The process of purchasing a house isn’t as simple as renting a house or an apartment. Mortgage lenders typically request more documentation than landlords; and whereas a landlord may overlook a poor credit history, lenders aren’t as forgiving. Mortgage applications are scrutinized, and unfortunately, banks reject a lot of applicants.

If you’re rejected for a home loan, a bank may reconsider its decision if you re-apply with a co-borrower. A co-borrower appears on the mortgage loan with you, and the bank takes this person’s income, credit and assets into consideration when determining whether to approve the application. A co-borrower can be anyone such as a spouse, a parent, sibling or child. This person has ownership interest in the property and is equally liable for the mortgage debt.

Having a co-borrower isn’t a requirement for a mortgage loan, yet it can be helpful if you’re having trouble getting a loan on your own. Before you proceed, here’s what you should know about adding a co-borrower to your mortgage.

Adding a Co-Borrower Doesn’t Guaranteed a Better Mortgage Rate

Mortgage borrowers with the highest credit scores qualify for the best mortgage rates. If you apply for a mortgage with a low credit score, you might think a co-borrower’s excellent credit history will help you qualify for a better mortgage rate, but this isn’t always the case.

When two people apply for a joint mortgage, mortgage lenders do not use the highest score or an average of both credit scores when determining the rate. Instead, the mortgage rate is based on the lowest credit score. It doesn’t matter if your co-borrower has an 800 credit score. If you have poor credit, the lender will use your score to underwrite the mortgage because it’s the lowest of the two.

A Co-borrower Helps Lower Your Debt-to-Income Ratio

Having a co-borrower can strengthen your mortgage application, especially if you have a high debt-to-income ratio (DTI). Your debt-to-income ratio is the percentage of monthly income that goes toward debt payments. To qualify for a mortgage, your DTI (including the mortgage payment) should not exceed 36%. A high DTI can reduce purchasing power.

Before approving a mortgage, the bank will review your income and debts to determine how much you can afford. The more you owe on credit cards, auto loans and student loans, the less you can spend on a property. If debt limits your purchasing power, a co-borrower may help. Since mortgage lenders include a co-borrower’s income and assets when underwriting the application, applying with a co-borrower can result in a lower DTI and help you qualify.

There’s just one caveat.

Some mortgage lenders do not allow non-occupant co-borrowers on mortgage loans, and depending on the type of loan program, a non-occupant co-borrower’s income cannot be used for income qualification purposes. If you’re thinking about adding a co-borrower, make sure you understand the bank’s guidelines.

A mortgage lender doesn’t lend money until an applicant can prove their work history. This is why lenders request copies of past tax returns and recent paycheck stubs before approving home loan applications. But getting approved for a mortgage involves more than having a job — you need stable employment. And unfortunately, getting a new job or starting a new career can jeopardize a mortgage approval.

If you’re pre-approved for a mortgage, a major change to your employment status can postpone or possibly cancel the loan. Even if you don’t have an employment gap and there’s a seamless transition from one job to another, any change will prompt your lender to take a second look at your application. The bank will verify your new employment and they’ll need to confirm that your income can support the mortgage.

A job switch might not stop a mortgage, but it will slow the process. Ideally, you should avoid any employment changes until after the mortgage closing. But if you find yourself job hunting after getting pre-approved, here are a few tips to protect your approval.

Find a Job in the Same Field

Mortgage guidelines vary from lender-to-lender. Some banks not only require two-years of consecutive income, they also require two-years of employment with the same employer or in the same field. If you get a new job after you’re pre-approved, the lender may be okay with the switch as long as you’re working in the same field. But you could run into problems if you’re starting a new career.

Since this is a new field for you, there may be a probationary period where your new employer can terminate your job if you’re not a good fit. How would you pay the mortgage if this were to happen? A new career can raise questions and put doubts in the lender’s mind, which can make is harder to qualify.

Make Sure Your Income Remains the Same or Increases

If you have to switch jobs after getting pre-approved for a mortgage, make sure your income remains the same or increases. If your new job pays less, the lender will reassess affordability. You may still qualify for the mortgage, but you’ll likely qualify for less money. In addition, the way you’re paid should remain the same. If you were pre-approved as a salary employee, but you’re now an hourly or commission-based employee, the lender might question whether you can afford the mortgage because your income may fluctuate from week to week. The bank will request additional information from your new employer and your most recent paycheck stub to get an idea of your expected earnings. If the lender isn’t confident in your ability to make the payment, the bank will cancel the mortgage.

Don’t Start Your Own Business

If you lose your job after getting pre-approved for a mortgage, this isn’t the time to take a leap of faith and start your own business. Even if you’re starting a business in a field you’re familiar with, a mortgage lender will not lend funds for a home purchase. It’s much harder to get a mortgage when you’re self-employed. Qualifying as a self-employed buyer will require at least two years of profitable tax returns. If you don’t want to jeopardize your mortgage approval, it’s important to find employment as soon as possible, preferably within the same field and earning the same income, and then transition into self-employment after closing on the mortgage loan.

Buying a house no longer requires a 20% down payment, but some banks will require private mortgage insurance (PMI) if you purchase with less money. PMI is a type of insurance that minimizes your lender’s risk and protects the bank in case you default. You purchase the policy, but your lender is the beneficiary. Annual premiums are typically between 0.5% and 1% of the loan balance and paid monthly as part of the mortgage payment. Since PMI can increase your monthly housing cost, you may look for ways to avoid this expense. Giving your lender a 20% down payment is the obvious solution, but like so many buyers, you may not have this type of cash lying around. Fortunately, there are ways to buy a house without the added expense of private mortgage insurance.

Piggyback Mortgage

Piggyback mortgage loans became practically extinct after the 2008 housing bust, but they’re slowly making a comeback.  If you don’t have a 20% down payment, yet you want to avoid private mortgage insurance, these loans might be an option depending on your lender. With a piggyback mortgage, you’ll take out a first mortgage for 80% of the purchase price, a second mortgage for 10% of the purchase price, and then you’ll give the bank a 10% down payment from your own funds.

Special Mortgage Financing

Fannie Mae and Freddie Mac are two of the biggest buyers of conventional mortgage loans, and according to their home loan guidelines, a borrower must pay PMI if purchasing a property with less than 20% down. Most banks don’t have the capacity to retain every home loan they originate, so they must sell their mortgages. Since Fannie Mae and Freddie Mac only purchase loans that comply with their guidelines, many lenders require PMI. Some lenders, however, do not sell their mortgage loans. These banks have the flexibility to offer specialized financing, in which case they may waive PMI if you have excellent credit, or you might avoid PMI by paying a slightly higher interest rate. Special financing programs are more common with community banks and smaller mortgage lenders.

Apply for a VA Home Loan

If you’re active-duty military or a veteran, you may qualify for a VA home loan. These loans, which are backed by the Department of Veteran Affairs, make it easier for military personnel to buy homes. Not only can you get a VA home loan with no down payment, you don’t have to pay private mortgage insurance with these loans.

Make Higher Mortgage Payments

Even if you start off paying PMI, you can eliminate this expense and reduce your monthly housing cost. Mortgage lenders are required to cancel PMI once your loan-to-value ratio drops below 78%. The sooner you pay down your mortgage balance, the quicker you can get rid of PMI. You can pay down your mortgage faster by making larger mortgage payments every month, or by making an extra principal payment every year.

If you meet the lending requirements for a VA or USDA home loan, you may be able to purchase a house with zero down. Conventional and FHA mortgages, on the other hand, do require a down payment of 5% and 3.5%, respectively. A down payment is one of the biggest roadblocks to homeownership. The good news is that mortgage lenders recognize this challenge and they allow borrowers to use gift funds as down payment for a house. There are, however, specific rules with using gift money.

1. The Gift Must Come From a Family Member

When your mortgage application goes through underwriting, the underwriter will ask about the source of your down payment funds. And while banks do allow borrowers to use gift funds as down payment, they don’t allow all gifts. Some mortgage lenders only allow gifts from a family member, such as a parent, a grandparent or a sibling. Other lenders are more flexible and allow gift funds from a non-relative, such as a friend or godparent. However, the lender will inquire about your relationship with the giver. If you can provide an explanation or proof of a close relationship, the lender may approve the giver.

2. Gift Funds Cannot Be a Loan

Banks do not allow applicants to borrow funds for their down payment. If you’re using financial gifts from a family member or an approved non-relative, the giver must sign a letter stating that funds are in fact a gift, and not a loan. The gift letter includes information such as the giver’s name, address and phone number, their relationship to the borrower, and the exact amount of the gift. Some banks provide the letter, whereas others accept a notarized letter from the giver. Additionally, the giver must provide the lender with copies of their bank statements as proof of their ability to gift a down payment.

3. Gift Fund Limitations

 There also rules regarding how much a giver can gift towards your down payment. Both FHA and conventional loans allow gift funds for down payments. With a conventional loan, gift funds can pay the entire down payment if you’re putting down 20% or more. If you put down less than 20%, you will have to contribute some of your own funds. The minimum contribution varies by lender. In the case of an FHA loan, gift funds can cover 100% of your down payment. But if you have a low credit score between 580 and 619, you’ll have to pay at least 3.5% of the down payment from your own funds.

Some homebuyers choose a 30-year mortgage without giving any thought to the possibility of a 15-year mortgage. Since a 15-year mortgage cuts the loan term in half, many borrowers assume they’re unable to afford the higher payment, so they never run the numbers to see if a shorter term is doable.

There are undeniable benefits of a 30-year mortgage, such as a more affordable payment and the ability to qualify for a larger loan. But there are also good reasons to choose a 15-year mortgage.

1. Build Home Equity Faster

 A 15-year mortgage pays off your mortgage loan in half the time, and since you’re paying off your home faster, you can build equity quicker. Equity is the difference between your home’s value and what you owe your mortgage lender. Even if property values in your area don’t increase much from year to year, your equity value will rise as you pay down the mortgage balance. Also, the faster you build equity, the faster you can get rid of private mortgage insurance (PMI). This insurance compensates your mortgage lender if you default on your mortgage loan, and it’s required if you put down less than 20%. Mortgage lenders cancel PMI once your loan-to-value ratio drops to 78%.

2. Qualify for a Lower Interest Rate

Since you’re financing the home for a shorter length of time, 15-year mortgages typically feature lower mortgage rates than 30-year mortgages. This results in paying less interest over the course of your loan term. You’ll pay more on a monthly basis for the house, but the overall cost of the home will be lower. Understand, however, that a low interest rate isn’t guaranteed with a 15-year mortgage. Other factors also determine your mortgage rate, such as your credit score and the size of your down payment.

3. 15-Year Terms Don’t Double the Mortgage Payment

 Some homebuyers never consider a 15-year mortgage because they believe cutting the loan term in half doubles the mortgage payment. This isn’t the case, however. You can expect a higher monthly payment with a 15-year term, but the payment may only increase by half. For example, a 30-year fixed-rate mortgage for $200,000 at 3.46% has a monthly payment of $1,101.96 (including taxes and PMI). If you were to shorten the mortgage term to 15 years, the monthly payment increases to $1,634. This is a monthly difference of only $533.

If you’re looking for more affordable mortgage terms, refinancing your home loan can help you receive a lower interest rate and a lower monthly payment. For a smooth process, it’s important to understand how refinancing works before submitting an application. But even if you educate yourself, you could receive outdated information. To discern whether now’s the right time to refinance your mortgage, you have to distinguish truth from fiction.

Here are four common myths about refinancing a mortgage.

Myth #1: You can’t refinance without equity

Guidelines for refinancing a mortgage have changed in recent years. In the past, borrowers needed at least 20% equity to qualify for a mortgage refinance. Today, several conventional and FHA mortgage lenders offer refinancing with as little as 3% to 5% equity. Additionally, the Home Affordable Refinance Program (HARP) makes it possible for underwater homeowners to refinance their mortgage loans and take advantage of lower rates. Under HARP, borrowers can refinance up to 125% of their home’s value. To qualify for this program, your mortgage must be backed by Freddie Mac or Fannie Mae.

Myth #2: You have to pay out-of-pocket to refinance

Refinancing a mortgage loan creates a new loan, and just like the original loan, you have to pay closing costs or settlement fees. These costs range from 2% to 5% of the mortgage loan, and include the loan origination, title search fee, attorneys fee, appraisal, etc. There are, however, ways to avoid spending thousands out-of-pocket in upfront fees. Some lenders will roll mortgage refinancing fees into your loan balance, and other lenders may pay these costs if you agree to a slightly higher interest rate. This is commonly referred to as “no-cost” refinancing.

Myth #3: You can borrow as much as you want from your equity

A cash-out refinance lets you access your equity without selling the home. You can borrow cash from your equity and use the money for home improvement projects, debt consolidation, college tuition, and other purposes. But just because you have substantial equity in your house doesn’t mean you can borrow all of your equity. Typically, the lender will only let you borrow up to 80% to 85% of your home’s equity.

Myth #4: Your current mortgage lender will offer the best refinance options

Mortgage lending is a business, and understandably, your current lender wants to retain your business. This is likely the case if you’ve been an excellent customer over the years. Likewise, if you’re satisfied with the lender, you may prefer continuing the relationship. However, a long-standing history with your lender doesn’t mean the bank will offer the best deal on your refinance. Request a quote from your present lender, and then speak with two or three other banks and compare these offers. You may receive a lower interest rate and cheaper closing costs elsewhere.

A conventional loan and an FHA loan are both excellent products when you are ready to purchase a house. Because FHA mortgages are guaranteed by the Federal Housing Administration they’re generally easier to qualify for and may feature slightly lower interest rates than a conventional mortgage.

But while an FHA loan can open the door to homeownership, a conventional loan may be a better option depending on your circumstances. Here’s a look at a few key differences between an FHA loan and a conventional loan.

Down Payment Requirements

One primary difference between both products is the down payment requirement. Currently, FHA mortgages only require a down payment of 3.5%. Some conventional mortgage products have down payments as low as 3%, but these programs are often limited to first-time homebuyers and low-to-moderate income borrowers. The standard minimum down payment for a conventional mortgage is 5%.

Credit Score Requirements

Credit score requirements for a mortgage vary by bank. Typically, you need a minimum credit score of 620 to qualify for conventional mortgage products backed by Fannie Mae or Freddie Mac—although some lenders may require minimum scores between 640 and 660.

FHA loans offer flexible credit standards. You can qualify with a minimum credit score between 500 and 580, and it’s also easier to qualify for an FHA mortgage after a bankruptcy or foreclosure. With an FHA loan, you can purchase a home three years after a foreclosure and two years after a bankruptcy, versus seven years after a foreclosure and four years after a bankruptcy with a conventional mortgage.

Maximum Housing Ratio

FHA loans allow a higher housing ratio, which is the percentage of your gross income that goes toward your mortgage payment. With a conventional loan, your mortgage payment—  including principal, interest and taxes—cannot exceed 28% of your gross income. With an FHA home loan, you can purchase a home with a mortgage payment up to 30% of your gross income. This increases purchasing power, allowing you to buy a more expensive property.

Mortgage Insurance

Since neither mortgage requires a 20% down payment, you are required to pay mortgage insurance with an FHA and conventional mortgage. Private mortgage insurance with a conventional loan costs between .5% and 1% of the mortgage balance annually, whereas FHA mortgage insurance is .85% annually. The amount paid for private mortgage insurance with a conventional product is based on your credit score. You might pay more for mortgage insurance with a conventional loan, but this doesn’t mean you’ll save money with a government loan.

Conventional loans are attractive because lenders eliminate private mortgage insurance once the loan-to-value ratio drops to 78%. This isn’t the case with an FHA loan. Mortgage insurance is required throughout the entire loan term with an FHA mortgage, and the only way to get rid of this insurance is to refinance the loan to a conventional loan. Additionally, FHA mortgages charge an upfront mortgage insurance premium, which is added to the loan balance and paid off over the term of the loan.

Buying a home is a complex, overwhelming process, and there’s a lot of details to sort through. What type of property to purchase? Which mortgage lender to choose? What’s the best mortgage program? The list goes on and on.

One of the biggest decisions of the entire process, however, is how much to spend on a house. Fortunately, you don’t have to make this decision alone. The mortgage lender ultimately determines how much house you can afford based on several factors, such as your income, existing debt and credit.

Before setting out to purchase a home, it helps to have a clear idea of your range of affordability. To learn your price point and remove the guesswork, you have the option of getting pre-approved or pre-qualified for a mortgage.

Some homebuyers use these terms interchangeably, but there are differences between a pre-approval and a pre-qualification. By understanding the difference, you can decide which option is better for your situation.

What is a Pre-qualification?

A pre-qualification is often the first step in applying for a mortgage. You’re required to provide information about your income and credit score, but you don’t provide your Social Security number and the lender doesn’t pull your credit. Based on the information you provide, the bank estimates how much you’re “likely” to qualify for. There’s no commitment from the lender, nor does a pre-qualification guarantee a mortgage approval. It’s a preliminary step. Once you’re pre-qualified, the next step is submitting an official mortgage application and forwarding the appropriate documents to the mortgage lender.

What is a Pre-approval?

A pre-approval provides a more accurate estimation of how much you can afford. Unlike a pre-qualification—where the estimation is based on information you provide—a pre-approval involves a thorough assessment of your financial and credit history. The lender pulls your credit report to evaluate your payment history and debt, and you’ll submit income statements (tax returns, paycheck stubs, W2s) and information about other assets such as bank accounts and investments. Your application goes through an underwriting process and the bank confirms the source of down payment funds. If you meet the qualifications for a mortgage, the lender issues a pre-approval letter

Which Is Better?

So which is better: a pre-qualification or a pre-approval? It really depends on where you are in the home buying process.

A pre-qualification says that you “might” be a good candidate for a mortgage, and this process makes sense if you’re just starting to consider a home purchase and you want to know if you’re even eligible for a mortgage. On the other hand, if you are ready to move forward with a purchase, you can skip the pre-qualification and get pre-approved, which indicates that a decision has been officially rendered. In this case, you’re practically guaranteed a mortgage (as long as there are no significant changes to your income, employment and credit). You’ll be taken more seriously by realtors and sellers, and a written commitment from the lender gives you a competitive edge when shopping for a house.

When mortgage rates hit record lows, many homeowners consider a mortgage refinance. Refinancing involves applying for a new mortgage to pay off your current mortgage. The new mortgage typically offers a better rate and terms, resulting in substantial savings. But just because you’re able to refinance doesn’t mean you should. Refinancing makes sense in some cases, but it’s not the right choice for everyone.

Make sure you understand the advantages and disadvantages of refinancing, and then decide whether it’s the right time to apply for a new home loan.

Pros of a Mortgage Refinance

1. Lower interest rate

If you have a fixed-rate mortgage loan, refinancing is the only way to take advantage of a lower mortgage rate. A lower rate can reduce your monthly payment and save thousands over the life of the loan.

2. Convert an adjustable-rate mortgage to a fixed-rate

Refinancing allows you to switch from an adjustable-rate mortgage (ARM) to a fixed-rate.   The interest rate with an adjustable-rate mortgage varies over time, which causes monthly payments to increase or decrease. The interest rate with a fixed-rate mortgage remains the same over the life of the loan, resulting in predictable, stable payments.

3. Cash out your equity

Selling your home is one way to tap your equity. If you don’t want to move, you can apply for a cash-out refinance and borrow up to a percentage of your home’s equity. You can use the money for a variety of purposes, such as home improvements, debt consolidation, business expenses, etc.

4. Remove name off the mortgage

Removing an ex-spouse or a cosigner from a mortgage isn’t as simple as calling the mortgage lender and making a request. If getting a divorce or breaking up with a partner, you can transfer ownership of the house to this person and vice versa, but this act doesn’t remove a name from a joint mortgage. To accomplish this, you have to refinance the mortgage. You (or your ex) would have to apply for a new mortgage in your name only, and be able to qualify without the other person’s income or credit.

Cons of a Mortgage Refinance

1. You have to re-qualify

The fact that you already have a mortgage doesn’t guarantee an approval when applying for a refinance. This is an entirely new mortgage and you have to complete the same process as acquiring the original mortgage. This includes filling out a mortgage application, authorizing a credit check and providing income documentation. Unfortunately, if your credit score has decreased since applying for the original mortgage, or if you’re earning less money, these changes can affect qualifying.

2. You have to pay closing costs

Refinancing can result in a cheaper mortgage rate and lower payments, but it’ll cost you. Just like the original mortgage, you have to pay closing costs (loan origination fees, appraisal, credit fee, title search, etc.). Upfront fees can cost as much as 2% to 5% of the loan balance. Some lenders offer provisions to help borrowers cover the closing costs, such as including these fees in the mortgage balance, or paying a borrower’s closing costs and then charging a higher mortgage rate.