One of the first processes in buying a home is the mortgage process where questions come up frequently. Things like what's a downpayment, to how much should I put down and many others can feel very intimidating. But, have no fear, we are here to guide you through it.

At some point in the process, or probably before you even start, you will have to start thinking about how you will be paying for the home. If you have the means, there are some instances in that paying cash makes sense. More often than not, however, financing (and thereby taking advantage of the leverage aspect of real estate investing) is the only feasible as well as fiscally wiser choice.

This means you will have to secure a mortgage. The lending process can be confusing, so we have put the most frequently asked questions together to shed some light on the topic.

Reading this post, you may realize that you have heard some mortgage myths in the past. Regardless, this post will give you a better understanding of the nuances of financing.

What can I expect for a down payment?

20% down is the standard most lenders require for investment homes, but this is not necessarily what you will have to put down - there are many factors that go into determining loan terms.

Less money down affords you more leverage. Putting more down gives you lower monthly payments. Putting 20% down or more helps you avoid private mortgage insurance.

Your down payment will largely depend on your lender and type of loan, but the above factors should be considered if you have a range available. Talk to your lender and us at Doorvest about your goals and financial situation to determine what would be ideal for you.

What does my credit score need to be?

Higher is obviously better when it comes to credit scores, but don’t sweat if yours happens to be on the lower end, as you can get a conventional mortgage with a score as low as 620.

For those with scores below 620, there are still options available in the way of non-conventional financings, such as seller financing, private & hard money lenders, and portfolio loans.

You can also work with your lender on the terms and put more money down, but remember: credit scores are not permanent. Work on credit score best practices and understand that time heals all wounds, including bad credit.

Fixed- or adjustable-rate mortgage?

Fixed-rate will be preferable for the vast majority of investors. Especially now with historically low rates.

Adjustable-rate mortgages (ARM) start out fixed for a period of time before they begin to adjust periodically. If you are only planning on holding the home for a short while (before the fixed portion of your adjustable-rate mortgage expires), then an ARM might be the better option.

15- or 30-year loan?

The longer loan will give you smaller monthly payments for a longer period of time, and vice versa. We generally recommend going with the 30-year loan, even if you have the means to pay the larger 15-year payments. With a 30-year loan, you are locked into those smaller monthly payments. You can always pay more, but you can’t pay less if you go with the 15-year loan.

What type of loan?

The Fannie Mae, Freddie Mac conventional mortgages have the most competitive rates and lowest down payments. In fact, these mortgages offer the cheapest cost of capital available anywhere. If possible, you generally want to stick with these.

If your situation does not permit (disqualified due to credit score, DTI ratio, number of mortgages held), there are other options available: seller financing, private & hard money lenders, and portfolio loans. Ask us which one works best for you if this describes your situation.

If you are a veteran, don’t forget to look into VA loans as well.

Pre Qualification vs Pre Approval

Prequalification is a basic and quick review of your financial situation to determine if you would qualify for a mortgage. It is not a hard commitment from the lender to loan you money. Think of it as a litmus test.

A preapproval, on the other hand, involves the same rigor as actually obtaining a mortgage. As long as your financial situation does not change, a successful preapproval should mean you will get the loan.

A preapproval can be helpful in proving to sellers that you are serious. It is also a good way to get the ball rolling on the mortgage process ahead of time, saving yourself the work when you get ready to actually buy. A preapproval typically lasts 60 to 90 days, so keep this timeframe in mind.

Should I lock in my pre approval rate?

Some lenders will allow you to lock in the rate you got preapproved at. You will be set at this lower rate even if rates increase. However, there are some nuances to this. First, lenders typically require a deposit of a percentage (~0.25%) of the loan value. You should make sure this deposit is refundable. Also, some lenders allow a one time “float down,” where they lower your locked-in rate should rates decrease.

Whether you lock-in should depend on a couple of factors. First, do not try to predict interest rate movement. This is like trying to predict the stock market; many smart people get paid lots of money to do this for a living and still fail at it. You should consider a rate lock if you are given an interest rate that you are comfortable with, as well as affordable payments and good terms, and the deposit can be refunded.

What documents do I need?

You typically need:

• social security number

• proof of employment

• pay stubs

• W-2, 1099, or other tax forms

• bank statements

If your down payment is coming from a source other than your bank account, you will need to get that specific documentation as well.

Will shopping for loans hurt my credit score?

When a lender checks your credit score, they perform what is called a hard inquiry. This “dings” your credit score, but you should not be worried if you approach this strategically. All inquiries that fall within a 45 day period will count as one pull. Keep this mind when shopping around and make sure to bucket all your credit pulls into that time frame. Finally, your score will bounce back after just a couple of months with good credit behaviors.