<prompt> Human: Hello PF. Ive seen lots and lots of posts around here about housing questions, buying, selling, all that fun stuff. And Ive noticed that there isnt anything particularly helpful on that topic in the sidebar, so I figured why not, I can contribute. Background: Im a licensed Mortgage Loan Originator in the US, with licenses in 6 states. So anyway, about buying a house!Your house is the largest single investment most people will make in their lifetime. And yet, the vast majority of people have absolutely no idea how this whole thing works. If you were paying attention, you probably know that the 2008 recession had something to do with housing and something or something, but thats a topic for a whole different time and another sub. Peoples knowledge generally stops at making payments on time and everyone got screwed on their interest rate. So lets try to learn something about the way this whole thing works.So you want to buy a house. Congratulations! Theres a LOT of stuff that you need to be thinking about and every single person you talk to is going to have an opinion or a way to help. But no matter who you talk to, the first question youll get is always Whats your rate? Gonna be honest, as an MLO, I absolutely hate that question. I could tell you the rate is 3.5, I could tell you its 7.5, but what does that actually mean for you? Most people dont really have a point of reference for it. I understand why everyone cares, but theres a TON of stuff that goes into it. Well get to rates later. Yes, its a fair question, but its not at all the most important thing.The first thing you should actually be asking is this: How can I get a pre-qualification letter? The vast majority of the time, to actually make an offer on a house, theyll ask you for some sort of evidence that you actually have the money to buy the house. If you dont happen to have 250,000 lying around somewhere, youll probably need to borrow it, so they want to see proof that youre actually qualified to borrow that much money. Thats what the pre-qualification is for. It also helps you with figuring out exactly what your price range is.So, were trying to get you pre-qualified, thats fantastic! A couple of very important steps are coming into play here. How much of a down payment do you have saved up? The traditional wisdom is 20 of the house, but... Thats a ton of money and a lot of people just arent able to get that much saved up very easily. If thats you, there are other options available. If youre a veteran or active duty in the military, you can actually finance 100 of the house. The same is also true if you live in a metropolitan statistical area of under 20,000 people. Financing 100 of the house isnt exactly ideal and itll bring your payment up quite a bit, but we can do it. If you dont fall in to one of those two categories, like most people, you must bring at least 3.5 as a down payment, no matter what. Gifts are allowed, but if its a gift, you have to have a notarized letter saying that theres no expectation of it to be repaid. Otherwise, you have to be able to prove that youve had the money for at least two months. So, to summarize: How much should you bring for a down payment? As much as possible, but at least 3.5. The more, the better.Okay, awesome, you have a down payment! The next thing were going to do is get you credit qualified. Thats easy, right? Eh... Not quite. Its not quite as simple as just checking your credit score, although that is a part of it. As long as youre above 650, there wont be a problem with the score. But just to make it more complicated, your Credit Karma score isnt going to really help you. Its been tossed around a little bit, but mortgage companies use a different scoring equation. So its fantastic if Credit Karma tells you that you have a 750, but if I pull your credit and see a 550, I cant help you. Thats an extreme example, but Ive seen differences of up to 100 points between the calculation methods. Beyond just the credit score, there are also things on the credit report that we need to see. No bankruptcies discharged in the last two years. Side note, if youre in the middle of a chapter 13, we can still help you. It might be worth looking into. We dont like collections, but those are case-by-case and we usually ignore medical collections mostly. As far as late payments go, all we really care about is late payments on the mortgage. If you have a mortgage right now, you have to be current on it. But if youve been late more than twice in the last 12 months, our investors dont want us to take that risk. If your credit score is below 650, it just means you need to shop around a little bit. My last company, for example, was able to lend down to 620 or even 600 with some circumstances. Your local bank might be able to lend on even lower credit scores. It just depends. And while were on the topic of credit, time for a second about credit pulls. The CFPB has actually put a rule in place stating that after a mortgage company makes a credit pull, you can have every other mortgage company in the country pull your credit and after 45 days, itll all only count as 1 credit pull. You have a 45 day window for free pulls, you may as well use it and shop around while you can.Okay, great, so you have a down payment and you have your credit qualification. Next step, income! You do have an income, right? Yes, I have actually run into problems with this one before... You HAVE to have an income that reports to the government. If the federal government doesnt know about it, we cant use it. So you 1099 folks, be careful how much youre writing off for business expenses. That can affect how much income were allowed to use to qualify you. Now, how much do you need? So conventional budget-building recommends that you should keep your housing expenses right about 30 of your budget. Fun fact, when it comes to the mortgage, thats the actual rule. It depends on the mortgage program, but your housing expenses arent allowed to be more than 28-36 of your monthly income, although some exceptions occur. In addition, your TOTAL debt-to-income ratio has to be under 45. Your income is one of the limiting factors for your monthly payment.Okay, so weve already got a lot of the stuff we need to know. Your down payment, your credit qualification, and your income gives us benchmarks for what your payment limits are. There are 6 pieces of information that we need to give you an accurate rate. If anyone is trying to quote you a rate before getting all six pieces of information, be very skeptical of it. It probably wont be accurate. Those six pieces of information: The loan vs the value of the house LTV, the amount of the loan, the income youre able to use, your credit score, the loan program youre using, and what the purpose of the loan is in this case, a purchase. Right now, rates are typically in the 4-5 range, mostly on the lower end of that. Obviously, though, your mileage may vary.Okay, now for my mini-rant about why rate doesnt actually matter. On a 100,000 loan, a 10 year note at 10 is 1,321 per month. A 30 year note for the same amount at 3.5 is 449 per month. Over the lifetime of the loan, though, the 10 year costs about 158,000 while the 30 year costs 161,000. A .125 change in interest rate on the same 30 year note is a difference of 8month and about 2500 over the life of the loan. Its not nearly as important as people think it is. Not saying it doesnt matter at all, but that 4 vs that 4.125 isnt quite as big a difference as people think. The difference maker is actually the term of the loan.A 100,000 loan at 4 for 10 years costs you 1,012 per month with a total lifetime repayment of 121,494. The same loan over 30 years is only 477 per month, but youll end up paying 171,870 before the house is paid off. Extending the loan out 20 years saves you about 750 every month but costs you 50,000 over the life of the loan spoiler alert, you end up ahead by about 20 years of payments on the 30 year. What I recommend to people, for the most part is this: Go with the 30 year note, then make extra payments. Why? Because no mortgage since 2008 has prepayment penalties unless you have a really shady bank and mortgage interest is simple interest, instead of compounding. Thats right, mortgage interest does not earn interest on itself. Your mortgage interest for the year is calculated at the beginning of the year and scheduled out throughout the year. Every penny you pay over your minimum payment is money paying down the principal of the loan. This makes mortgages one of the easiest loans to pay ahead on. Thats why I personally tend to recommend going with a 30-year, then paying ahead when you can. That way, you have the lowest possible payment if something were to happen, but you can afford to throw a ton of extra money at it while youre able to.Okay, so we have your credit, we have your rate, we have the program, all the structures of the loan, all that fun stuff, were almost done right? Kinda... Next step is the appraisal. If were going to lend you money on your house, we need to know how much your house is actually worth. Ive seen a lot of people really not understand what the appraisal is about. It has nothing to do with how recently you put your roof on, how recently you painted, if you recently replaced a door, none of that stuff. The appraisal is based on the prices of houses in the neighborhood and what they actually sold for. The appraiser will do some adjustments because not all houses are identical, but it all depends on what your neighbors are selling their houses for. There are other ways to do appraisals, this is the most common. And this is where you start to get into all the fees associated with buying a house. Title work, inspections, origination fees, surveys, HOA fees, all that fun stuff. Theres a lot of it, but Ill save that for another post because this one is already getting long. Just... Be prepared to need anywhere from 2-5000 dollars to cover the closing costs of buying a house. I promise, the fees all make sense and none of them are meaningless, its just expensive.So congratulations! You now own a home and owe on a debt for 15-30 years of your life. Ill put up another post about the closing costs and what all goes into that at a later date. Until then, be an educated consumer.  <response>: This is more like Introduction to getting a mortgage. 