Your complete guide to buying a home

Getting ready

Before you tour a single home, two things need to happen: you find a realtor or real estate agent you trust, and you find out what you can actually afford.

Interviewing realtors & real estate agents

Don't just go with the first agent you meet. A good realtor or real estate agent should know your target neighborhoods well, communicate on your schedule (not just theirs), and be upfront about how they get paid. Ask how many buyers they're currently representing — too many, and you may not get the attention you need.

Getting pre-qualified

Pre-qualification gives you a realistic price range before you start shopping, based on your income, debts, and credit. It's not a guarantee of final approval, but it's what lets a seller take your offer seriously.

House hunting & making an offer

Once you know your budget, the search begins. When you find the right home, your realtor or real estate agent will help you put together a formal offer.

What's in a purchase contract

• Purchase price — what you're offering to pay
• Binder / earnest money deposit — a good-faith deposit (often 1–3% of the purchase price) that shows the seller you're serious. It's applied toward your down payment or closing costs at closing.
• Inspection period — a window of time (commonly 7–15 days) to have the home professionally inspected and negotiate or exit based on what's found
• Financing contingency — protects you if your loan falls through
• Closing date — the target date ownership transfers

Negotiating

Price isn't the only thing on the table. Buyers commonly negotiate repairs after inspection, seller concessions toward closing costs, or a rent-back period if the seller needs extra time to move.

If the appraisal comes in low

An appraisal that comes in under the purchase price doesn't automatically kill the deal. Depending on your contract, you may be able to: renegotiate the price with the seller, cover the gap yourself in cash, challenge the appraisal with additional comparable sales, or walk away if you have an appraisal contingency in place.

Contract to loan processing

Once your offer is accepted and the contract is executed, your loan officially moves into processing.

• Your binder deposit goes into escrow
• Your inspection period begins
• Your lender collects income, asset, and credit documentation
• You'll receive your Loan Estimate — a standardized disclosure showing your rate, monthly payment, and closing costs

Underwriting

This is where your lender's underwriter reviews everything to make a final lending decision.

Conditional approval

Most loans don't get approved outright — they get conditionally approved, meaning the underwriter needs a few more items before issuing final approval. This is completely normal.

Common third-party items during this stage

• Appraisal — confirms the home's value supports the loan amount
• Homeowners insurance — required before closing; shop early, since it affects your monthly payment
• Title — confirms the seller can legally transfer clean ownership
• Verification of employment (VOE) — your lender confirms you're still employed, often right before closing

If you're buying a condo

Condos go through an extra layer of review: the lender needs to confirm the HOA's financial health, insurance coverage, owner-occupancy ratio, and whether the association is involved in any litigation. This can add time — factor it into your timeline expectations.

There's often an upfront cost for this: the condo questionnaire and HOA documents your lender needs typically come with a fee charged directly by the HOA or its management company. That fee is set by them, not your lender — and it's due regardless of whether your loan ultimately closes.

If you're buying a manufactured home

These require additional documentation: proof the home is permanently affixed to its foundation (often a licensed engineer's certification), and verification of its HUD certification label.

The title also has to be handled correctly. Manufactured and mobile homes can be registered like a vehicle through the DMV — if that's the case here, the seller needs to retire that title so the home is legally reclassified as real property before your loan can close.

The engineer's foundation report also comes with its own fee, separate from your other closing costs. Whether the buyer or seller covers this cost should be negotiated at the time of contract — make sure your realtor or real estate agent raises this early and puts it in writing in the purchase contract, rather than leaving it to be sorted out later.

Final approval

Once every condition is satisfied, your file goes back to the underwriter for a final review.

If everything checks out, you'll receive your Clear to Close — the official green light that your loan is fully approved and ready to fund.

Closing day

The Closing Disclosure — read this carefully

Of everything in this entire process, the Closing Disclosure is one of the most important documents you'll receive. It's the final, complete breakdown of every cost in your purchase — your loan terms, your interest rate, your monthly payment, and every dollar of your closing costs, line by line.

By law (under a rule called TRID), you must receive it at least 3 business days before closing. This isn't just a formality — it's a mandatory review window, and you cannot close until those 3 full business days have passed after you receive it. If certain major terms change afterward (like the loan amount or interest rate), that 3-day clock can restart, which pushes your closing date back. Reviewing it the moment it arrives — not the night before closing — gives you time to catch and question anything before it's too late to fix.

Final walkthrough

Typically done with your realtor or real estate agent within 24 hours of closing, this confirms the home is in the agreed-upon condition and any negotiated repairs were completed.

What to bring

• A valid photo ID
• Your cashier's check or confirmed wire for closing costs (confirmed by phone, per the warning above)

Title insurance

You'll likely see two title insurance policies: a lender's policy (required, protects the lender's investment) and an owner's policy (optional but strongly recommended, protects your ownership rights against future claims).

After you sign

• Your loan may be sold or transferred to a different servicer shortly after closing — this is normal and doesn't change your loan terms. You'll be notified in writing before your first payment is due elsewhere.
• File for your homestead exemption if this is your primary residence — most states offer a property tax reduction for owner-occupied homes, but you typically have to apply for it yourself.

Special Topic

Who's involved: the team

A home purchase pulls in more people than most buyers expect. Here's who does what — starting with everyone involved in a standard purchase, followed by specialists who only show up in certain situations.

The standard team

These roles are part of virtually every purchase, regardless of loan type.

• Realtor or real estate agent — represents you (as your buyer's agent) or the seller (as the listing agent). Guides your search, drafts and negotiates your offer, and coordinates timelines with everyone else on this list through closing.
• Loan officer — your primary point of contact for financing. Takes your application, discusses your loan options, and guides you through document collection from pre-approval through closing.
• Loan officer assistant — supports the loan officer with administrative tasks like document collection and scheduling. Not every loan officer has one; exact responsibilities vary by lender.
• Loan processor — once your application is submitted, the processor organizes and verifies your file — ordering items like verification of employment and compiling documentation — before it moves to underwriting.
• Underwriter — reviews your complete file against loan guidelines and makes the actual lending decision: approve, deny, or approve with conditions. You typically won't interact with them directly; they work behind the scenes.
• Disclosure team — issues your legally required loan disclosures, including your Loan Estimate and Closing Disclosure. At some lenders this is a dedicated team; at others, your processor or loan officer handles it directly.
• Appraiser — an independent, licensed professional (not chosen by you or the seller) who determines the home's value for lending purposes. Present on essentially every purchase loan.
• Homeowners insurance agent — provides the insurance coverage your lender requires before closing. You choose your own agent and carrier — shop around, since it affects your monthly payment.
• Title agent or closing attorney — handles the title search, issues title insurance, and conducts your actual closing. Whether this is a title company or an attorney depends on your state — some states require a licensed attorney to conduct every residential closing, while others allow a title company to handle it. Confirm which applies where you're buying.

Specialty roles — situational

These only enter the picture depending on your property type or loan product.

• Surveyor — needed in certain situations: some states or lenders require a new property survey, especially if there isn't a recent one on file or a boundary question comes up. Not universal.
• Engineer — required specifically for manufactured homes (foundation certification) or unconventional/unique builds, where standard appraisal methods don't fully apply.
• Home inspector (resale purchase) — evaluates the home's condition during your inspection period. Their findings often drive negotiations over repairs, credits, or price — and can be grounds to exit the contract if issues are serious enough. Not required by your lender, but strongly recommended.
• Home inspector (new construction) — a distinct role from the resale inspector above. Even though a new build passes municipal inspections, many buyers hire their own independent inspector before closing, since municipal inspections check code compliance, not workmanship quality.
• 203(k) consultant — required specifically for FHA Standard (Full) 203(k) renovation loans, to oversee and approve the scope of repair work.
• General contractor — required for any construction or renovation loan — a licensed professional has to actually perform, and be accountable for, the work.
• Co-op board — specific to co-op purchases. Conducts its own separate approval process — background check, interview, financial review — beyond your lender's approval.
• Septic inspector — for properties with a private septic system, confirms it's functioning properly, adequately sized, and meets local health department standards. Some loan programs (FHA, USDA) always require this; others (Conventional, VA) generally only require it if a concern is flagged by the appraiser or another party. Cost is negotiable between buyer and seller — commonly $300-$600, though many buyers order and pay for it themselves to keep the result independent and control the timing.
• Well / water inspector — for properties on a private well, tests water quality (a lab test for bacteria, nitrates, and other contaminants) and, on some loan programs, the well's flow rate. Must be a neutral third party — not the buyer, seller, or real estate agent — typically a certified lab or local health department. FHA, VA, and USDA all require a water quality test; conventional loans generally only require one if a concern is noted. Like the septic inspection, cost and who pays for it are negotiable in the purchase contract.

Special Topic

First-time homebuyer

This term gets used constantly in mortgage marketing, but the official definition is broader — and more forgiving — than most people assume.

What actually counts as "first-time"

Under HUD's widely-adopted definition, a first-time homebuyer is anyone who hasn't held ownership in a principal residence during the 3-year period ending on the date of purchase — not someone who has literally never owned a home. If you owned a home 4+ years ago, sold it, and have been renting since, you qualify again as a first-time buyer for most programs.

A few additional situations also qualify under HUD's rule, even with more recent ownership history:

• Someone divorced or separated who only owned a home jointly with a former spouse
• A displaced homemaker who only owned with a partner but wasn't the primary owner
• Someone who has only owned a manufactured home not permanently affixed to a foundation
• Someone who has only owned a property that didn't meet local building codes and couldn't be brought into compliance affordably

Individual lenders and programs can apply their own definition, so it's worth confirming which standard applies to a specific incentive rather than assuming you don't qualify.

What's available to first-time buyers

• Lower down payment conventional programs — Fannie Mae HomeStyle and Freddie Mac Home Possible both offer down payments as low as 3%, with income limits that vary by area
• Down payment assistance programs — thousands exist nationwide at the state, county, and city level, and many require first-time buyer status as a condition of eligibility (see the Down Payment Assistance section above for how these work)
• Mortgage Credit Certificates (MCCs) — a federal program administered through state housing finance agencies that lets qualifying buyers claim a portion of their mortgage interest as a direct dollar-for-dollar tax credit, not just a deduction
• IRA early withdrawal exception — up to $10,000 (lifetime limit) can be withdrawn from a traditional or Roth IRA for a first-time home purchase without the usual 10% early withdrawal penalty. Traditional IRA withdrawals are still taxed as income; this exception only waives the penalty.
• State and local property tax reductions — some states offer a temporary property tax exemption or reduction specifically for first-time buyers

Most down payment assistance and state programs also require completing a HUD-approved homebuyer education course before closing — this is a standard requirement, not a red flag.

Special Topic

Loan type variations

Not every loan works the same way. Here's a quick reference for the major loan types, plus a couple of specialized options worth knowing about.

Conventional

Not government-backed — typically underwritten to Fannie Mae or Freddie Mac guidelines. Down payments can be as low as 3% for qualifying first-time buyers, though 5% is more common. If you put down less than 20%, you'll pay private mortgage insurance (PMI), which can be removed once you reach 80% loan-to-value through payments or appreciation. Can be used for a primary residence, second home, or investment property — the only loan type here with that flexibility.

FHA

Insured by the Federal Housing Administration, which makes lenders more willing to approve borrowers with lower credit scores or higher debt-to-income ratios. Down payments as low as 3.5% with a 580+ credit score. Requires mortgage insurance — a Mortgage Insurance Premium (MIP) — both an upfront premium and an ongoing annual one. Primary residence only, with narrow exceptions.

VA

Available to eligible veterans, active-duty service members, and certain surviving spouses. No down payment required in most cases, and no monthly mortgage insurance — instead, a one-time VA funding fee applies (waived entirely for borrowers with a qualifying VA disability rating). Primary residence only.

USDA

For eligible rural and some suburban areas, with household income limits based on your location and family size. No down payment required. Instead of monthly mortgage insurance, USDA loans carry an upfront guarantee fee plus a smaller annual fee. Primary residence only.

Non-QM loans

A Non-Qualified Mortgage (Non-QM) doesn't meet standard agency guidelines — but that's by design. These programs exist for borrowers who have the ability to repay but don't fit the traditional documentation box, like the self-employed or those with a recent credit event. Non-QM loans typically carry higher rates and larger down payment requirements (10-30%) and are not federally insured. Common types include:

• Bank Statement Loans: income is verified using 12-24 months of business bank statements instead of tax returns. Eligible deposits are business deposits, transfers, and checks — cash deposits, interest/dividend income, and deposits from outside normal business operations are excluded. Transfers between the business's own accounts may be eligible if documented with an explanation. A business expense ratio (roughly 15-50%, varying by whether it's a product or service business) is subtracted from total eligible deposits, then divided by the number of months in the statement period. The number of W-2 employees may affect the actual ratio used in underwriting — this is an estimate, not a guaranteed figure.
• Asset Depletion: qualifies borrowers using liquid assets rather than income — common for retirees or investors with significant wealth but limited active income. Total eligible assets are divided by a set number of months (this divisor varies by lender/program) to produce a monthly qualifying income figure.
• Recent Credit Event: for borrowers with a recent bankruptcy or foreclosure who haven't yet cleared the standard waiting periods (see the Credit section of this guide) but can otherwise demonstrate ability to repay.

The core difference between Bank Statement and Asset Depletion: one qualifies you on cash flow through an active business, the other on wealth already accumulated.

DSCR

A Non-QM loan type that qualifies the property, not your personal income — based on whether the rental income it generates covers its own mortgage payment (its Debt Service Coverage Ratio). Popular with real estate investors, especially self-employed borrowers or anyone whose personal income documentation doesn't tell the full financial picture.

Down payment assistance programs

Not a loan type on their own — these are programs that pair with the loan types above to help cover your down payment and, sometimes, closing costs. They generally take one of a few forms:

• Grants — money you never repay, sometimes with a short forgiveness period tied to on-time payments
• Forgivable second mortgages — a second loan that's fully forgiven if you stay in the home for a set number of years (commonly 5-10)
• Deferred ("silent") second mortgages — 0% interest, no monthly payment, but due in full when you sell, refinance, or move out
• Repayable second mortgages — a lower-interest loan you repay alongside your primary mortgage

Thousands of these programs exist, mostly run at the state, county, or city level — eligibility, dollar amounts, and terms vary widely depending on where you're buying. Most require income limits and a homebuyer education course, and not every program pairs with every loan type. Ask your loan officer what you may qualify for in your area.

Jumbo loans

A jumbo loan is simply financing above the conforming loan limit — the maximum amount Fannie Mae and Freddie Mac will back. For 2026, that's $832,750 in most counties, up to $1,249,125 in higher-cost areas. Anything borrowed above that threshold needs jumbo financing, which comes with its own underwriting rules since it can't be backed by those agencies.

The two-appraisal rule

On higher-value purchases, some lenders require two separate appraisals rather than one — most commonly triggered around a $1.5 million loan amount, though the exact threshold varies by lender and program.

Home rehab / renovation loans

If a home needs work — anything from cosmetic updates to major structural repairs — a renovation loan lets you finance the purchase (or refinance) and the repair costs together in a single loan, rather than juggling a mortgage and a separate contractor loan. The loan amount is based on the home's after-improvement value, not what it's worth today — meaning you can borrow against value the home doesn't have yet.

FHA 203(k) — two versions

• Limited (Streamline) 203(k): for cosmetic and minor repairs, capped at $35,000 in renovation costs. No HUD consultant required.
• Standard (Full) 203(k): for structural work or any project over $35,000 — room additions, foundation repairs, moving walls. Requires a HUD-approved 203(k) consultant to oversee the project.

Both require the property to be your primary residence, 1-4 units, and follow standard FHA credit/down payment guidelines. Repair funds are held in escrow and released in draws as work is completed and inspected — similar to how a construction loan works.

Conventional alternatives

Fannie Mae's HomeStyle Renovation and Freddie Mac's CHOICERenovation work similarly, but as conventional loans — no permanent mortgage insurance the way FHA requires, and HomeStyle can be used on a primary residence, second home, or investment property, not just a primary home. Which program fits best depends on your credit profile, down payment, and the scope of the work — worth discussing directly with your loan officer.

Special Topic

Property & occupancy types

What you're buying and how you plan to use it both change your loan terms — sometimes significantly. Here's how lenders think about it.

Occupancy: how you'll use the property

• Primary residence — where you actually live. Gets the most favorable rates and the lowest down payment options of the three.
• Second home — a property you personally use part of the year but don't live in full-time. Must be a one-unit property only; a multi-unit "vacation home" gets classified as an investment property instead, regardless of intent. You can't rent it out full-time, hand control to a rental management company, or use projected rental income to help you qualify.
• Investment property — not occupied by you at all. Comes with higher rates and larger down payment requirements, but rental income can be used to help you qualify under the right documentation (see the REO section above for the rules on that).

Unit count: 1-4 units vs. 5+

Standard residential mortgages — Conventional, FHA, VA — cover properties with 1 to 4 units: a single-family home, a duplex, a triplex, or a fourplex. You can even live in one unit as your primary residence while renting out the others — a common strategy for offsetting your own housing cost.

Anything with 5 or more units is classified as commercial real estate, not residential — it requires an entirely different type of commercial loan with its own underwriting process. It's a different product category altogether, not something a residential pre-qualification covers.

Condos

Condos go through an extra layer of lender review beyond the property itself — the HOA's financial health, insurance coverage, owner-occupancy ratio, and whether the association is involved in any litigation all get checked. There's often an upfront cost for the condo questionnaire and HOA documents your lender needs, charged directly by the HOA or its management company — that fee is due regardless of whether your loan ultimately closes. Approval requirements also vary by loan type: FHA requires the project itself to be on FHA's approved list (or qualify through a single-unit approval path), while VA requires the entire project to be VA-approved with no equivalent shortcut. See Stage 4: Underwriting above for the full breakdown.

Manufactured homes

These require additional documentation most other property types don't: proof the home is permanently affixed to its foundation (often a licensed engineer's certification), and verification of its HUD certification label. If the home was ever registered like a vehicle through the DMV, the seller needs to retire that title so it's legally reclassified as real property before your loan can close. The engineer's foundation report also comes with its own fee — worth negotiating upfront in your purchase contract whether the buyer or seller covers it. See Stage 4: Underwriting above for the full breakdown.

Townhomes

Usually simpler than a condo — typically fee-simple ownership of the land under your unit, even though it's attached to neighbors. Still may involve HOA dues if part of a planned community, but generally without the intensive project-level review a condo requires.

Co-ops — a genuinely different structure

Buying a co-op isn't buying real property at all. You're purchasing shares in a corporation that owns the entire building, plus a proprietary lease giving you the right to occupy your specific unit. Because of that, financing isn't a traditional mortgage — it's a "share loan," and far fewer lenders offer them. Co-ops are heavily concentrated in certain markets (New York City especially).

The bigger difference: you need two separate approvals to buy one — your lender's, and the co-op board's. The board conducts its own background check, interview, and financial review, and its requirements are often stricter than what your lender would otherwise approve. A strong loan approval doesn't guarantee the board says yes.

Unique or unconventional builds

Log homes, earthen construction, geodesic domes, barndominiums, and similar unconventional builds can face real financing friction — mainly because appraisers need comparable recent sales to establish value, and unique properties often don't have many nearby. Some lenders restrict or decline these property types entirely, or require a specialized appraiser experienced with that construction type. If you're considering something unconventional, it's worth confirming financing is realistic before you get attached to the property.

Special Topic

Rate locks & floating

One of the most common misunderstandings in this whole process: your rate is not locked when you get pre-approved. Pre-approval only tells you what you qualify for — it doesn't hold a rate for you.

When the lock conversation actually happens

Once you're under contract and your lender receives your fully executed purchase agreement, your file moves forward and your loan disclosures go out. This is the point where you and your loan officer sit down and discuss current rates — and decide together whether to lock in now or continue floating.

How rate locks work

A rate lock is your lender's written commitment to hold your rate steady for a set number of days, no matter what happens in the market. Standard lock periods are 15, 30, 45, 60, or 90 days — 30-45 days is most common for a typical purchase and is usually free or already built into your rate. Longer locks (60-90 days) often carry a small added cost, since the lender is taking on more risk over a longer window.

Buying down your rate

Beyond locking or floating, you also have the option to buy down your rate — paying money upfront to reduce it. There are two very different ways to do this.

Permanent buydown (discount points): you pay "points" at closing to permanently lower your rate for the entire loan term. One point typically costs 1% of your loan amount and reduces your rate by roughly 0.25%, though the exact relationship varies by lender and market conditions. Since the reduction is permanent, you qualify for the loan at the bought-down rate. This tends to make the most sense if you plan to stay in the home long enough for the monthly savings to outweigh what you paid upfront — often somewhere in the 5-7 year range, though it's worth running the actual numbers for your situation.

Temporary buydown (2-1 or 3-2-1): your rate is reduced for just the first year or two, then reverts to the full note rate. A 2-1 buydown means your rate is 2% below the note rate in year one, 1% below in year two, then the full rate from year three on. A 3-2-1 buydown extends that relief an extra year. The cost — essentially the payment difference being subsidized — is paid upfront into an escrow account and released to cover your payment gap each month. One important underwriting detail: you still have to qualify at the full note rate, not the temporarily reduced one, since lenders want to confirm you can afford the payment once it steps back up.

Seller-paid buydowns and leftover concession funds

Buydowns are commonly paid for by the seller or builder as a negotiating tool, rather than the buyer paying out of pocket. This typically comes out of the same seller concession allowance covered earlier in this guide — and since concessions can only reimburse actual costs (not exceed them), any room left over after your closing costs are fully covered doesn't have to go to waste. Within your loan program's concession cap, that leftover amount can often be redirected toward a rate buydown instead — either points or a temporary buydown — rather than being forfeited.

If you need more time than your lock allows

If your closing gets delayed past your lock period, most lenders will let you extend it for a fee — commonly a fraction of a percent of your loan amount for each additional 15-30 day block. Some lenders offer one short extension for free if the delay wasn't caused by you. If a lock fully expires with no extension in place, you're exposed to whatever rates happen to be at that moment — which could be higher or lower than what you had.

Floating your rate

Floating simply means choosing not to lock yet — your rate moves with the market until you decide to lock it in. This can make sense when your closing date is far off or still uncertain, since locking too early on a long timeline often means paying for extensions you didn't need to.

New construction: a different strategy

Because a build can take many months, it often makes more sense to float your rate through most of construction, then lock in once you're roughly 30-45 days out from your estimated completion date — matching your lock to a much more predictable closing window, rather than locking at the very start of a build and paying for a long lock (or repeated extensions) you may not need.

Foreclosures & short sales

These transactions often come with longer, less predictable closing timelines — bank approval processes and extra title work can add real delay. The same principle applies: match your lock length to your realistic closing date, which usually means asking for something longer than the standard 30-45 days.

Special Topic

Credit: charge-offs & waiting periods

A rough patch in your credit history doesn't always mean starting over from zero. Here's what actually applies, and for how long.

Front-end vs. back-end DTI

Lenders actually calculate two different debt-to-income ratios, not just one:

• Front-end DTI (housing ratio): your total housing payment — principal, interest, taxes, insurance, HOA dues, and mortgage insurance if applicable — divided by your gross monthly income.
• Back-end DTI (total debt ratio): that same housing payment, plus every other monthly debt you have (credit cards, auto loans, student loans, personal loans), divided by your gross monthly income.

Which one determines approval? In practice, back-end DTI is generally the primary threshold lenders use for the final decision — it's the number most often referenced when someone says "DTI" without specifying which. Front-end DTI still matters as a secondary check on housing affordability specifically, and a couple of programs (like USDA) cap both independently, but back-end is usually what decides whether you're approved.

These caps aren't always fixed, either — FHA's standard back-end limit is 43%, but with strong compensating factors (cash reserves, minimal increase from your current housing payment, higher credit) and approval through an automated underwriting system, that ceiling can reach as high as 56.9%. Conventional loans can similarly stretch beyond their typical 45% guideline with a strong file. A tool showing you a conservative estimate doesn't mean it's your actual limit — ask your loan officer what your specific compensating factors could unlock.

What actually counts toward DTI

One common point of confusion: DTI is calculated using the required minimum monthly payment shown on your credit report for each debt — not whatever amount you personally choose to pay above that minimum. If you pay extra toward a credit card or auto loan each month, that extra amount doesn't reduce your DTI calculation; lenders only count the minimum required payment.

FHA — charge-offs and collections

Charge-offs and collections don't have to be paid off to qualify for an FHA loan. Non-medical collections totaling $2,000 or more may add a hypothetical monthly debt — 5% of the balance — to your Debt-to-Income (DTI) ratio, unless they're paid in full or on a documented payment plan. Medical collections get more favorable treatment than other types.

Raising your score before applying

Paying a collection in full may help increase your score. Ask your loan officer about a rapid rescore to reflect the update quickly — proof of payment and a paid-in-full letter are required, so keep all documentation.

Deferred student loans

If your student loans are currently deferred with no required monthly payment showing on your credit report, that doesn't mean they're ignored for qualifying purposes — lenders still count a hypothetical payment, and exactly how it's calculated depends on your loan program:

• FHA: 0.5% of your outstanding balance per month
• VA: 5% of your outstanding balance, divided by 12 (about 0.417% monthly) — or your actual documented payment if it's lower
• Conventional: varies by investor — Fannie Mae uses 1% of your balance, Freddie Mac uses 0.5%. Which one applies depends on which agency your loan is ultimately sold to.

If your credit report or loan statement shows an actual monthly payment — even $0 under an income-driven repayment plan — that documented figure can sometimes be used instead of the flat percentage. Ask your loan officer which applies to your situation.

Bankruptcy & foreclosure waiting periods

Each loan program requires a minimum waiting period after a bankruptcy or foreclosure before you're eligible to apply again — these vary significantly by program and event type.

Event	Conventional	FHA	VA
Chapter 7 bankruptcy	4 years from discharge	2 years from discharge	2 years from discharge
Chapter 13 bankruptcy	2 years from discharge, or 4 years from dismissal	May qualify during an active plan after 12 on-time payments + court permission; no wait if fully discharged	Similar — may qualify during an active plan with trustee approval + on-time history
Foreclosure	7 years	3 years	2 years from deed transfer (extenuating circumstances can reduce to 1 year)
Short sale / deed-in-lieu	4 years	3 years (can be waived if payments were current for 12 months prior)	2 years, same as foreclosure

Special Topic

Income types explained

The Pre-Qualification Calculator lets you add income from several different sources, each calculated a little differently. Here is what each one means and how it gets treated.

W-2 Employment

Split into base earnings plus overtime, bonus, and commission. Base pay from a stable job is usable right away. Overtime, bonus, and commission are different — lenders average these over the most recent 2 years, and also check your current year-to-date paystub to confirm the trend is holding steady or increasing, not declining.

Self-Employed / 1099

Qualifying income comes from your Schedule C: net profit (Line 31), plus certain non-cash expenses added back in, since they reduce your paper profit without actually costing you cash. Depreciation (Line 13) and depletion (Line 12) get added back. Meals and travel do not — those are real cash expenses. This is typically averaged over the most recent 2 years.

SSI / Social Security

Your monthly benefit amount qualifies directly. If your benefit is non-taxable (true for most Social Security recipients depending on total income), lenders can add roughly 25% to the amount used for qualifying, since a non-taxable dollar is worth more than a taxable one for repayment purposes.

Pension

Treated the same way as Social Security — your monthly benefit amount qualifies, with the same non-taxable adjustment available if your pension is not subject to income tax.

IRA Distributions

Usable as income, but with a real catch: lenders need proof the account can sustain that withdrawal amount for at least 3 more years, plus a documented history of you actually taking those withdrawals. A large account balance alone is not enough without that track record.

Life Annuity

Similar to IRA distributions — you need to show the annuity will continue paying for at least 3 more years. This matters more here than for Social Security or a pension, since annuities can be structured with a defined end date.

Special Topic

Business ownership income

If you own part of a business — a partnership, an S-corporation, or a corporation — your income gets documented and calculated very differently than a sole proprietor filing Schedule C. This is genuinely more complex, case-by-case territory, so this section explains the concepts rather than a fixed formula.

The 25% ownership line

Own 25% or more of a business? You are treated as self-employed for that business, and your lender needs the business own tax returns in addition to your personal return: Form 1065 for a partnership or multi-member LLC, Form 1120-S for an S-corporation, or Form 1120 for a C-corporation. Own less than 25%? Documentation requirements are typically lighter, and business returns may sometimes be waived.

Schedule K-1 and Schedule E

A K-1 reports your share of a business's income or loss, similar to how a W-2 reports employment income. That K-1 income then flows onto Schedule E of your personal tax return. C-corporations do not issue K-1s at all — a C-corporation pays its own separate tax, and you are only paid through W-2 wages or dividends.

Ordinary income versus distributions

This is the part that surprises most business owners: the "ordinary income" shown on your K-1 is your share of the business paper profit, not necessarily cash you actually received. Lenders often rely on your actual distributions instead, unless the business can demonstrate enough liquidity (checked using a financial ratio) to support paying out the full profit shown. A business can look profitable on paper while genuinely not having the cash on hand to pay its owners.

Profit and loss statements

If more than three months have passed since the end of your most recent tax year, lenders typically require a year-to-date profit and loss statement. This confirms your income has not declined since your last tax return — tax returns alone only tell the story through the date they were filed.

Special Topic

MIP & PMI: when it goes away

Mortgage insurance protects your lender, not you — but whether and when it goes away depends entirely on which loan type you have. Here's how each one actually works.

Conventional — PMI (Private Mortgage Insurance)

Required when your down payment is under 20% (LTV above 80%) at the time you close. By law, it automatically terminates once your loan balance reaches 78% of the home's original value, based on your original amortization schedule — assuming you're current on payments, no request needed. You can also request removal earlier, once you reach 80% LTV, either through your normal payments or because your home has appreciated (a new appraisal is often required to prove appreciation-based equity). Separately, PMI must terminate at the midpoint of your loan term regardless of LTV, if it hasn't already.

FHA — MIP (Mortgage Insurance Premium)

Two parts: an upfront premium (1.75% of the loan amount, financed in) and an ongoing annual premium paid monthly. Whether the annual premium ever goes away depends entirely on your original down payment:

• Less than 10% down: MIP lasts for the life of the loan. No amount of paying down your balance or home appreciation removes it — refinancing out of FHA is the only way to eliminate it.
• 10% or more down: MIP automatically cancels after 11 years of on-time payments — no request or new appraisal needed.

One refinance nuance worth knowing: if you refinance from FHA into another FHA loan within 3 years, HUD credits a prorated portion of your original upfront MIP toward the new loan's upfront premium (the credit shrinks each month and disappears at the 3-year mark). This credit does not apply if you refinance into a conventional loan instead — but eliminating MIP entirely usually outweighs losing that partial credit.

VA — no ongoing mortgage insurance

VA loans never carry monthly mortgage insurance at all. Instead, there's a one-time VA funding fee due at closing (or financed into the loan). The rate depends on your down payment and whether it's your first time using VA benefits:

Down Payment	First-Time Use	Subsequent Use
Less than 5%	2.15%	3.30%
5% – 9.99%	1.50%	1.50%
10% or more	1.25%	1.25%

Borrowers with a VA disability rating of 10% or higher are fully exempt from the funding fee entirely. Since there's no recurring monthly cost here — just this one-time fee — there's nothing to "remove" later the way there is with FHA MIP or conventional PMI.

USDA — annual fee

USDA loans carry an upfront guarantee fee plus a smaller ongoing annual fee, both of which function similarly to mortgage insurance. Like FHA's life-of-loan scenario, this annual fee generally continues for as long as the loan is outstanding — refinancing into a conventional loan, once you have enough equity, is the way to eliminate it.

Does refinancing to eliminate it actually make sense?

Not automatically — it's worth running the real numbers before deciding. A refinance to remove MIP or the USDA annual fee generally makes the most sense when:

• You have, or are close to, 20% equity in the home
• Current interest rates make sense for a new loan — even if MI disappears, a meaningfully higher rate can offset or erase the savings
• The monthly savings from dropping MI will outweigh your refinance closing costs within a reasonable timeframe