It is important to understand how different mortgage programs work. A mortgage loan officer or broker can point you in the right direction. And after getting a clear picture of your financial situation, your loan specialist may recommend a VA home loan. These loans are ideal because they feature no money down and you don’t have to pay private mortgage insurance—a major plus if you have limited resources.

Here are five steps to buying a home with a VA loan.

1. Determine eligibility for this program

VA home loans are one of the cheapest mortgages available. But unfortunately, not everyone qualifies for these loans. VA home loans are guaranteed by the U.S. Department of Veterans Affairs. But to be eligible for financing, you have to be a veteran, active-duty military, a reservist or the spouse of an eligible service member. Before you can apply for a VA home loan, your lender will confirm eligibility for this program. Lenders offering VA financing can assess VA records electronically to confirm your service record.

2. Apply for a loan

In many cases, a lender can confirm eligibility in a matter of minutes. Once this information is received, you can fill out a loan application to get pre-approved for a mortgage. Although the VA guarantees funds, your lender provides the funds. The pre-approval process can take days or weeks, depending on the lender’s backlog of mortgage applications. You’ll need to hand over your recent paycheck stubs, tax returns for the previous two years and bank statements for the past two months so the bank can review your assets. An underwriter will check your credit and evaluate this information to determine if you’re eligible for financing. Your pre-approval letter states the max you can spend on a property and your interest rate.

3. Sign up for pre-purchase counseling

The VA offers free counseling to help you prepare for home ownership. You’ll learn your responsibility as a borrower, debt management and other financial tips. Pre-purchase counseling is not a requirement for a VA home loan, but it is worth consideration, especially if you’re a first-time home buyer. You can complete pre-purchase counseling online.

4. Wait for an appraisal and home inspection

After you find a property and a seller accepts your offer, the next step is a home inspection and appraisal. A home inspection isn’t required, but recommended. A home inspector conducts a thorough inspection of the property, including the interior, exterior, electrical, plumbing, appliances, HVAC system, roof and foundation. The inspection can reveal problems with the property. You can include a clause in your purchase stating that the sale is contingent on a clean inspection report. If the home requires maintenance or repairs, you can request that the seller addresses these issues before closing, or you can ask the seller for a credit toward repairs.

After the home inspection, your VA lender will send an appraiser to the property to assess the home’s condition and value. This is an important process because the bank will not lend more than a home’s value.

5. Attend closings

Closing times vary. If the lender doesn’t have many applications ahead of yours, you might be able to close in as little as two to three weeks. But if there’s a backlog, it might take as long as 45 days. Closing is the last stage and it can be exciting and stressful. Your mortgage lender will send your paperwork to the closing agent. This is where you sign the documents and get the keys to your new home.

There’s no rule that says spouses have to put both of their names on a mortgage. It’s perfectly okay for only one spouse to apply for a home loan. In this case, both names can still appear on the deed.

If only one spouse works and the other is a stay-at-home dad or mom, the question of who will apply for the mortgage may not be up for debate. But what if both spouses work and generate income? Is it better to have one or both names on the loan? The answer depends on the situation

Benefits of a Joint Mortgage

Before deciding whether to have both your names on the mortgage, you need to understand the benefits of a joint mortgage. When applying for any type of loan, including a mortgage, qualifying amounts are largely based on a borrower(s) income. In the case of a mortgage loan, the house payment can be no more than 28% to 31% of a borrower’s gross monthly income. This percentage includes principal, taxes, interest, insurance and homeowner association fees.

One of the perks of applying for a mortgage with your spouse is that the lender uses your combined income to determine affordability. If you earn $45,000 a year and your spouse earns $20,000 a year, you’ll qualify based on $65,000 a year. This increases purchasing power, allowing you to buy more house. Getting a joint mortgage may seem like a no-brainer, but there is a sound reason to only have one person’s name on the loan.

How Credit Scores Affect Mortgage Rates and Approvals

Not only will the mortgage lender look at both incomes, the lender also looks at both of your credit scores. There is a misconception that when two people apply for a mortgage the lender uses the average of both credit scores to determine eligibility and the interest rate. This, however, is a myth.

Your credit scores say a lot about your credit habits; and the reality is, a low credit score can disqualify you from getting a mortgage, or result in a higher interest rate. If you and your spouse apply for a mortgage together, the lender pulls both scores, but only uses the lowest score for qualifying purposes. So if you have an 820 credit score and your spouse has a 620 credit score, your mortgage rate will be based on the lowest of the two scores, which means you could end up paying a higher interest rate. What’s worse, if the lowest of the two scores is below the bank’s minimum credit score requirement, your application may be rejected, despite the fact that one person has a high score.

Should You Include Your Spouse on a Mortgage?

Applying for a mortgage together can possibly result in a bigger loan. But if you know your spouse has a poor credit score, you might consider applying for a mortgage in only your name, at which point the lender only uses your income and credit score.

Of course, this may not be an option, especially if your income alone isn’t enough to qualify for a home loan. But if you’re in a position to get a mortgage without the help of your spouse, getting the mortgage in your name only can help you receive the most favorable interest rate, which can save you thousands over the life of the loan.

Most people don’t have resources to pay cash for a house. Instead, they apply for loans. Mortgage lending is a big business; and like any business, lenders are paid for their services. This is why banks charge mortgage loan origination fees and mortgage interest. But there’s one fee you may not expect when applying for a home loan: a prepayment penalty

A prepayment penalty is less common today, but it’s still included with some loans. When a bank gives a borrower money for a home purchase, it doesn’t just want repayment of principal—the bank also wants to earn interest. To earn the most interest, banks need borrowers to keep their mortgages for an extended length of time. For this reason, some banks include a prepayment clause in the mortgage agreement.

A prepayment clause is a statement that gives a mortgage lender the right to charge a fee if a borrower pays off the mortgage before a specified length of time. The fee varies depending on the lender. It can be a percentage of the remaining mortgage balance, or a borrower might be charged five or six month’s interest.

To put it plainly, a prepayment penalty discourages borrowers from refinancing a mortgage or selling a home too soon. A prepayment penalty is basically a bank’s way of guaranteeing a certain amount of interest for a certain number of years. The good news is that some mortgages don’t have this clause. Before agreeing to a mortgage loan, you can check the contract to see if the lender included a prepayment clause.

Of course, there’s nothing you can do about a clause in a mortgage you already have. But even if your existing mortgage agreement includes this clause, the situation may not be as bad as you think. There are two types of prepay penalties: a soft penalty and a hard penalty

1. Soft prepayment penalty. If your mortgage has a soft prepay penalty, the lender will charge a fee only if you refinance the mortgage loan during the penalty period. You can sell the home at any time without penalty.

2. Hard prepayment penalty. In the case of a hard penalty, the lender will charge a fee if you sell or refinance the home during the penalty period.

Prepayment Penalty Rules

A prepayment penalty clause isn’t the most desirable inclusion in a mortgage agreement. There are, however, rules to protect borrowers; and fortunately, mortgage lenders can only charge a prepayment penalty under certain conditions.

If your mortgage agreement includes a prepayment clause, your lender can only enforce the penalty for the first three years of the mortgage. The actual penalty cannot be more than 2% of the outstanding loan balance during the first two years, and 1% during the third year. Additionally, a bank can only impose a prepayment penalty on stable mortgages. Therefore, the mortgage must have a fixed rate, no risk of negative amortization and the mortgage term cannot exceed 30 years.

Unfortunately, new guidelines for prepayment penalties didn’t go into effect until January 10, 2014. Therefore, any mortgage loan with a prepayment clause that originated before this date doesn’t have to comply with the new rules.

A home equity line of credit (HELOC) is a second mortgage that uses your home’s equity as collateral. It’s similar to a home equity loan. But rather than receiving a lump sum of cash, you gain access to a credit line up to 80% of your home’s equity. You can withdraw cash on an as-needed basis and use the money for many purposes from paying for college to home improvements. A HELOC may seem like a good idea if you have plenty of equity, but you have to consider whether this is the right choice for you.

Can you afford the monthly payment?

Before getting a HELOC, take a look at your monthly cash flow and determine whether you can afford another monthly payment. And if you can, how much can you afford?

Money you receive from a home equity line of credit isn’t free money. It’s a second mortgage, so you have to repay borrowed funds. Monthly payments are based on your interest rate and how much you withdraw from the account. With cash so readily available, it can be tempting to take large sums from your account. However, it is imperative that you calculate the cost and only borrow what you need. Your home serves as collateral for the HELOC. If you default and stop making payments, the bank can foreclose.

Consider your future cash flow

HELOCs have a draw period up to 15 or 20 years. Many home equity lines of credit have a variable interest rate, meaning the rate can change according to the market. You may receive a low rate today, resulting in low minimum payments. But if your rate increases in the future, so do your minimum payments depending on how much you owe at the time. Regardless of why you need funds, come up with a plan that lets you pay off the line of credit as soon as possible, just in case your rate increases.

How’s your credit score?

You don’t need a perfect credit score to qualify for a home equity line of credit, but your credit rating can affect your interest rate. Before applying for any type of loan or line of credit, pull your credit report and check your credit score. Check your report for errors and make any needed improvements, such as paying all your bills on time and paying off debt. Both efforts can improve your credit score and help you qualify for a better interest rate.

How’s your local real estate market

A HELOC can provide the cash you need if your property has substantial equity. But it’s smart to evaluate your local real estate market before applying for a line of credit. If home values in your area have been on the decline in recent years, getting a home equity line of credit could be dangerous. You might have plenty of equity at present, but if home values were to fall, you could lose your equity. Remember, getting a HELOC reduces the amount of equity in your home. If you borrow against your equity and your home value drops, you could end up owing more than your property’s worth.

It doesn’t matter if you’re buying a new home or a resale property, the home buying process can be stressful at best. The good news is that you can get through a purchase with ease. The trick to a smooth experience is advance preparation and knowing how these transactions work.

1. Fix your credit in advance

Don’t wait until you’re ready to buy a house to get serious about credit. It takes time to rebuild a low credit score. If you’re thinking about buying a house in the next six to 12 months, now’s the time to pull your credit history and make needed improvements.

Several issues can lower your credit score, such as credit report errors, paying bills late and carrying too much credit card debt. Order your credit report from AnnualCreditReport.com, and then check your file for accuracy and dispute any errors. Make sure you pay all bills on time and devise a plan to eliminate debt.

2. Spend less on a house than you can afford

A mortgage pre-approval provides a pretty clear estimate of how much you can afford to spend on a house. Only a lender can assess affordability after evaluating your income and current debts. A pre-approval lets you know your max budget, but it’s smart to spend less than you can afford. This ensures you have wiggle room in your budget and disposable cash for other goals, such as building an emergency fund.

3. Research different lenders

There’s probably a mortgage lender on every corner in your city. This doesn’t mean you should choose a random company to work with. Lending requirements and mortgage programs vary by lender, so you need to be selective and request rate quotes from multiple lenders.

4. Interview different realtors

Not only should you shop around for the right mortgage lender, you should meet with different realtors before making a choice. The home buying experience can be stressful and confusing, and you need to work with a professional who has experience and knows the area you want to live in. Don’t be afraid to ask questions. How long has he or she been a real estate agent? Does the agent work full-time or part-time? How many sellers or buyers does the agent currently represent?

5. Get a home inspection

A home inspection is optional when purchasing a home, but you shouldn’t skip this step. Skipping a home inspection could mean buying a home with several problems, which can be costly in the future. A home inspection costs between $300 and $500, depending on your area and the size of your property. The inspector check the home’s electrical system, plumbing, HVAC, roof and foundation for problems and provides an inspection report

6. Don’t buy the first home you see

The first home you see may offer everything you want at a price you love, but never purchase the first property you find. Your realtor may be able to locate a property that’s a better match for you and your family, or a property with a lower sale price and more seller concessions. You don’t have to spend weeks looking for a home, but you should tour at least three properties before making a decision.

Buying a home gives you stability, a sense of accomplishment; and since your home is your biggest asset, your home equity is the biggest part of your financial net worth.

 Equity is the difference between what you owe on the mortgage loan and the home’s value. If the bank appraises your home at $230,000 and you owe the lender $100,000, your equity is $130,000. Equity builds slowly over time as your home appreciates in value and as you pay down your mortgage balance.

 But even if you understand what equity is and how it works, you may not completely grasp the importance of equity. Here are five benefits of home equity.

1. You can use equity as down payment on a new home

Buying a home requires a down payment, but it can take years to save between 3.5% and 20% for a purchase. The good news is that existing homeowners can use proceeds from the sale of a property as down payment on their next home. Your home’s equity determines your profit once you sell the property. The more equity you have, the more cash you’ll walk away with, and you can put all or some of the proceeds toward your next purchase.

2. You can borrow from your equity

You don’t have to move to get cash from your home’s equity. If you refinance your property—which involves applying for a new mortgage to replace your old mortgage—you can request a cash out and borrow up to 80% of your home’s equity. Another option is applying for a home equity loan or home equity line of credit (HELOC). Both options feature interest rates lower than most credit cards, and you can use funds for any purpose such as debt consolidation, home improvements, college expenses, etc.

3. Get rid of private mortgage insurance faster

If you get a conventional mortgage and put down less than 20%, you’re required to pay private mortgage insurance (PMI). This insurance protects your lender in case you default, and you pay premiums each month with your mortgage payment. PMI can cost as much as 1% of the loan balance each year, which increases your monthly mortgage expense. However, the bank will remove PMI once you have 22% equity in your home.

4. Use equity to fund your retirement

Even if you have a 401(k) or an individual retirement account, your home’s equity can help fund your retirement. If you’re able to pay off the house before retiring, you could downsize to a smaller place and invest some of your proceeds from the sale. If you don’t sell, there’s the option of a reverse mortgage if you’re over the age of 62. You can convert some of your home’s equity into cash. Use the money for living expenses, healthcare costs, home improvements, etc. The loan doesn’t have to be repaid until you sell the house or die. If you die, your estate repays the loan.

If you don’t have the standard 5% down payment to qualify for a conventional mortgage loan, you may be eligible for one of several low down payment options.

FHA mortgage loans are a popular choice because they only require a 3.5% down payment. However, these mortgages can be costly in the long run due to the loan’s upfront mortgage insurance premium (MIP), and the fact that borrowers have to pay mortgage insurance for the entire duration of the loan term. For these reasons, you may prefer a conventional mortgage.

The good news is that there are two ways to get a conventional mortgage with less than 5% down. Fannie Mae’s 97% standard loan and HomeReady program are both conventional products that only require 3% down. If you’re purchasing a house for $200,000, you’ll only need $7,000 with a 3% down mortgage compared to $10,000 with a 5% down mortgage.

But since these are not your typical conventional mortgages, here is what you need to know about 97% loan products.

What Credit Score Do I Need?

Minimum down payment requirements for a conventional mortgage vary widely depending on the lender. Some lenders require a minimum credit score between 660 and 680, whereas others will approve borrowers with scores as low as 620.

Fannie Mae’s 97% loan programs only require a minimum credit score of 620, making it easier for borrowers with challenged credit histories to qualify for mortgages.

What Type of Properties Can I Purchase?

Fannie Mae’s 97% loan programs can be used to purchase a variety of properties, including single-family dwelling, townhouses, condos and other one-unit properties. The only exclusion is that these loans cannot be used to purchase manufactured homes.

Are 3% Loans Available to All Borrowers?

Since these are specialized loan products, there are limits with regard to qualifying. With Fannie Mae’s 97% standard loan, you can only qualify for financing if you’re a first-time homebuyer, or if you haven’t owned within the past three years. This loan is designed to help people with high enough credit scores and income realize their dream of homeownership sooner.

Fannie Mae’s HomeReady program isn’t limited to first-time homebuyers, but these are income-based loans, and borrowers are required to complete an online home buying education course. Income requirements vary based on the location. For example, in some areas you can only qualify for this program if your income is below 80% of the area median income.

Do I Have to Pay Private Mortgage Insurance?

Private mortgage insurance (PMI) is required on any home purchase with less than 20% down. PMI is an insurance that protects lenders in the event that a borrower defaults on the mortgage. This is an annual premium paid every month with the mortgage payment, and it can range between .5% and 1% of the loan balance depending on your credit score and down payment. But don’t let private mortgage insurance stop you from getting a conventional loan. The bank will cancel PMI when your equity reaches 20%.

Getting approved for a mortgage loan isn’t as simple as getting approved for an apartment. Some landlords don’t care about credit history, and they may only ask for a tenant’s most recent paycheck stub. Buying a house is a more complex, formal process.

A mortgage is a 30-year commitment, and understandably, lenders have to be absolutely confident in a borrower’s ability to afford the mortgage payments. In addition to your credit report, the bank will require several pieces of documentation before approving your loan.

1. Proof of Employment and Income

Qualifying for a mortgage generally requires 24 months of consecutive employment with the same company or within the same field. The lender will need copies of your W-2 forms from the past two years, as well as your most recent paycheck stubs to verify your current employment and income. Some lenders go further and also request a letter from your employer. You must be able to document any income you want the lender to consider during the application process. This includes income from child support, alimony and other sources.

2. Tax Returns

It’s tougher to get a mortgage when you’re self-employed. You have to document your income and prove that your business is profitable. The lender will need to see your complete tax returns from the past two years, plus a year-to-date profit and loss statement. The underwriter not only evaluates your business income, but also your business expenses or write-offs.

Keep in mind that too many business write-offs can work against you. Instead of using your total income, lenders use your adjusted gross income (which is income after write-offs) to determine how much house you can afford.

3. Information on Cash Reserves and Other Assets

Buying a house involves a down payment and closing costs, and lenders will check to make sure you have funds on hand for mortgage-related expenses before approving your application. Some lenders even require applicants to maintain a cash reserve after closing on the mortgage. To verify funds, the lender needs copies of all your bank account statements and information on other assets, such as rental properties you may own or other investments.

If you don’t have enough assets, the lender will need information on how you plan to pay these expenses. The bank will not allow you to borrow funds toward your down payment, but you can use a grant or a gift from a relative or friend. If you’re receiving a gift, the donor has to write a gift letter to your lender.