 TITLE: What Is a Mortgage and How Does It Work? CONTENT: How to Qualify for a Mortgage\n-----------------------------\nTo get a mortgage, you can apply with a bank, credit union, online lender or mortgage broker. A mortgage preapproval is determined by a lender to indicate the amount you can borrow, the type of loan, and the interest rate that you would likely qualify for.\nA mortgage preapproval is not actual approval; it's just a document that says the lender believes that it would likely approve a mortgage application based on the income and credit information submitted. The information needed for a home mortgage preapproval typically includes personal information such as your credit history, credit score, income, assets, debts, tax returns and employment history.\nHere are some factors lenders will evaluate when considering a mortgage application.\n### Credit Scores\nMost lenders use FICO® Scores☉ to determine mortgage creditworthiness. There's no hard-and-fast rule for what your credit scores need to be to get approved for a mortgage. Some mortgage types, however, may have minimums.\nFor example, if you want to qualify for an FHA-insured mortgage, you will typically need a FICO® Score of 580 or higher. Conventional loans typically require a score of 620 or higher, but some lenders may set a higher bar.\nAlso, lenders that offer VA and USDA loans may have a set minimum, even though those agencies don't have a minimum score.\nAgain, the higher your credit scores, the better your chances of getting a mortgage with a low interest rate.\nAt this writing, the average mortgage interest rates by FICO® Score for a $216,000 home with a 30-year fixed-rate mortgage can vary in range from 4.13% to 5.71%. These interest rates change daily, so make sure to research the latest interest rates.\nIf your FICO® Score is...\nYour interest rate is...\nAnd your monthly payment will be...\n760-850\n4.13%\n$1,047\n700-759\n4.35%\n$1,075\n680-699\n4.52%\n$1,098\n660-679\n4.74%\n$1,125\n640-659\n5.17%\n$1,182\n620-639\n5.71%\n$1,256\n### Debt-to-Income Ratio\nMortgage lenders' primary concern is that you pay back what you owe, which can be tough if you're overburdened with debt. Your debt-to-income ratio shows how much of your gross monthly income goes toward debt payments.\nLenders typically like to see no more than 28% of your gross monthly income go toward a housing payment and no more than 36% toward all of your monthly debt payments combined.\n### Down Payment\nThe more money you put down, the less money you need to borrow, which reduces the risk the lender takes on. What's more, a higher down payment typically means that you have more skin in the game, so to speak, and you're less likely to default.\nIf you make a down payment on a mortgage that is less than 20%, you typically need to buy mortgage insurance to protect the lender against default. There are two main types of mortgage insurance:\n*   **Private mortgage insurance (PMI)**: Paid to an insurance company on a monthly basis, PMI is common with conventional and jumbo loans. You're only required to pay PMI until your loan-to-value ratio is lower than 80%.\n*   **Mortgage insurance premium (MIP)**: If you have an FHA-insured mortgage, you're typically required to pay MIP, both upfront and ongoing. In some cases, you'll need to pay MIP for the life of the loan.\n### Past Payment History\nIf you have a history of making payments late or allowing accounts to become delinquent, you may have a tough time getting approved for a mortgage loan. END