Chapter 1
IN THIS LESSON
Understanding The Mortgage Blueprint: Loan Options & DTI
Learn the fundamentals of the three major mortgage loan options—FHA, VA, and Conventional—and understand how lenders evaluate your financial picture. This lesson introduces debt-to-income ratio (DTI), explains how your monthly debts and income can impact your purchasing power, and helps you understand how lenders determine what you may qualify for.
You’ll learn: The different loan options such as FHA, VA, and Conventional while learning how your income and debts impact your buying power. Understand DTI and how lenders use it to determine mortgage qualification.
Interest Rates: Understanding Your Mortgage Rate
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Mortgage rates change constantly based on economic conditions and financial markets. One important benchmark to watch is the 10-year U.S. Treasury yield, which is influenced by investor confidence, interest rates, and inflation.
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Economic conditions can influence where rates move. When investors feel confident about the economy, Treasury yields may rise; when uncertainty increases, investors may move toward safer investments, which can cause yields to fall.
The Federal Reserve also plays an important role. Its monetary policy, particularly changes to its benchmark interest rate, can influence borrowing costs and financial markets.
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Inflation is another major factor affecting interest rates. When inflation remains elevated, the Federal Reserve may take steps to slow the economy, which can influence interest rates across the market.
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A recession is commonly defined as a significant decline in economic activity across the economy. While two consecutive quarters of declining GDP is a commonly cited rule of thumb, the official U.S. recession determination is made by the National Bureau of Economic Research (NBER).
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Discount points are an upfront cost you can pay at closing in exchange for a lower interest rate. Generally, one discount point equals 1% of the loan amount.
For example, on a $300,000 loan, one point would equal $3,000.
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Paying discount points may lower your monthly payment, but it also increases your upfront costs. Choosing no pointsmay keep more money in your pocket at closing while resulting in a higher interest rate and monthly payment.
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Don't focus only on the interest rate—understand the total cost of the loan. Knowing how rates, monthly payments, interest, and discount points work can help you make a more informed decision for you and your family.
Assets: Preparing Your Funds for Homeownership
Know Your CostsPlan for your down payment and closing costs based on the purchase price of the home. Understanding your upfront costs helps you know how much to save.
Document Your FundsYour funds must be verified and properly documented. Acceptable sources may include bank, retirement, and brokerage accounts; cash kept at home generally cannot be used.
Understand Earnest MoneyWe combine a thoughtful, human-centered approach with clear communication and reliable results. It’s not just what we do—it’s how we do it that sets us apart.
Key Takeaway
Prepare your money before you prepare for the mortgage. Knowing where your funds can come from and keeping them properly documented can help you be ready when it's time to buy.