger than your current one. The new loan pays off the old one and replaces it entirely. You’ll then be paid the difference between those two balances and can use the cash however you see fit.
Learn more: HELOC versus home equity loan
USAA mortgage rates
USAA is pretty upfront about its mortgage rates and makes them easy to find on its website. You’ll see sample rates on the “Home Loans” page and the “Mortgage Rates” and individual loan pages. Sample rates are available for all loan programs that the lender currently offers. For example, you can find USAA VA mortgage rates on its “VA Loan” page.
On the Mortgage Rates page, you’ll find the numbers broken down into interest, APR, and discount points — giving you insight into how USAA came up with its sample rates. USAA doesn’t go into its assumptions for these rates, but it does offer a disclaimer that they “are not available to every borrower.” The lender also doesn’t give you the option to see a sample rate without discount points. You’ll need to fill out USAA’s online application for a more accurate rate quote.
Dig deeper: APR versus interest rate — What you need to know when mortgage shopping
Applying for a mortgage with USAA
USAA lets you apply for a mortgage online, so the process can be fairly quick and simple. You may also contact a USAA loan officer by phone to start your application or visit one of the lender’s five financial centers. These are located in Colorado Springs, Colo.; West Point, N.Y.; Highland Falls, N.Y.; Annapolis, Md.; and San Antonio, Texas.
There is a USAA mortgage calculator that you can use to determine what your monthly payment may be based on your home price, interest rate, down payment, and loan term. You can also add in taxes, insurance, and homeowners’ association dues for a more accurate number.
This is the lender’s only mortgage-related calculator, though it does have a fairly comprehensive home-buying resource library you can browse for more guidance.
Dig deeper: Try the free Yahoo Finance mortgage calculator
How USAA compares to other mortgage lenders
USAA mortgages vs. Navy Federal mortgages
USAA and Navy Federal are membership-based institutions only open to certain military and government personnel (and their loved ones). But at the mortgage level, Navy Federal outshines its counterpart. The company offers a wider array of home loan options, including home equity loans and HELOCs.
Navy Federal also has more calculator tools, special offerings (like a no-refinance rate drop), and live chat help, which USAA does not.
Navy Federal mortgage review
USAA mortgages vs. Veterans United Home Loans
Veterans United Home Loans is similar to USAA in that it only lends to a select group of military and government personnel. The big difference is that Veterans United offers just one product — the VA loan. The company is the nation’s No. 1 lender by volume in the space, and in 2023, originated over 58,000 VA loans totaling more than $144.5 billion, according to the Department of Veterans Affairs. Veterans United also offers a 24/7 helpline, as well as credit counseling and Realtor services, which USAA does not.
If you want a conventional loan or investment, banking, or insurance services, though, USAA is your only choice among the two.
Veterans United Home Loans review
USAA mortgage FAQs
What credit score do you need for a USAA mortgage?
The credit score you’ll need depends on the USAA loan program you choose. With VA loans, the government doesn’t set a hard minimum, but USAA prefers a minimum 640 credit score. For conventional loans, you’ll usually need at least a 620 to qualify.
Does USAA pay closing costs?
USAA doesn’t cover closing costs, but it also doesn’t charge one of the most common ones — the origination fee (at least on VA loans). This could save you quite a bit on your up-front mortgage costs.
Who qualifies for a USAA mortgage?
To get a USAA mortgage, you’ll first have to become a USAA member. Only U.S. military members, veterans, precommissioned officers, and the spouses/children of these parties are eligible.
Does USAA have an origination fee for mortgages?
USAA does not charge origination fees on its VA mortgages, which comprise the bulk of its lending business. Origination fees typically cost between 0.50% and 1% of the total loan amount.
What are USAA mortgage interest rates?
USAA’s mortgage interest rates change often, but the company displays them prominently on its website and loan pages. Keep in mind that advertised rates often assume a high credit score and include discount points, so they may not accurately reflect the exact rate you’ll qualify for.
Most of the company’s loan officers work for the City of Houston, where Firehouse is based, around eight days a month. That means two days a week at the fire department, giving them the time needed to balance loan officer work with their first responder duties. “They’re able to balance out and still give a … [Read more…]
Our writers and editors used an in-house natural language generation platform to assist with portions of this article, allowing them to focus on adding information that is uniquely helpful. The article was reviewed, fact-checked and edited by our editorial staff prior to publication.
Key takeaways
A no-down payment mortgage allows you to buy a home without putting any money down upfront at closing.
USDA and VA mortgages are two types of loans that don’t usually require a down payment.
Some alternatives to no-down payment mortgages include low-down payment loans, such as a conventional or FHA loan, or getting gift money from family or friends.
Buying a home doesn’t necessarily require a large down payment. The conventional wisdom is that you need 20 percent down, but in reality, you don’t have to save that much. In fact, there are no-down payment mortgage options. Here’s what you need to know about these types of loans.
What is a no-down payment mortgage?
A no-down payment mortgage is a home loan that allows you to finance 100 percent of the home’s purchase price without having to put any money down at closing. Zero-down mortgages can be particularly beneficial for those buying a home for the first time or with limited savings.
How to get a mortgage with no money down
The easiest way to avoid a down payment is to qualify for one of the two no-down payment mortgage programs backed by the government: a USDA or a VA loan.
USDA loans
The U.S. Department of Agriculture (USDA) backs USDA home loans, a mortgage guarantee program for those buying a home in designated rural areas. There are many areas you might not consider “rural” that do qualify under USDA guidelines, so be sure to check your eligibility on the USDA website. USDA loans don’t require a down payment, but borrowers must meet credit and income requirements to qualify.
Although there’s no down payment with a USDA loan, there is an upfront guarantee fee of 1 percent of the principal loan amount, as well as an annual fee of 0.35 percent, which borrowers can roll into the cost of the mortgage. While you won’t pay any money initially if you choose to roll these fees into the loan, keep in mind that it adds to the total balance and will accrue interest over the loan term, which means you’ll pay more overall.
VA loans
If you’re a military service member, veteran or surviving spouse, you could be eligible for a VA loan guaranteed by the U.S. Department of Veterans Affairs (VA) with no money down. There is no mortgage insurance requirement with this loan. However, like a USDA loan, you do have to pay an upfront funding fee, which can be rolled into the mortgage. The funding fee ranges from 1.25 percent to 3.3 percent of the loan amount. You can reduce the funding fee by making a down payment.
Another perk: VA loan lenders often offer more competitive rates for these products, which helps you save money over the life of the loan.
Compare: Current VA loan rates
Alternative zero-down mortgage options
In addition to government-backed loans, you might be able to explore:
A low-income loan – These are often geared toward first-time or low-income borrowers, or those in specific areas. For example, Bank of America’s zero-down program aims to help buyers in minority neighborhoods.
A zero-down mortgage through a local credit union – This might be an option especially if the credit union is based on membership in a professional organization. For example, Sunmark Credit Union offers a no-down-payment mortgage option. While these can be relatively rare, it’s still worth looking into.
Gift money from family or friends – If available, you can use gift funds for your down payment. You’ll need to provide your lender with a gift letter that shows you don’t need to pay back the money gifted.
Low-down payment mortgage options
If you don’t qualify for one of the no-money-down home loan options, you might still be able to buy a home with the next best thing: a low-down payment mortgage.
FHA loans
Insured by the Federal Housing Administration (FHA), an FHA loan requires only 3.5 percent down with a credit score as low as 580. (If you have a credit score between 500 and 579, you might be able to qualify with a higher down payment of 10 percent.) It’s a popular option for homebuyers with less-than-perfect credit and not a lot of savings. Like other government-insured programs, FHA loans are offered by private mortgage lenders, so you might also have to meet a lender’s criteria to qualify. Additionally, you’ll have to pay for FHA mortgage insurance, which adds to your monthly payment and the cost of the loan. You’ll pay these premiums for as long as you have the mortgage, in most cases.
Compare: Current FHA loan rates
HomeReady mortgage
Available through many mortgage lenders, the HomeReady program is a conventional loan backed by Fannie Mae. The down payment requirement on a HomeReady loan is just 3 percent. While you’ll have to pay mortgage insurance to compensate for the low down payment, it’s often at a lower price tag compared to other conventional loans.
Home Possible mortgage
Backed by Freddie Mac, Home Possible is a similar mortgage program to HomeReady, with a 3 percent down payment and mortgage insurance requirements.
HomeOne mortgage
Freddie Mac also offers a 3 percent down mortgage option for first-time homebuyers who qualify through its HomeOne program. The main difference between this loan program and Freddie’s Home Possible mortgage is that a HomeOne mortgage does not impose income limits.
1 percent down mortgage programs
Some lenders are now offering mortgage programs for borrowers who qualify that only require a 1 percent down payment. Some examples include Rocket Mortgage’s ONE+ program and United Wholesale Mortgage’s Conventional 1% Down program. For these programs, the lender pays 2 percent of the required 3 percent down payment for a HomeReady or Home Possible loan — or up to a maximum contribution that varies by lender and loan size — and you only need to provide the remaining 1 percent.
Conventional 97 mortgage
A Conventional 97 mortgage is another Fannie and Freddie program that only requires a 3 percent down payment. You might pay more for private mortgage insurance (PMI) with this type of loan, but your payment depends on your financial profile. You can also request to cancel PMI when you reach 20 percent equity in your home.
Good Neighbor Next Door
The Good Neighbor Next Door (GNND) program is for borrowers who work in select public service professions — teachers, firefighters, law enforcement and emergency medical technicians — and are planning to buy a home in a qualifying area.
The program, sponsored by the U.S. Department of Housing and Urban Development (HUD), provides a discount of up to 50 percent on a home with a down payment of just $100. The borrower must qualify for a first mortgage, and the discounted portion of the home comes in the form of another loan. If the borrower continues to meet program requirements, the second mortgage won’t have to be repaid.
Pros and cons of a no-down payment mortgage
The ability to buy a home with no or very little money down can be appealing, but there are drawbacks, too.
Pros of no-down payment mortgages
You can buy a home sooner. When you don’t have to come up with a substantial down payment, it’s easier to buy a home sooner. Alternatively, if you want to take advantage of a good deal or a dip in the market, you can move fast without having to wait for your savings to accumulate.
You can keep more cash on hand. Even if you have enough to make a sizable down payment, you might want to keep that money liquid for emergency savings, remodeling or investing. Whatever the motive, with a low- or no-down payment mortgage, that extra cash remains available to you — not tied up in real estate.
Cons of no-down payment mortgages
You’ll have no or little equity. Home equity is the portion of your home you own outright (not financed by a mortgage). When you start with a low- or zero-down loan, you’ll have little to no equity. If home values fall, you could end up owing more on the home than it’s worth, making it difficult to sell or refinance.
Your interest rate might be higher. You might pay a higher interest rate for a no- or low-money down loan. That’s because with less money tied up in the home, a mortgage lender might view you as more of a risk. Of course, the higher your interest rate, the more you’ll pay overall.
You’ll need a bigger mortgage, which translates to higher costs. The less you put down, the more you’ll need to borrow, which means you’ll pay more in interest over the life of the loan.
You’ll pay fees. Both VA and USDA loans come with fees, which add to the cost of the loan.
Your offer for a home might not look as compelling. The housing market is still competitive in most places around the country. If someone else makes an offer with a large down payment, that buyer might look like a better bet in the seller’s eyes.
Should you get a no-down payment mortgage?
Deciding whether to go for a no-down payment mortgage depends largely on your financial circumstances and goals. Here are a couple of scenarios when a zero-down mortgage might be a good idea:
If you don’t have a lot of cash: Not having to make a large initial payment leaves more in your pocket, obviously, to cover closing costs or living expenses.
If you can afford to pay higher monthly payments: With a smaller down payment comes a bigger loan, which means higher monthly payments. But you might be able to manage a few hundred more month-to-month, even if you couldn’t scrape together a five-figure down payment.
If you plan to stay in the home long-term: When you take out a no-down payment mortgage, you’ll still need to pay closing costs and fees. If you decide to sell your home after a few years for a new one, you’ll have to pay these costs again. Weigh whether it makes financial sense to buy now or save up a little longer.
FAQ on no-down-payment mortgages
The Department of Veteran Affairs and the U.S. Department of Agriculture DA don’t set a minimum credit score requirement for, respectively, their no-money-down VA and USDA loans. However, most lenders offering these loans do, and they’d want them to be at least in the “fair” range: 620 for VA loans, 640 for USDA loans. Because you’re not bringing any cash to the table, and financing virtually all of your mortgage, the lender has to be extra-reassured that you pay your debts fully and on time.
You can explore down payment assistance programs that offer either grants or second mortgages that often become forgivable after several years. You can also solicit gift funds from family or friends. If neither of these is feasible, you may have to put your homeownership dream on hold for a while, while you save up and/or strengthen your credit score.
On the heels of the $418 million settlement recently announced by the National Association of Realtors(NAR), mortgage trade group Community Home Lenders of America (CHLA) has called on the U.S. Department of Veteran Affairs (VA) to expedite regulatory change that would allow veterans and active-duty service members to fund buyer’s broker commissions when purchasing a home with a VA mortgage.
In a letter submitted Monday to John Bell, executive director of VA’s Loan Guaranty Service, the CHLA took issue with how the existing regulatory requirements regarding VA mortgages could put veterans and active-duty personnel at an “unfair disadvantage” when buying a home.
NAR’s settlement, which could go into effect as early as July, will eliminate the long-standing “Participation Rule” that requires listing agents to make an offer of cooperative compensation to buyers’ agents. Under the current system, the buyer agent’s commission is baked into the price paid for a home. If the settlement is finalized in its current form, buyers may have to pay upfront flat fees to agents.
The current VA rule states that a borrower using a VA loan cannot pay fees or commissions to a real estate agent unless determined “by the Under Secretary for Benefits as appropriate for inclusion . . . as proper local variances, under current VA regulations.“
“We ask that VA adopt an appropriate administrative remedy to ensure that those who have courageously served this country are not financially discriminated against in their homeownership journey,” the letter reads.
The VA has been monitoring various cases involving real estate broker commissions, including the NAR case, an official told HousingWire.
“VA is working closely with the Department of Justice to determine any potential implications for Veteran borrowers and is committed to ensuring that Veterans are neither disadvantaged in the homebuying process nor overcharged,” the official said in an e-mailed response.
The official added that the VA recognizes that potential changes may be forthcoming in the industry as a result of the proposed NAR settlement.
“VA is actively engaged with the Department of Justice to review the potential implications and evaluate how VA can best ensure that VA’s home loan program remains an attractive option for Veterans in the homebuying process.”
In December, the CHLA sent a letter to regulators and administrators at the Federal Housing Finance Agency (FHFA), the Department of Housing and Urban Development (HUD), the Department of Agriculture (USDA) and the VA warning that homebuyers who must pay broker commissions out of pocket could face further affordability challenges.
“First-time homebuyers, families with lower incomes, veterans, and minority homebuyers could be adversely affected in their ability to purchase a home because of obstacles and complications related to the need to fund the buyer’s broker commission,” the CHLA said.
If you’re like most people embarking on a home-buying journey, one of your first steps will be finding a mortgage lender. There’s a lot to consider when it comes to choosing the right one — everything from interest rates, loan types and fees to service and experience.
When comparing lenders, it’s worth taking your time and choosing carefully. Purchasing a home is a big step, and you want a knowledgeable lending partner by your side as you weigh your financing options and navigate the paperwork involved. A good mortgage lender is a valuable resource and can make the home-buying process easier and less stressful. Let’s take a look at the steps you can take to find the right lender fit for you.
How to Find a Mortgage Lender
There are several types of lenders you can look to for securing your home loan, with the most popular being direct lenders and mortgage brokers.
Direct lenders. Banks, credit unions and mortgage companies are considered direct lenders and handle the entire mortgage process from origination to closing.
Mortgage brokers. Mortgage brokers work independently with a variety of loan originators, including direct lenders, to help clients find a mortgage that fits their needs.
Which type of mortgage lender you choose depends on your personal preference, the type of loan you’re looking for and your financial situation. There are many factors to consider when comparing your options. While interest rates are certainly a big one, there are other things to think about, such as fees, loan products, the process and the lender’s experience and reputation.
Here are some tips for choosing the right lender and how to best set yourself up for mortgage success.
Starting the Loan Certification Process
When choosing a lender, look for one that offers a written letter or certification you can provide to sellers to let them know you are qualified. This gives you a clear picture of your buying power and can help you make a stronger offer on a home. When you work with a lender that provides this, you’re doing much of the legwork involved in obtaining a mortgage contract without actually finalizing it.
Choosing Pennymac as your lender gives you access to our unique BuyerReady Certification process. This certification gets you even closer to your new home by confirming precisely how much of a mortgage you will qualify for.
While a BuyerReady Certification does not guarantee a closing, it is a conditional approval based on the information you provide us through the formal loan process. You’ll have peace of mind knowing your borrowing limit and be able to show realtors and sellers that you’re serious about purchasing. To receive a Pennymac BuyerReady Certification, you’ll submit a mortgage application and financial documents, which a Pennymac Loan Expert will review.
Here are some of the benefits of having a BuyerReady Certification:
Shows sellers, realtors and lenders that you’re a serious homebuyer
Helps inform your decision-making in terms of how much you can spend on a home and the types of financing you’ll be able to qualify for
Gives you a competitive advantage over homebuyers who don’t have it
Important Mortgage Considerations
Whether you begin your hunt for the perfect lender and loan by visiting your local bank, searching online or surveying your family and friends, here are some key factors you’ll want to consider.
Interest Rates
Interest rates are among the most important factors to consider when comparing lenders. Your interest rate will determine how much you have to pay for your home loan, so take time to do the math when examining your options. Even a seemingly small difference between rates, such as an additional .5%, can add up to a considerable increase in your monthly payment. Over a 30-year term, you could be paying tens of thousands of dollars more in interest.
While interest rates aren’t the only factor to look at when choosing a lender, they are a significant one. Select a lender that offers a range of competitive rates and terms and will quickly lock in a rate when you find the one that works best for your budget.
Down Payment and Mortgage Insurance
Most, but not all, home loans will require a down payment. A home down payment is money paid upfront for the home at closing and is a percentage of the home’s purchase price.
A conventional fixed-rate mortgage may require a down payment of as little as 3%. A Federal Housing Administration (FHA) mortgage has a minimum down payment of 3.5%, while the U.S. Department of Veterans Affairs offers loans with 0% down.
When comparing mortgage lenders, be sure to inquire about which loans they offer, especially if you’re interested in a non-conventional loan, such as a FHA or VA loan.
Keep Mortgage Insurance in Mind
While there is flexibility in how much of a down payment you make, if you have a conventional loan and do not put at least 20% down, you’ll have to pay for private mortgage insurance (PMI). This is a policy that protects your lender if you fall behind on your payments or end up in foreclosure. It is paid monthly on top of your regular mortgage payment.
Lenders partner with certain PMI providers and may use different calculations to determine your PMI premium. If you anticipate that you’ll be paying PMI, be sure to factor those premium charges into your cost comparisons. Conventional mortgage insurance can be priced quite aggressively, especially if the borrower has a solid credit score. It’s a great option for those who want to keep cash in the bank for investing and/or reserves.
If you opt for an FHA loan, mortgage insurance — similar to PMI — is always required at first. How much and how long you’ll have to pay the extra monthly premium depends on the amount of your down payment. VA loans do not require any type of mortgage insurance but may have other mandatory fees.
Fees
When comparing lenders, you’ll want to specifically evaluate rates, as well as origination fees and discount points, which can vary depending on who you choose. The homebuyer usually pays the fees, although sometimes a seller will agree to a concession and pay for some. Don’t be afraid to negotiate any closing costs. See if the lender you’re considering will work with you to reduce some fees or make other favorable compromises.
Prepare for Meeting with a Loan Officer
Once you find a prospective lender, you’ll meet with a loan officer or expert in person, through email or over the phone to discuss your mortgage options. Your loan officer will help determine your short and long-term goals with your home purchase and offer options to tailor your loan to your current financial situation. This meeting will provide a foundation for your loan officer to match you with a home loan that meets your needs.
Being prepared will help you make the most of your meeting and facilitate the mortgage process. Before meeting with your loan officer, here are some things you can do.
Improve Your Credit Score
Your credit score is a major factor in determining what kind of loans you may qualify for and your interest rate. A lender will want to be confident that you’ll be able to repay your loan. Your credit score is based on the data in your credit report and is a numerical rating based on your credit history. It takes the following into account:
Your bill-paying history
Total amount of current unpaid secured and unsecured debt
Your open loan accounts
How long you have had your loan accounts open
Credit account limits
Collections, charge-offs and any derogatory debt
Typically, the higher your credit score, the more loan options you will have. A lower credit score can mean that mortgage choices may be limited to non-conventional loans with broader qualification requirements.
The following are three steps you can take to help boost your credit score:
Check your credit report. Request free credit reports from each major credit bureau (Equifax, TransUnion and Experian) and review them for accuracy.
Pay bills on time. Late payments for credit cards and personal or auto loans can negatively impact your credit score. Making consistent on-time payments is one of the most influential credit score factors. If this is an area of concern, consider setting up automatic payments and commit to paying at least the minimum amount due each month.
Reduce credit utilization ratio (CUR). Demonstrate responsible credit management by lowering your credit card balances as much as possible. Try to keep your credit utilization ratio below 30%, which indicates that you are using a smaller portion of your available credit. Calculate your CUR as follows: Credit Utilization Ratio = (Total Outstanding Balances on Credit Accounts/Available Credit/Total Credit Limit on Accounts) x 100.
Organize Your Finances and Documents
To prepare for your loan officer meeting, determine how much money you have for a down payment, as this will be important when evaluating your loan options and monthly payments. You will also be required to submit numerous financial documents, including:
Photo ID
Pay stubs
Tax returns and W-2s and/or 1099s
Bank statements
All the paperwork may not be necessary during your initial meeting. Still, a jumpstart on document-gathering can help streamline the mortgage application process when your loan officer is ready to review them.
Understand Which Loan Is Right for You
While your lender will look at your complete financial picture before presenting — and explaining — your mortgage options, it is a good idea to have a basic understanding of the choices available. The following are the most common types of home purchase loans:
Each type of loan has its benefits and qualification requirements. When comparing home loans, you’ll want to think about:
How long you intend to stay in the loan
Your down payment and credit score
Your income stability
How much you intend to borrow
How long you plan to stay in and/or own the home
Your future plans, e.g., will you need more space for children or aging parents?
Your budget
Assess Your Budget
After you apply for your mortgage, you’ll go through the underwriting process, whereby all your financial documents will be examined and verified. Because the loan officer will ultimately determine how much you can borrow based on your budget, it’s crucial to provide them with the most accurate information upfront during the application process. Providing inaccurate information before going into processing can impact your qualification on the back end. Taking these steps before your loan officer meeting may help improve your chances that you’ll receive a loan approval:
Review your debt-to-income ratio (DTI) with a licensed loan officer. Your DTI is determined by how much recurring monthly debt you have compared to your monthly gross income. Look at your credit card and loan payments. Having less of your monthly income allocated to debt is a positive indicator of being able to qualify for a loan.
Establish how much you can put down on a home. The higher your down payment, the less you’ll have to borrow.
Determine how much you can afford to pay every month. Your new home expenses are not limited to your mortgage. Consider other costs such as:
Closing costs
Insurance
Property taxes
Potentially higher utility expenses
Any applicable mortgage insurance
Homeowners association fees
You’ll also want to think about how your new mortgage will affect your long-term savings goals, such as saving for retirement or your child’s education.
Questions to Ask the Loan Officer
Whether you’re a first-time homebuyer or a seasoned homeowner, the mortgage process may seem a bit overwhelming. Meeting with a licensed loan officer is an opportunity to get your questions answered so you can better understand the process, the loans available and the fees involved.
The following questions are a starting point for gathering information from your loan officer:
What types of home loans do you offer? Which do you think would best fit my needs?
What are the loan rates, terms and eligibility requirements?
What is the required minimum down payment amount for the different loan options?
Will my loan require mortgage insurance?
Is there a prepayment penalty if I want to pay off my loan early?
Do you offer a letter, certification, pre-approval or something similar I can provide sellers to validate my qualifications?
What will my closing costs be?
Can I lock in my interest rate?
Who will be my primary contact? Will it be you or someone else once the loan moves to underwriting?
Can I buy discount mortgage points? How long will it take to recoup them?
These are fees paid at closing that can help you lower your monthly mortgage payment.
How long is the mortgage process? When can I expect to close?
Will the loan closing take place in person or online?
Take your time to ask all the questions you need. A mortgage is a significant financial commitment, and you want to be confident that you’re making the most informed decision. If your loan officer is impatient or reluctant to answer your questions, that may be a sign that they’re not the right lender for you. A loan officer should be a borrower’s advocate and take the time to educate them throughout the process.
Interest Rate Lock
Mortgage rates constantly fluctuate, so asking for an interest rate lock is a smart idea if you find a good rate. An interest rate lock, also known as a locked-in rate, is a guarantee from a lender to give you a set interest rate when you apply for a mortgage. It protects borrowers against potential interest rate increases during the mortgage underwriting process.
Rates can generally be locked for an option of 30, 45, 60 or even 90 days. They are usually locked after the loan application has been reviewed and before underwriting. Lenders have different policies regarding rate locks, including fees, so inquire about policies when comparing lenders.
How Long Is the Process?
The mortgage loan timeline, consisting of a BuyerReady Certification, applying for the loan and underwriting, varies from 30 to 60 days or longer. Some factors that hinder the mortgage process include:
When borrowers do not have all their documents in order or provide inaccurate or incomplete information
When borrowers have more complex situations, such as credit issues
When lenders experience delays obtaining verifications, such as your credit history from the credit bureaus, rental records from a landlord or employment information
Stricter regulations that require lenders to accommodate more compliance checks
While some delays may be beyond your control, here are a few tips that could help expedite the loan process:
Gather as many financial documents as possible before applying for the loan
Do not omit any required information
Respond promptly to your lender’s questions or documentation requests
Stay in frequent communication with your lender and address any issues quickly
Try to avoid making any major financial changes during this time, such as changing jobs or taking on significant new debt
Get a List of All Paperwork Needed
Submitting documents is a requisite part of the home loan application and approval process. All lenders require certain documents to verify your financial and personal information to assess your creditworthiness and ability to repay your loan. The documentation will give your lender insight into your financial situation, income, assets and liabilities. While you should check with your lender to see what specific documentation they will need, at a minimum, lenders will typically ask for:
Employment verification, including pay stubs
Social Security, pension or retirement income, if retired
Evidence of any other forms of income, such as child support
Tax returns for the past two years
Bank statements for your checking and savings accounts
Statements for other assets like your investment and retirement accounts
Student loan details
Information on any debt you have, such as auto or student loans
Gift letter, if family members are contributing funds toward the down payment
Rental payment history, if applicable
There’s a lot that goes into choosing the right lender. But finding one that offers a loan that aligns with your financial goals and provides a positive borrowing experience is essential. With some due diligence, you’ll find a reputable lender to guide and support you through the mortgage process as you make the move toward your next home.
As a top national mortgage lender, Pennymac has loan experts who specialize in purchase loans to help homebuyers through the mortgage process and ensure a seamless home-buying experience. Plus, they can help you get BuyerReady Certified so you’ll know how exactly much money you can borrow and be more confident when looking for a home. Interested to learn more about what Pennymac can do for you? Get a custom instant rate quote today.
The VA home loan: Unbeatable benefits for veterans
For many who qualify, VA home loans are some of the best mortgages available.
Verify your VA loan eligibility. Start here
Backed by the U.S. Department of Veterans Affairs, VA loans are designed to help active-duty military personnel, veterans and certain other groups become homeowners at an affordable cost.
The VA loan asks for no down payment, requires no mortgage insurance, and has lenient rules about qualifying, among many other advantages.
Here’s everything you need to know about qualifying for and using a VA loan.
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Top 10 VA loan benefits
1. No down payment on a VA loan
Most home loan programs require you to make at least a small down payment to buy a home. The VA home loan is an exception.
Verify your VA loan eligibility. Start here
Rather than paying 5%, 10%, 20% or more of the home’s purchase price upfront in cash, with a VA loan you can finance up to 100% of the purchase price.
The VA loan is a true no-money-down home mortgage opportunity.
2. No mortgage insurance for VA loans
Typically, lenders require you to pay for mortgage insurance if you make a down payment that’s less than 20%.
This insurance — which is known as private mortgage insurance (PMI) for a conventional loan and a mortgage insurance premium (MIP) for an FHA loan — would protect the lender if you defaulted on your loan.
VA loans require neither a down payment nor mortgage insurance. That makes a VA-backed mortgage very affordable upfront and over time.
3. VA loans have a government guarantee
There’s a reason why the VA loan comes with such favorable terms.
The federal government guarantees these loans — meaning a portion of the loan amount will be repaid to the lender even if you’re unable to make monthly payments for whatever reason.
This guarantee encourages and enables private lenders to offer VA loans with exceptionally attractive terms.
4. You can shop for the best VA loan rates
VA loans are neither originated nor funded by the VA. They are not direct loans from the government. Furthermore, mortgage rates for VA loans are not set by the VA itself.
Instead, VA loans are offered by U.S. banks, savings-and-loans institutions, credit unions, and mortgage lenders — each of which sets its own VA loan rates and fees.
This means you can shop around and compare loan offers and still choose the VA loan that works best for your budget.
5. VA loans don’t allow a prepayment penalty
A VA loan won’t restrict your right to sell the property partway through your loan term.
There’s no prepayment penalty or early-exit fee no matter within what time frame you decide to sell your home.
Furthermore, there are no restrictions regarding a refinance of your VA loan.
You can refinance your existing VA loan into another VA loan via the agency’s Interest Rate Reduction Refinance Loan (IRRRL) program, or switch into a non-VA loan at any time.
6. VA mortgages come in many varieties
A VA loan can have a fixed rate or an adjustable rate. In addition, you can use a VA loan to buy a house, condo, new-built home, manufactured home, duplex, or other types of properties.
Or, it can be used for refinancing your existing mortgage, making repairs or improvements to your home, or making your home more energy-efficient.
The choice is yours. A VA-approved lender can help you decide.
Verify your VA loan eligibility. Start here
7. It’s easier to qualify for VA loans
Like all mortgage types, VA loans require specific documentation, an acceptable credit history, and sufficient income to make your monthly payments.
But, compared to other loan programs, VA loan guidelines tend to be more flexible. This is made possible because of the VA loan guarantee.
The Department of Veterans Affairs genuinely wants to make the loan process easier for military members, veterans, and qualifying military spouses to buy or refinance a home.
8. VA loan closing costs are lower
The VA limits the closing costs lenders can charge to VA loan applicants. This is another way that a VA loan can be more affordable than other types of loans.
Money saved on closing costs can be used for furniture, moving costs, home improvements, or anything else.
9. The VA offers funding fee flexibility
VA loans require a “funding fee,” an upfront cost based on your loan amount, your type of eligible service, your down payment size, and other factors.
Funding fees don’t need to be paid in cash, though. The VA allows the fee to be financed with the loan, so nothing is due at closing.
And, not all VA borrowers will pay it. VA funding fees are normally waived for veterans who receive VA disability compensation and for unmarried surviving spouses of veterans who died in service or as a result of a service-connected disability.
10. VA loans are assumable
Most VA loans are “assumable,” which means you can transfer your VA loan to a future home buyer if that person is also VA-eligible.
Assumable loans can be a huge benefit when you sell your home — especially in a rising mortgage rate environment.
If your home loan has today’s low rate and market rates rise in the future, the assumption features of your VA become even more valuable.
VA loan rates
The VA loan is viewed as one of the lowest-risk mortgage types available on the market.
Verify your VA loan eligibility. Start here
This safety allows banks to lend to veteran borrowers at lower interest rates.
Today’s VA loan rates*
Loan Type
Current Mortgage Rate
VA 30-year FRM
% (% APR)
Conventional 30-year FRM
% (% APR)
VA 15-year FRM
% (% APR)
Conventional 15-year FRM
% (% APR)
*Current rates provided daily by partners of the Mortgage Reports. See our loan assumptions here.
VA rates are more than 25 basis points (0.25%) lower than conventional rates on average, according to data collected by mortgage software company Ellie Mae.
Most loan programs require higher down payment and credit scores than the VA home loan. In the open market, a VA loan should carry a higher rate due to more lenient lending guidelines and higher perceived risk.
Yet the result of the Veterans Affairs efforts to keep veterans in their homes means lower risk for banks and lower borrowing costs for eligible veterans.
VA mortgage calculator
Eligibility
Am I eligible for a VA home loan?
Contrary to popular belief, VA loans are available not only to veterans, but also to other classes of military members.
Find and lock a low VA loan rate today. Start here
The list of eligible VA borrowers includes:
Active-duty service members
Members of the National Guard
Reservists
Surviving spouses of veterans
Cadets at the U.S. Military, Air Force or Coast Guard Academy
Midshipmen at the U.S. Naval Academy
Officers at the National Oceanic & Atmospheric Administration.
A minimum term of service is typically required.
Minimum service required for a VA mortgage
VA home loans are available to active-duty service members, veterans (unless dishonorably discharged), and in some cases, surviving family members.
To be eligible, you need to meet one of these service requirements:
You’ve served 181 days of active duty during peacetime
You’ve served 90 days of active duty during wartime
You’ve served six years in the Reserves or National Guard
Your spouse was killed in the line of duty and you have not remarried
Your eligibility for the VA home loan program never expires.
Veterans who earned their VA entitlement long ago are still using their benefit to buy homes.
The VA loan Certificate of Eligibility (COE)
What is a COE?
In order to show a mortgage company you are VA-eligible, you’ll need a Certificate of Eligibility (COE). Your lender can acquire one for you online, usually in a matter of seconds.
Verify your VA home loan eligibility. Start here
How to get your COE (Certificate of Eligibility)
Getting a Certificate of Eligibility (COE) is very easy in most cases. Simply have your lender order the COE through the VA’s automated system. Any VA-approved lender can do this.
Alternatively, you can order your certificate yourself through the VA benefits portal.
If the online system is unable to issue your COE, you’ll need to provide your DD-214 form to your lender or the VA.
Does a COE mean you are guaranteed a VA loan?
No, having a Certificate of Eligibility (COE) doesn’t guarantee a VA loan approval.
Your COE shows the lender you’re eligible for a VA loan, but no one is guaranteed VA loan approval.
You must still qualify for the loan based on VA mortgage guidelines. The guarantee part of the VA loan refers to the VA’s promise to the lender of repayment if the borrower defaults.
Qualifying for a VA mortgage
VA loan eligibility vs. qualification
Being eligible for VA home loan benefits based on your military status or affiliation doesn’t necessarily mean you’ll qualify for a VA loan.
You still have to qualify for a VA mortgage based on your credit, debt, and income.
Verify your VA loan eligibility. Start here
Minimum credit score for a VA loan
The VA has established no minimum credit score for a VA mortgage.
However, many VA mortgage lenders require minimum FICO scores of 620 or higher — so apply with many lenders if your credit score might be an issue.
Even VA lenders that allow lower credit scores don’t accept subprime credit.
VA underwriting guidelines state that applicants must have paid their obligations on time for at least the most recent 12 months to be considered satisfactory credit risks.
In addition, the VA usually requires a two-year waiting period following a Chapter 7 bankruptcy or foreclosure before it will insure a loan.
Borrowers in Chapter 13 must have made at least 12 on-time payments and secure the approval of the bankruptcy court.
Verify your VA loan home buying eligibility. Start here
VA loan debt-to-income ratios
The relationship of your debts and your income is called your debt-to-income ratio, or DTI.
VA underwriters divide your monthly debts (car payments, credit cards, and other accounts, plus your proposed housing expense) by your gross (before-tax) income to come up with your debt-to-income ratio.
For instance:
If your gross income is $4,000 per month
And your total monthly debt is $1,500 (including the new mortgage, property taxes and homeowners insurance, plus other debt payments)
Then your DTI is 37.5% (1500/4000=0.375)
A DTI over 41% means the lender has to apply additional formulas to see if you qualify under residual income guidelines.
VA residual income rules
VA underwriters perform additional calculations that can affect your mortgage approval.
Factoring in your estimated monthly utilities, your estimated taxes on income, and the area of the country in which you live, the VA arrives at a figure which represents your “true” costs of living.
It then subtracts that figure from your income to find your residual income (e.g. your money “left over” each month).
Think of the residual income calculation as a real-world simulation of your living expenses.
It is the VA’s best effort to ensure that military families have a stress-free homeownership experience.
Here is an example of how residual income works, assuming a family of four which is purchasing a 2,000 square-foot home on a $5,000 monthly income.
Future house payment, plus other debt payments: $2,500
Monthly estimated income taxes: $1,000
Monthly estimated utilities at $0.14 per square foot: $280
This leaves a residual income calculation of $1,220.
Now, compare that residual income to for a family of four:
Northeast Region: $1,025
Midwest Region: $1,003
South Region: $1,003
West Region: $1,117
The borrower in our example exceeds VA’s residual income standards in all parts of the country.
Therefore, despite the borrower’s debt-to-income ratio of 50%, the borrower could get approved for a VA loan.
Verify your VA loan eligibility. Start here
Qualifying for a VA loan with part-time income
You can qualify for this type of financing even if you have a part-time job or multiple jobs.
You must show a 2-year history of making consistent part-time income, and stability in the number of hours worked. The lender will make sure any income received appears stable. See our complete guide to getting a mortgage when you’re self-employed or work part-time.
VA funding fees and loan limits
About the VA funding fee
The VA charges an upfront fee to defray the costs of the program and make it sustainable for the future.
Veterans pay a lump sum that varies depending on the loan purpose and down payment amount.
The fee is normally wrapped into the loan. It does not add to the cash needed to close the loan.
Find out if you qualify for a VA loan. Start here
VA home purchase funding fees
Type of Military Service
Down Payment
Fee for First-Time Use
Fee for Subsequent Use
Active Duty, Reserves, and National Guard
None
2.3%
3.6%
5% or more
1.65%
1.65%
10% or more
1.4%
1.4%
VA cash-out refinance funding fees
Type of Military Service
Fee for First-Time Use
Fee for Subsequent Uses
Active Duty, Reserves, and National Guard
2.3%
3.6%
VA streamline refinances (IRRRL) & assumptions
Type of Military Service
Fee for First-Time Use
Fee for Subsequent Uses
Active Duty, Reserves, and National Guard
0.5%
0.5%
Manufactured home loans not permanently affixed
Type of Military Service
Fee for First-Time Use
Fee for Subsequent Uses
Active Duty, Reserves, and National Guard
1.0%
1.0%
VA loan limits in 2024
VA loan limits have been repealed, thanks to the Blue Water Navy Vietnam Veterans Act of 2019.
There is no maximum amount for which a home buyer can receive a VA loan, at least as far as the VA is concerned.
However, private lenders may set their own limits. So check with your lender if you are looking for a VA loan above local conforming loan limits.
Verify your VA loan eligibility. Start here
Eligible property types
Houses you can buy with a VA loan
VA mortgages are flexible about what types of property you can and can’t purchase. A VA loan can be used to buy a:
Detached house
Condo
New-built home
Manufactured home
Duplex, triplex or four-unit property
Find out if you qualify for a VA loan. Start here
You can also use a VA mortgage to refinance an existing loan for any of those types of properties.
VA loans and second homes
Federal regulations limit loans guaranteed by the Department of Veterans Affairs to “primary residences” only.
However, “primary residence” is defined as the home in which you live “most of the year.”
Therefore, if you own an out-of-state residence in which you live for more than six months of the year, this other home, whether it’s your vacation home or retirement property, becomes your official “primary residence.”
For this reason, VA loans are popular among aging military borrowers.
Buying a multi-unit home with a VA loan
VA loans allow you to buy a duplex, triplex, or four-plex with 100% financing. You must live in one of the units.
Buying a home with more than one unit can be challenging.
Mortgage lenders consider these properties riskier to finance than traditional, single-family residences, so you’ll need to be a stronger borrower.
VA underwriters must make sure you will have enough emergency savings, or cash reserves, after closing on your house. That’s to ensure you’ll have money to pay your mortgage even if a tenant fails to pay rent or moves out.
The minimum cash reserves needed after closing is six months of mortgage payments (covering principal, interest, taxes, and insurance – PITI).
Your lender will also want to know about previous landlord experience you’ve had, or any experience with property maintenance or renting.
If you don’t have any, you may be able to sidestep that issue by hiring a property management company. But that’s up to the individual lender.
Your lender will look at the income (or potential income) of the rental units, using either existing rental agreements or an appraiser’s opinion of what the units should fetch.
They’ll usually take 75% of that amount to offset your mortgage payment when calculating your monthly expenses.
VA loans and rental properties
You cannot use a VA loan to buy a rental property. You can, however, use a VA loan to refinance an existing rental home you once occupied as a primary home.
For home purchases, in order to obtain a VA loan, you must certify that you intend to occupy the home as your principal residence.
If the property is a duplex, triplex, or four-unit apartment building, you must occupy one of the units yourself. Then you can rent out the other units.
The exception to this rule is the VA’s Interest Rate Reduction Refinance Loan (IRRRL).
This loan, also known as the VA Streamline Refinance, can be used for refinancing an existing VA loan on a home where you currently live or where you used to live, but no longer do.
Check your VA IRRRL eligibility. Start here
Buying a condo with a VA loan
The VA maintains a list of approved condo projects within which you may purchase a unit with a VA loan.
At VA’s website, you can search for the thousands of approved condominium complexes across the U.S.
If you are VA-eligible and in the market for a condo, make sure the unit you’re interested in is approved.
As a buyer, you are probably not able to get the complex VA-approved. That’s up to the management company or homeowner’s association.
If a condo you like is not approved, you must use other financing like an FHA or conventional loan or find another property.
Note that the condo must meet FHA or conventional guidelines if you want to use those types of financing.
Veteran mortgage relief with the VA loan
The U.S. Department of Veterans Affairs, or VA, provides home retention assistance. The VA intervenes when a veteran is having trouble making home loan payments.
The VA works with loan servicers to offer loan options to the veteran, other than foreclosure.
Find out if you qualify for a VA loan. Start here
In fiscal year 2019, the VA made over 400,000 contact actions to reach borrowers and loan servicers. The intent was to work out a mutually agreeable repayment option for both parties.
More than 100,000 veteran homeowners avoided foreclosure in 2019 alone thanks to this effort.
The initiative has saved the taxpayer an estimated $2.6 billion. More importantly, vast numbers of veterans and military families got another chance at homeownership.
When NOT to use a VA loan
If you have good credit and 20% down
A primary advantage to VA home loans is the lack of mortgage insurance.
However, the VA guarantee does not come free of charge. Borrowers pay an upfront funding fee, which they usually choose to add to their loan amount.
The fee ranges from 1.4% to 3.6%, depending on the down payment percentage and whether the home buyer has previously used his or her VA mortgage eligibility. The most common fee is 2.3%.
Find out if you qualify for a VA loan. Start here
On a $200,000 purchase, a 2.3% fee equals $4,600.
However, buyers who choose a conventional mortgage and put 20% down get to avoid mortgage insurance and the upfront fee. For these military home buyers, the VA funding fee might be an unnecessary expense.
The exception: Mortgage applicants whose credit rating or income meets VA guidelines but not those of conventional mortgages may still opt for VA.
If you’re on the “CAIVRS” list
To qualify for a VA loan, you must prove you have made good on previous government-backed debts and that you have paid taxes.
The Credit Alert Verification Reporting System, or “CAIVRS,” is a database of consumers who have defaulted on government obligations. These individuals are not eligible for the VA home loan program.
If you have a non-veteran co-borrower
Veterans often apply to buy a home with a non-veteran who is not their spouse.
This is okay. However, it might not be their best choice.
As the veteran, your income must cover your half of the loan payment. The non-veteran’s income cannot be used to compensate for the veteran’s insufficient income.
Plus, when a non-veteran owns half the loan, the VA guarantees only half that amount. The lender will require a 12.5% down payment for the non-guaranteed portion.
The Conventional 97 mortgage, on the other hand, allows down payments as low as 3%.
Another low-down-payment mortgage option is the FHA home loan, for which 3.5% down is acceptable.
The USDA home loan also requires zero down payment and offers similar rates to VA loans. However, the property must be within USDA-eligible areas.
If you plan to borrow with a non-veteran, one of these loan types might be your better choice.
Explore your mortgage options. Start here
If you apply with a credit-challenged spouse
In states with community property laws, VA lenders must consider the credit rating and financial obligations of your spouse. This rule applies even if he or she will not be on the home’s title or even on the mortgage.
Such states are as follows.
Arizona
California
Idaho
Louisiana
Nevada
New Mexico
Texas
Washington
Wisconsin
A spouse with less-than-perfect credit or who owes alimony, child support, or other maintenance can make your VA approval more challenging.
Apply for a conventional loan if you qualify for the mortgage by yourself. The spouse’s financial history and status need not be considered if he or she is not on the loan application.
Verify your VA loan home buying eligibility. Start here
If you want to buy a vacation home or investment property
The purpose of VA financing is to help veterans and active-duty service members buy and live in their own home. This loan is not meant to build real estate portfolios.
These loans are for primary residences only, so if you want a ski cabin or rental, you’ll have to get a conventional loan.
If you want to purchase a high-end home
Starting January 2020, there are no limits to the size of mortgage a lender can approve.
However, lenders may establish their own limits for VA loans, so check with your lender before applying for a large VA loan.
Spouses and the VA mortgage program
What spouses are eligible for a VA loan?
What if the service member passes away before he or she uses the benefit? Eligibility passes to an unremarried spouse, in many cases.
Find and lock a low VA loan rate today. Start here
For the surviving spouse to be eligible, the deceased service member must have:
Died in the line of duty
Passed away as a result of a service-connected disability
Been missing in action, or a prisoner of war, for at least 90 days
Been a totally disabled veteran for at least 10 years prior to death, and died from any cause
Also eligible are remarried spouses who married after the age of 57, on or after December 16, 2003.
In these cases, the surviving spouse can use VA loan eligibility to buy a home with zero down payment, just as the veteran would have.
VA loan benefits for surviving spouses
Surviving spouses have an additional VA loan benefit, however. They are exempt from the VA funding fee. As a result, their loan balance and monthly payment will be lower.
Surviving spouses are also eligible for a VA streamline refinance when they meet the following guidelines.
The surviving spouse was married to the veteran at the time of death
The surviving spouse was on the original VA loan
VA streamline refinancing is typically not available when the deceased veteran was the only applicant on the original VA loan, even if he or she got married after buying the home.
In this case, the surviving spouse would need to qualify for a non-VA refinance, or a VA cash-out loan.
A cash-out mortgage through VA requires the military spouse to meet home purchase eligibility requirements.
If this is the case, the surviving spouse can tap into the home’s equity to raise cash for any purpose, or even pay off an FHA or conventional loan to eliminate mortgage insurance.
Qualifying if you receive (or pay) child support or alimony
Buying a home after a divorce is no easy task.
If, prior to your divorce, you lived in a two-income household, you now have less spending power and a reduced monthly income for purposes of your VA home loan application.
With less income, it can be harder to meet both the VA Home Loan Guaranty’s debt-to-income (DTI) guidelines and the VA residual income requirement for your area.
Receiving alimony or child support can counteract a loss of income.
Mortgage lenders will not require you to provide information about your divorce agreement’s alimony or child support terms, but if you’re willing to disclose, it can count toward qualifying for a home loan.
Different VA-approved lenders will treat alimony and child support income differently.
Typically, you will be asked to provide a copy of your divorce settlement or other court paperwork to support the alimony and child support payments.
Lenders will then want to see that the payments are stable, reliable, and likely to continue for another 36 months, at least.
You may also be asked to show proof that alimony and child support payments have been made in the past reliably, so that the lender may use the income as part of your VA loan application.
If you are the payor of alimony and child support payments, your debt-to-income ratio can be harmed.
Not only might you be losing the second income of your dual-income households, but you’re making additional payments that count against your outflows.
VA mortgage lenders make careful calculations with respect to such payments.
You can still get approved for a VA loan while making such payments — it’s just more difficult to show sufficient monthly income.
VA loan assumption
What is VA loan assumption?
One benefit for home buyers is that VA loans are assumable. When you assume a mortgage loan, you take over the current homeowner’s monthly payment.
Verify your VA loan home buying eligibility. Start here
That could be a big advantage if mortgage rates have risen since the original owner purchased the home. The buyer would be able to acquire a low-rate, affordable loan — and it could make it easier for the seller to find a willing buyer in a tough market.
VA loan assumption savings
Buying a home via an assumable mortgage loan is even more appealing when interest rates are on the rise.
For example:
Say a seller-financed $200,000 for their home in 2013 at an interest rate of 3.25% on a 30-year fixed loan
Using this scenario, their principal and interest payment would be $898 per month
Let’s assume current 30-year fixed rates averaged 4.10%
If you financed $200,000 at 4.10% for a 30-year loan term, your monthly principal and interest payment would be $966 per month
Additionally, because the seller has already paid four years into the loan term, they’ve already paid nearly $25,000 in interest on the loan.
By assuming the loan, you would save $34,560 over the 30-year loan due to the difference in interest rates. You would also save roughly $25,000 thanks to the interest already paid by the sellers.
That comes out to a total savings of almost $60,000!
How to assume (take on) a VA loan
There are currently two ways to assume a VA loan.
The new buyer is a qualified veteran who “substitutes” his or her VA eligibility for the eligibility of the seller
The new home buyer qualifies through VA standards for the mortgage payment. This is the safest method for the seller as it allows the loan to be assumed knowing that the new buyer is responsible for the loan, and the seller is no longer responsible for the loan
The lender and/or the VA needs to approve a loan assumption.
Loans serviced by a lender with automatic authority may process assumptions without sending them to a VA Regional Loan Center.
For lenders without automatic authority, the loan must be sent to the appropriate VA Regional Loan Center for approval. This loan process will typically take several weeks.
When VA loans are assumed, it’s the servicer’s responsibility to make sure the homeowner who assumes the property meets both VA and lender requirements.
VA loan assumption requirements
For a VA mortgage assumption to take place, the following conditions must be met:
The existing loan must be current. If not, any past due amounts must be paid at or before closing
The buyer must qualify based on VA credit and income standards
The buyer must assume all mortgage obligations, including repayment to the VA if the loan goes into default
The original owner or new owner must pay a funding fee of 0.5% of the existing principal loan balance
A processing fee must be paid in advance, including a reasonable estimate for the cost of the credit report
Find out if you qualify for a VA loan. Start here
Finding assumable VA loans
There are several ways for home buyers to find an assumable VA loan.
Believe it or not, print media is still alive and well. Some home sellers advertise their assumable home for sale in the newspaper, or in a local real estate publication.
There are a number of online resources for finding assumable mortgage loans.
Websites like TakeList.com and Zumption.com give homeowners a way to showcase their properties to home buyers looking to assume a loan.
With the help of the Multiple Listing Service (MLS), real estate agents remain a great resource for home buyers.
This applies to home buyers specifically searching for assumable VA loans as well.
How do I apply for a VA loan?
You can easily and quickly have a lender pull your certificate of eligibility (COE) to make sure you’re able to get a VA loan.
Most mortgage lenders offer VA home loans. So you’re free to shop and compare rates with just about any company that catches your eye.
Getting a VA loan for your new home is similar in many ways to securing any other purchase loan. Once you find an ideal home in your price range, you make a purchase offer, and then undergo VA appraisal and underwriting.
VA appraisal ensures that the home meets its minimum property requirements (MPRs) and is structurally sound and safe for occupancy.
What’s more, VA-specific mortgage lenders are actually some of the highest-rated (and lowest-priced) on the market. Here are a few we’d recommend checking out.
Time to make a move? Let us find the right mortgage for you
In a standard home purchase scenario, prospective homebuyers apply with a lender to obtain conventional financing to get the new home on their wishlist.
Did you know, however, that there may be another financing option that could possibly benefit both the buyer and the seller under the right circumstances? We’re talking about the Assumable Mortgage.
What Is an Assumable Mortgage?
An assumable mortgage is a special type of home financing that allows a homebuyer to take over (or, assume) the seller’s existing mortgage and all of the terms that come with it, such as the interest rate, current balance, and repayment period. In cases where interest rates have gone up significantly since the seller originally bought and financed the home, this can present a savings opportunity that includes the low interest rate on the mortgage as part of the purchase of the home.
Which Types of Mortgages Are Assumable?
The loans that most often qualify for assumption are VA and FHA loans, which are backed by the federal government. Under certain circumstances conventional mortgages can also be assumable, but the majority of those loans contain a due-on-sale clause requiring the full balance of the loan to be paid upon transfer of property ownership, which makes the loan ineligible for assumption.
How Do Assumable Mortgages Work?
If you’re selling your home and the mortgage on the home is eligible for assumption, you can allow a qualified interested buyer to take over your mortgage as part of the sale of your home.
With the approval of your lender, the buyer would take over all of the responsibilities of your existing mortgage along with the home itself — including the interest rate and monthly payment — which can be significantly lower than the current rates and terms available for new mortgages. All of the terms of the loan would stay as is and simply be transferred over in the buyer’s name. You’ll want to be sure to get a written release of liability signed by both you (the original loan holder) and the lender to remove yourself from any further responsibility on the loan.
In the right circumstances, your buyer could save tens of thousands of dollars on an assumed mortgage since they’re effectively grandfathered in on what could be more favorable terms secured when the original loan was obtained. Given this unique benefit, you could potentially leverage that savings to justify a higher asking price for your home.
To illustrate the savings and benefits of this unique transaction, let’s explore an example scenario below from the buyer’s perspective.
Saving Money With an Assumable Mortgage
Let’s say you’re buying a home and you’d like to assume the mortgage on the home, appraised at $230,769 with a current remaining principal loan balance of $203,249. This means you would take over the payments on the remaining $203,249 and enjoy the original terms allotted to the assumed mortgage.
That still leaves $27,520 that must be paid in cash to the seller, which you can settle during the loan assumption transaction, much like a traditional down payment. If you cannot produce that entire cash amount to assume the loan, you may possibly be able to secure an additional personal loan to cover a portion of the difference. Keep in mind, however, that in most cases lenders who provide secondary financing will typically want to make sure that no more than 85 to 90 percent of the total appraised value of the home is being financed.
Here is an example comparison of a standard new FHA mortgage on a home selling for $230,769, versus an assumed FHA mortgage on the same home, with a lower fixed interest rate and five years already paid on the term.
New FHA Mortgage: A new 30-year FHA loan for a home priced and appraised at $230,769, with a principal loan balance of $222,692 (after the buyer put a minimum of 3.5% down, or approximately $8,077) with a fixed interest rate of 6.25%, will result in monthly payments of $1,371.15 (principal and interest only, excluding property taxes and insurance) totaling $493,615.06 over the life of the mortgage.
Assumable Mortgage: The assumption of a 30-year FHA loan with 25 years left on the term for a home selling for $230,769 with a remaining principal balance of $203,249 at the original interest rate of 2.5% results in a monthly payment of $911.81 and an approximate total loan cost of $273,543.07 (paid over 25 years).
New 30-Year FHA Mortgage
Assumable FHA Mortgage
Savings
Principal Loan Balance
$222,692
$203,249
N/A
Interest Rate
6.25%
2.5%
N/A
Down Payment
$8,077
$27,520
N/A
Monthly Payment(s)
$1,371.15
$911.81
$459.34
Total Loan Cost (principal +interest)
$493,615.06
$273,543.07
$220,071.99
Note: The example above does not include mortgage insurance. Mortgage Insurance (MI) may change depending on the LTV. Ask your loan officer for more information.
As illustrated above, if you are able to assume an eligible loan with an interest rate significantly lower than what is available on the market and have the ability to put down the additional cash to cover the equity owned by the seller (or obtain secondary financing), your savings could be substantial.
In the example scenario, your monthly mortgage payments for the 25 years remaining on the assumed loan would be $911.81. Compared to a new FHA loan with a higher market rate, this would result in a monthly savings of $459.34 and $220,071.99 saved over the entire life of your mortgage.
It is also worth noting that the less equity a seller has in their home, the more attractive an assumable mortgage may be to a buyer. For example, if that same assumable loan had an unpaid principal balance of $215,000, you’d only be responsible for a $15,769 difference instead of $27,520.
FHA Assumable Mortgage Requirements
Federal Housing Authority (FHA) loans qualify for assumption because they are free from the restrictions of due-on-sale clauses that are common in conventional mortgages.
Buyers wishing to assume an FHA mortgage must have a minimum credit score of 620, although buyers with scores above 580 may be eligible with additional restrictions. Similar to a conventional loan, your debt-to-income ratio including the assumed loan’s payment, cannot exceed 43% (although in special circumstances it can go as high as 50%).
VA Assumable Mortgage Requirements
The United States Department of Veterans Affairs (VA) has long offered one of the best home loan programs available for qualifying veterans, active military and their dependents.
A few important facts about VA loan assumptions:
As long as the buyer is VA-eligible, the seller’s VA entitlement remains intact.
If a buyer who is not VA-eligible assumes a VA loan, the seller loses their VA entitlement, as it will be tied to that original loan.
Buyers must meet all VA standards for creditworthiness and income, and the assumption must be approved by both the VA and the lender.
All mortgage obligations are assumed by the buyer, up to and including the obligation to repay the VA should the buyer default on the loan.
A “VA funding fee” equal to 0.5% of the current loan balance (only the principal amount) will be charged.
Want to know more about VA mortgages and whether you or a family member qualifies? Discover the special rates and benefits of VA home loans.
All mortgage payments must be current at the time of closing. You should plan to provide funds necessary to clear any outstanding payments before you can assume the loan. Either the buyer or seller can bring the loan to good standing.
Special Circumstances for Assuming a Mortgage
There are several special circumstances in which a buyer or inheritor must assume a mortgage in order to take possession of a home.
May I Assume the Mortgage of an Inherited Home?
Yes. In the unfortunate circumstance of a loved one passing, assuming the mortgage of the home that’s been willed to you would be useful if you wish to keep it in the family or live in it.
Federal law requires lenders to allow heirs to assume the mortgage of an inherited home, regardless of any due-on-sale clause included on the loan. It’s best to seek the advice of an estate attorney to ensure all bases are covered under these circumstances. As you figure out your options, be sure to continue making the regular monthly payments on the mortgage to prevent foreclosure of the property.
Assuming the Mortgage in Case of a Divorce
In the event of a divorce, one party or the other may have been awarded the family home.
If you’re the one keeping the home with a mortgage, you’ll need to qualify with the lender to assume the mortgage under your individual income and credit score, or by showing six months of timely payments you’ve made on your own without the help of your spouse.
Once the awarded party assumes the mortgage, the person who will no longer reside in the home should be released from all liability with the proper signed paperwork, as required by the lender.
May I Assume the Mortgage of a Home in Foreclosure?
Yes. Facing foreclosure is difficult, and a homeowner may want to do anything to prevent it. Allowing another party to assume the mortgage may be a good option.
In this type of purchase scenario, the buyer will need to pay off the entire past due amount before the assumption can occur. Buyers may accomplish this with cash or through a separate loan.
If it’s a Fannie Mae loan in question, Fannie Mae will review the prospective borrower’s financial packet to determine if they can afford the payments on the mortgage. Each investor or insurer will have specific requirements around what is required to complete the assumption.
If you’re set on the property as your ideal home, the default amount isn’t unreasonable, and the interest rate you’re assuming is favorable, then it can be worth the extra cost and effort to secure the loan.
From Applying to Signing on the Dotted Line: Important Facts
If you apply to assume a mortgage, expect to provide all the standard financial information normally required from a lender for a home loan application. This can include pay stubs, bank statements, W2s, and any other means to prove your ability to take over the mortgage.
While many may appreciate that an appraisal isn’t typically required, it might be beneficial to request one. That way you can ensure that the asking price for the home is fair in the current market.
Make sure a title check is performed as well to clear up any possibility of outstanding liens or encumbrances on the property before signing on the dotted line.
While closing costs can be lower with an assumed mortgage, an assumption fee may be charged.
FHA assumption closing costs are typically between 2 and 6 percent of the sale price of the home.
The VA charges a funding fee of 0.5% of the principal loan balance.
If you’re assuming the loan of an inherited property, it may be within your rights to avoid an assumption fee. Be sure to consult with an estate attorney if questions arise.
If you end up borrowing from more than one lender to complete the mortgage assumption, be sure that each lender is informed of all loan activity for the home. Each lender may require slightly different information, so prepare ahead of time for varying requests during the financial evaluation process.
Key Takeaways For Assumable Mortgages
Under the right circumstances, an assumable mortgage can mean thousands in savings for a qualified buyer.
A seller can leverage those savings to attract buyers and increase the asking price for the home.
The lender is the party with the final say over whether a buyer can assume a seller’s current mortgage.
The amount of equity in the home owned by the seller can be a key factor in whether assuming a loan is the right route for a buyer to take.
VA-eligible home sellers should take extra precaution when considering an assumption to protect their VA entitlement.
Is a Mortgage Assumption the Right Move?
The advantages for both sellers and buyers in this type of transaction is clear, as long as the interest rate on the mortgage is lower than what is available on the current market, the equity owned by the seller isn’t too great, and the lender approves of the assumption along with a release of liability to the original borrower on the loan.
If you’re selling your home that you have an FHA or VA mortgage for and the interest rate is lower than what the current market offers, you may want to connect your prospective buyers with your lender to see if an assumption is possible.
Questions about your existing mortgage or looking to buy a home soon? We’re here for you. Connect with a Pennymac Loan Expert to explore your home loan options or get started on a BuyerReady Certification today.
One rule of thumb when buying a home is to not spend more than three times your annual salary. If you earn $60K a year, that means you can afford to spend around $180,000 on a house, maybe a bit more if you have little or no other debts. However, depending on where you want to live, interest rates, and how much debt you’re carrying, that figure could change significantly.
This article looks at the factors you should consider when deciding how much house you can afford. Following this guide is the best way to get a realistic idea of how much house you really can get on a salary of $60,000.
What Kind of House Can I Afford With $60K a Year?
A salary of $60,000 is below the national median income of $74,580, according to Census data. While you will probably qualify for a mortgage in most states with that salary, it won’t buy you much of a home in areas with a high cost of living, such as New York or California.
How much house you can afford on $60,000 a year depends on how affordable your city is, your debt-to-income ratio (DTI), interest rates, and how much you can save for a down payment. 💡 Quick Tip: Buying a home shouldn’t be aggravating. SoFi’s online mortgage application is quick and simple, with dedicated Mortgage Loan Officers to guide you through the process.
First-time homebuyers can prequalify for a SoFi mortgage loan, with as little as 3% down.
Your Debt-to-Income Ratio
Another rule of thumb is the 28/36 rule. This rule holds that you should spend no more than 28 percent of your gross income on overall housing costs (including mortgage, taxes, and insurance) and no more than 36 percent on all debt combined (mortgage, credit card bills, car payment, student loan, etc.).
So, if you earn $60,000, your housing costs should be less than $16,800, or $1,400 a month, and your debt and housing costs should not exceed $21,600, or $1,800 a month. This calculation reflects your DTI ratio. To get a sense of how much you might be able to borrow and still walk away under your 28/36 maximums, try putting your numbers into a home affordability calculator.
Lenders look at how much debt you have when they determine if you qualify for a mortgage. From the lender’s point of view, the less you are paying each month in debt, the less likely you are to default on your mortgage loan, and the better the loan terms they can extend. A higher ratio means you are using more of your income to cover existing debt.
Your Down Payment
How much do you have saved up for a down payment? Your down payment directly affects how much you will have to pay each month in principal and interest. According to the National Association of Realtors®, the average first-time buyer pays about 6 percent of the home price for their down payment, while repeat buyers put down 17 percent. The more you put down, the lower your monthly housing cost. Whatever your salary, you can borrow more and buy a more costly house if your monthly payments are less.
Home Affordability
How affordability is a measure of how affordable homes are in a certain area. Some areas have a higher cost of living, higher average house prices, and higher property taxes. For example, New Jersey has high property taxes, but South Carolina and Mississippi tend to have low property taxes. It also costs more to buy necessities in New Jersey than South Carolina or Mississippi.
Your credit score is another factor to consider in the home affordability equation. A higher credit score will mean you should qualify for a lower interest rate with a lender and better loan terms. Better loan terms mean (you guessed it) lower monthly payments, which might give you the bandwidth to borrow a little more.
How to Afford More House with Down Payment Assistance
Federal, state, and local government, private entities, and charitable organizations offer down payment assistance in the form of low-rate loans, cash grants, tax credits, and interest rate reductions. Some of the programs are offered to specific professionals, such as nurses or teachers, first-time homebuyers, and some programs are neighborhood-based.
Property tax abatement and federal tax credits to first-time buyers are applied automatically. However, the U.S. Department of Housing and Urban Development (HUD) maintains a semi-complete list of programs listed by state, county, and city. Note that applying for down payment assistance can add weeks or months to the homebuying process.
Here are typical down payments for various types of mortgages. Learn more by visiting a home loan help center.
• Conventional mortgages require a down payment that can be as low as 3%.
• FHA loans backed by the Federal Housing Administration require 3.5% down.
• VA mortgages from the U.S. Department of Veterans Affairs require 0% down.
• United States Department of Agriculture (USDA) loans offer loans to people in rural areas with no down payment.
Home Affordability Examples
Below are some hypothetical examples for buyers who make $60,000 a year with different savings for a down payment and monthly debt payments. The interest rate is 7%, and property tax rates are assumed to be average.
The Saver with a Down Payment
Gross annual income: $60,000 Amount of money for a down payment: $12,000 Monthly debt: $250 Property taxes: 1.12%
SoFi estimates that you can afford a home that costs $120,000. Bear in mind that you can expect to pay closing costs of around $4,800 in addition to the monthly charges below. Here is a breakdown of the costs:
Home Loan: $108,000 Down Payment: $12,000 Total Monthly Payments $953
• Principal and Interest: $719
• Property Taxes: $113
• Private Mortgage Insurance: $90
• Homeowners Insurance: $31
The Buyer with A Bigger Down Payment and Some Debt
Gross annual income: $60,000 Amount of money for a down payment: $25,000 Monthly debt: $300 Property taxes: 1.12%
In this scenario, you might comfortably afford a home that costs $250,000 (again, closing costs would come into play). Here is a breakdown:
Home Loan: $225,000 Down Payment: $25,000 Total Monthly Payments $1,615
• Principal and Interest: $1,127
• Property Taxes: $234
• Private Mortgage Insurance: $66
• Homeowners Insurance: $71 💡 Quick Tip: Don’t have a lot of cash on hand for a down payment? The minimum down payment for an FHA mortgage loan is as low as 3.5%.
How to Calculate How Much House You Can Afford
Keeping a budget to track your monthly expenditures is the first step to calculating how much house you can afford. Once you know how much you are spending each month on food, entertainment, your car, clothing, and utilities, you can add up these expenses and subtract them from your monthly income (don’t include rent here). What you have left is the amount you can afford to spend on housing expenses.
If you spend no more than 25 to 28% of your monthly income on housing, and your monthly income is $5,000, you can afford to spend $1,400 on mortgage and housing expenses.
You can also try putting different numbers into a mortgage calculator to see how different combinations of down payment amount or home cost affect monthly payments.
How Your Monthly Payment Affects Your Price Range
Your monthly payment is made up of principal and interest. If you can afford to pay more each month, you can afford a bigger house. That is, provided you don’t have too much debt. However, if you can, coming up with a bigger down payment in the beginning will likely reduce the interest rate offered by your lender and your monthly payments. You should feel comfortable with the cost of your monthly housing expenses going into a home purchase, but if your earnings or credit score increase notably after a few years, you can always look at a mortgage refinance. 💡 Quick Tip: Backed by the Federal Housing Administration (FHA), FHA loans provide those with a fair credit score the opportunity to buy a home. They’re a great option for first-time homebuyers.
Types of Home Loans Available to $60K Households
Conventional loans, FHA loans, USDA, and VA loans are the common loans available.
• Conventional loans. These are the most common. They typically require a credit score of at least 620. Some will allow a down payment as low as 3 percent, but that will mean your monthly payments will be higher because you will have to borrow more.
• FHA loans. FHA loans provide a percentage of the cost of a home depending on the buyer’s credit score. Home buyers with a credit score over 580 can borrow up to 96.5 percent of a home’s value. Home buyers whose credit scores are between 500 to 579 can qualify for a loan as long as they have a 10 percent down payment.
• USDA: These loans serve borrowers earning below a certain income level who want to buy homes in designated rural areas.
• VA: VA loans require no down payment and are offered to qualified military service members, veterans, and their spouses.
The Takeaway
The 28/36 rule holds that if you earn $60k and don’t pay too much to cover your debt each month, you can afford housing expenses of $1,400 a month. Another rule of thumb suggests you could afford a home worth $180,000, or three times your salary.
When calculating how much a lender might extend to you depends on your debt-to-income ratio, the cost of living and property taxes in the area you want to live, interest rates, and how much you have saved for a down payment.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% – 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It’s online, with access to one-on-one help.
SoFi Mortgages: simple, smart, and so affordable.
FAQ
Is $60K a good salary for a single person?
A salary of $60,000 is below the national median income which was $74,580 in 2022, according to Census data, the national median income was. On this income, you might struggle to buy a home in areas with a high cost of living unless you have a large down payment.
What is a comfortable income for a single person?
Average monthly expenses for one person in 2022 totaled $3,693, or $44,312 annually, according to the U.S. Bureau of Labor, so earning more than this amount would be a comfortable income as long as the cost of living where you live isn’t significantly above average, which varies widely among the states. But what any individual considers comfortable will depend on their spending habits.
What is a liveable wage in 2023?
A liveable wage, according to the Massachusetts Institute of Technology, was $104,07 per year before taxes in 2022. This for a family of four or two working adults with two children.
What salary is considered rich for a single person?
An income of $540,009 per year puts a person in the top 1% earnings category, according to the most recent IRS data.
Photo credit: iStock/Sundry Photography
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
SoFi Mortgages Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Our experts answer readers’ home-buying questions and write unbiased product reviews (here’s how we assess mortgages). In some cases, we receive a commission from our partners; however, our opinions are our own.
Veterans United is currently the largest lender of VA loans, and it earned “best overall” in our guide to the best VA mortgage lenders. It’s a good option for several types of mortgages — though VA loans are its strongest products. It also offers free credit counseling for those who don’t yet meet its credit requirements, making it a good lender for borrowers with poor credit scores.
Veterans United Home Loans
Insider’s Rating
A five pointed star
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A five pointed star
4.75/5
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Perks
Offers free assistance to borrowers with poor credit scores
Recommended Credit
620
Types of Loans Offered
Conforming, jumbo, FHA, USDA, VA, refinance
Pros
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Can apply online or at a branch
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Isn’t limited to just VA mortgages
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Free credit counseling
Cons
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No home equity loan, HELOC, reverse mortgage, or construction loan
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Can’t see customized interest rates online
Insider’s Take
Veterans United is currently the largest lender of VA loans, and it earned “best overall” in our guide to the best VA mortgage lenders. It’s a good option for several types of mortgages — though VA loans are its strongest products.
Product Details
Offers mortgages in all 50 US states and Washington, DC
Branches in 18 US states
Refinancing options for VA, conforming, and jumbo mortgages
Minimum credit score listed is for VA mortgages, which usually do not require a down payment
Veterans United Home Loans: Overall Lender Rating
Veterans United Home Loans: Pros and Cons
Veterans United Home Loans Mortgage Rates and Fees
You can see sample VA mortgage rates for different credit score ranges on the Veterans United website. But you’ll need to fill out a form or contact customer support to see rates for other types of mortgages, or to get a personalized rate.
Veterans United rates are competitive with what other VA loan lenders offer. It may charge origination, application, processing, or underwriting fees — but it depends on your specific circumstance.
How Veterans United Home Loans Compare
Veterans United vs. Navy Federal Credit Union mortgages
You’ll want to choose Veterans United for an FHA or USDA mortgage, because Navy Federal doesn’t have these types of loans.
Navy Federal offers a variety of mortgage types specifically for military members and veterans, though. Its Military Choice and Homebuyers Choice programs offer 0% down mortgages for those who have exhausted their VA loan benefit or borrowers who don’t qualify for a VA loan.
Veterans United vs. USAA mortgages
USAA only offers VA mortgages, and you can get either a regular VA loan or a jumbo VA loan with this lender. USAA earned a high score in J.D. Power’s 2023 Mortgage Origination Satisfaction Study, though it didn’t rank because it doesn’t meet study criteria.
If you have a rocky credit history, Veterans United would likely be the better option, since it offers free assistance to borrowers looking to improve their scores so they can obtain preapproval.
How Veterans United Home Loans work
Veterans United specializes in VA mortgages, but it also offers:
It can be hard to find information for non-VA loans on the website, but you can read about all its other options here.
If you want to refinance a VA mortgage, you can choose between a VA IRRRL refinance or cash-out refinance. You can also refinance your conforming, jumbo, FHA, or USDA mortgage.
The company doesn’t have home equity loans, HELOCs, reverse mortgages, or construction loans.
You can apply for a mortgage through Veterans United online from anywhere in the US. It also has branches in the following 18 states:
Alabama
Alaska
California
Colorado
Florida
Georgia
Hawaii
Idaho
Illinois
Kentucky
Nebraska
North Carolina
Oklahoma
South Carolina
Tennessee
Texas
Virginia
Washington
You can email customer support or talk to someone over the phone 24/7.
Is Veterans United Home Loans Trustworthy?
The Better Business Bureau gives Veterans United an A+ rating. A strong BBB score indicates a company responds effectively to customer complaints, advertises honestly, and is transparent about business practices.
Veterans United doesn’t have any recent public scandals.
Veterans United has a high score in the J.D. Power 2023 Primary Mortgage Origination Satisfaction Survey. Veterans United actually doesn’t qualify to rank because it doesn’t meet certain criteria, but J.D. Power notes that the lender would rank highly if it was eligible.
This lender also has a lot of positive online customer reviews. On its Zillow lender profile, it earned a 4.78 out of 5 stars based on over 5,000 customer reviews. On TrustPilot, it has a 4.9 out of 5 star rating based on over 10,000 customer reviews.
Veterans United Home Loans FAQs
The lender is a good option for several types of mortgages, especially VA mortgages. It’s also worth considering if you have a low credit score, or none at all. Veterans United may let you apply with alternative credit data, such as proof that you pay bills on time.
Veterans United may charge lender fees, such as an application or origination fee — not all lenders charge these types of fees. However, your closing costs depend on various factors, including where you live, how much the home costs, and which type of mortgage you get.
Yes, Veterans United is a direct lender. This means it originates its own loans, as opposed to a mortgage broker, which connects borrowers with multiple lenders to find the best match.
Laura Grace Tarpley, CEPF
Personal Finance Reviews Editor
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