Mortgage & financing, in plain English

The main loan types

• Conventional. Not government-backed. Usually needs a slightly higher credit score; you can put as little as 3% down but pay private mortgage insurance (PMI) until you reach 20% equity.
• FHA. Government-insured, more forgiving on credit, 3.5% down — but carries mortgage insurance premiums (MIP).
• VA. For veterans and active-duty: zero down, no monthly mortgage insurance. Usually the best option when you’re eligible.
• USDA. Zero down in eligible areas, with income limits.
• Jumbo. For loan amounts above the conforming limit — stricter requirements.

Fixed vs. adjustable

A fixed-rate loan keeps the same interest rate for the whole term — predictable, and what most buyers choose. An adjustable-rate (ARM) starts lower but can change after an initial period; it can make sense if you’re confident you’ll move or refinance before it adjusts, but it carries more risk.

Pre-qualification vs. pre-approval

A pre-qualification is a rough estimate. A pre-approval means the lender has verified your income, credit, and debts and issued a letter — that’s what makes your offer credible. Get the pre-approval before you shop.

What lenders actually look at

• Credit score. See Credit Repair 101 for how to move it and the typical minimums per loan.
• Debt-to-income (DTI). Your monthly debts versus gross income. Lower gives you more room.
• Down payment and reserves. How much you’re putting in and what’s left in savings after.
• Stable income and employment history. Typically a two-year track record.

Rate locks, points, and mortgage insurance

• Rate lock. Locking your rate for a set window protects you while you close. New-construction builds sometimes need an extended lock.
• Points. Paying “points” up front buys a lower rate — worth it only if you’ll stay long enough to break even.
• Mortgage insurance varies by loan. Conventional PMI falls off at 20% equity; FHA MIP often stays for the life of the loan; VA has none; USDA charges a smaller guarantee fee.

For what you’ll pay at the closing table, see NC due diligence & closing costs. If the down payment is the obstacle, down payment assistance may help.