FAQ’s
Home Loans Frequently Asked Questions
How do I know how much house I can afford?
Affordability is determined by four things working together: your gross monthly income, your existing monthly debt obligations, your credit profile, and the cash you have available for a down payment and closing costs.
Lenders use a debt-to-income ratio (DTI) to evaluate how much of your income goes toward debt each month. Most conventional loans look for a DTI at or below 45%. VA loans use a similar calculation but go one step further — after your mortgage payment, monthly debts, taxes, and insurance are all accounted for, you must have a minimum amount of income left in your budget each month. The VA sets that minimum based on your family size and where you live in the country.
Down payment size affects your loan amount, your monthly payment, and whether you'll owe mortgage insurance. The type of loan you use matters just as much as the purchase price.
The most accurate answer comes from a lender reviewing your actual numbers. Call us and we will give you a specific, realistic figure before you start looking at homes.
What is the difference between a fixed-rate loan and an adjustable-rate mortgage?
A fixed-rate mortgage locks in your interest rate for the entire life of the loan. Your principal and interest payment never changes, regardless of what happens in the broader market. This predictability makes fixed-rate loans the right choice for borrowers who plan to stay in their home long-term or who want certainty in their monthly budget.
An adjustable-rate mortgage (ARM) starts with a fixed rate for an initial period, commonly five or seven years, then adjusts periodically based on a market index. ARMs typically offer a lower starting rate than fixed loans, which can reduce your payment in the early years. The trade-off is that your rate and payment can increase when the adjustment period begins.
An ARM can make strategic sense if you plan to sell or refinance before the fixed period ends. For most buyers planning to stay in their home beyond that window, a fixed rate provides more stability. We can model both scenarios for your specific loan amount so you can see the actual dollar difference.
How do I know which type of mortgage is best for me?
The right loan depends on your military service status, credit history, income, down payment, the property type, and how long you plan to stay in the home. These factors point toward different programs with meaningfully different terms.
VA loans offer the strongest terms available for eligible veterans and service members: no down payment, no PMI, competitive rates, and flexible credit requirements.
FHA loans are accessible to borrowers with lower credit scores or limited down payment savings, with a minimum of 3.5% down. First Equity works with several first-time home buyer loan programs in Michigan, including down payment assistance options for qualifying buyers.
Conventional loans offer flexibility in loan structure and work well for borrowers with strong credit and a larger down payment.
USDA loans offer zero-down financing for qualified buyers in eligible rural and suburban areas of Michigan.
Renovation loans — also called renovation mortgages — combine the purchase price and the cost of improvements into a single mortgage. This is a practical option for buyers interested in fixer-upper properties.
Jumbo loans are used for purchase prices that exceed conventional loan limits.
Reverse mortgages allow homeowners 62 and older to access their home equity without a monthly mortgage payment.
First Equity works with all of these programs. When you call us, we review your full situation and identify the options that are genuinely available to you, with clear information on the terms and trade-offs for each.
What does my mortgage payment include?
A standard monthly mortgage payment covers three core components:
Principal: The portion of your payment directly on the amount borrowed
Interest: Payment to the lender for the amount borrowed
Taxes and Insurance (Escrow): Most lenders collect a monthly escrow payment that covers your annual property taxes and homeowners insurance premium, then pays those bills directly when they come due. Although this feature is sometimes optional, escrow is required on most loan types and ensures those obligations are never missed.
Depending on your loan program, mortgage insurance may also be included:
Private Mortgage Insurance (PMI): Required on conventional loans when the down payment is less than 20%. PMI can be removed once you reach 20% equity.
Mortgage Insurance Premium (MIP): Required on FHA loans, both upfront and monthly. Unlike PMI, MIP on FHA loans often remains for the life of the loan depending on your down payment.
VA loans require no mortgage insurance of any kind.
Homeowners Association (HOA) dues are separate from your mortgage payment but are factored into your qualifying ratios during loan approval.
How much cash will I need to purchase a home?
The amount of cash required at closing depends on your loan program, purchase price, and the terms negotiated in your purchase agreement. Three categories apply to most transactions:
Earnest Money
A good-faith deposit submitted with your purchase offer, typically 1% to 3% of the purchase price. This amount is credited toward your down payment or closing costs at settlement — it is not an additional cost, but it is money you need available early in the process.
Down Payment
VA and USDA loans: no down payment required
FHA loans: 3.5% minimum
Conventional loans: 3% to 20% depending on the loan structure and your credit profile
Closing Costs
Closing costs typically range from 2% to 5% of the loan amount and cover title insurance, appraisal, settlement fees, prepaid taxes and insurance, and lender fees. First Equity does not charge document preparation, processing, or underwriting fees, which meaningfully reduces your total closing costs.
In some cases, sellers can contribute toward your closing costs as part of the purchase negotiation. VA loans also allow the seller to pay all of the buyer's loan-related closing costs.
Call us for a full Loan Estimate specific to your purchase price and program. You will have an exact figure before you make an offer.
What are my options for coming up with a down payment?
Personal savings are the most common source, and today's low-down-payment programs have reduced the barrier significantly. VA and USDA loans require no down payment at all. FHA and certain conventional programs start as low as 3% to 3.5%.
Beyond savings, documented sources for down payment funds can include:
Gifts from family members: Acceptable on most loan programs with a signed gift letter confirming the funds are not a loan
Tax refunds: Fully acceptable with documentation
Retirement account withdrawals or loans: Available on many programs; consult your financial advisor on tax implications before using this source
Down payment assistance programs: Michigan offers several state and local programs for qualifying buyers, including income-based grants and forgivable second mortgages. Eligibility varies by location, income, and loan type.
All funds used toward a down payment must be documented with a clear paper trail. Lenders are required to verify the source of every dollar used at closing. The earlier you call us, the more time you have to organize your funds correctly and explore all options available to you.
Does my credit have to be perfect to purchase a home?
No. Every loan program has its own credit standards, and none of them require perfect credit.
VA loans have no government-set minimum credit score. The VA's focus is on your overall credit history and your ability to manage obligations, not a single number.
FHA loans are accessible to borrowers with scores as low as 580 with a 3.5% down payment.
Conventional loans generally look for scores of 620 or higher, with better terms available as scores improve.
USDA loans typically require a 640 score for streamlined processing, though exceptions exist.
What matters across all programs is the pattern behind the number: how consistently you have paid your obligations, how much debt you currently carry relative to your available credit, and how long your credit history goes back. A lower score with a clean recent history is often more important than a moderate score with recent missed payments.
If you are uncertain about your credit, call us before you apply anywhere. We’ll pull your credit history, review it with you, and tell you specifically what your options are. If you’re not in a position to qualify today, we’ll tell you what to work on and give you a realistic timeline.
Can unmarried couples buy a home together?
Yes. Most mortgage programs allow two or more individuals to purchase a home together regardless of marital status or relationship. All borrowers on the loan must qualify individually, income, credit, and debt are evaluated for each person, and all carry equal legal responsibility for the debt.
There are a few considerations worth understanding before you proceed:
VA loans have specific guidelines. Standard VA requirements allow only eligible veterans and their legal spouses on the loan. If you are an unmarried couple and one partner has VA eligibility, the non-veteran's income may not be counted toward qualification in the same way. There are some exceptions and work-arounds depending on the situation. Call us, we’ll discuss your situation and provide suggestions.
We are here to help
Message us if you have additional questions, would like to get Pre-Qualified, or would like a quote. Let First Equity be your guide through the loan process.