Most people don’t have enough cash in the bank to buy a home outright. A mortgage is a loan used to buy a home beyond what your down payment can cover. There are different types of mortgages, but in general, you pay back the remaining balance on your home in monthly payments over a set period of time. For example, with a 30-year fixed-rate mortgage, you’ll pay back your loan over 30 years with set monthly payments.
When applying for a mortgage, you’ll typically need documents to verify your identity, income, employment and other financial information. In addition to providing documentation detailing your debts, assets and credit history, commonly requested documents include a driver’s license or passport, W-2s, tax returns and bank statements.
Most conventional mortgage lenders require homebuyers to have a credit score of 620 or higher, but there are other options if you have bad credit. FHA and VA loans are both government-backed programs that typically accept borrowers with lower credit scores. You may also be able to work with a credit counselor to improve your score.
Private mortgage insurance (PMI) is a type of insurance you may be required to purchase if you take out a mortgage with a down payment lower than 20%. This insurance is additional protection for the lender since you’re paying for a lower share of your home value outright. PMI also applies if you refinance your mortgage and your home equity falls below 20%. Keep in mind that PMI only protects the lender, not you.
