Are you looking to buy a house and obtain a loan but are worried about being outbid by another interested buyer? Don’t be: Bidding on a house is done differently when it’s through Bungalo. By buying direct, you can submit an offer online in mere minutes. And since we operate on a first come, first served basis, you won’t have to worry about the potential for not offering enough or too much.

However, there’s a catch: You first need pre-approval. But if you think that pre-approval is difficult or will put you at a disadvantage, think again. It’s actually just the opposite. Pre-approval puts you in the proverbial driver’s seat, allowing you to know how much house you can afford — whether you’re paying by cash or through a home loan — and make an offer faster.

But before we dive into how to get pre-approved to buy a house, let’s talk a little more about why you should.

Why is it important to get pre-approved?

 Pre-approval is a smart move for a number of reasons. One of which is it establishes guardrails for how much money you can realistically spend when taking into account your current financial situation and income. Buying a house for many people is the biggest purchase they’ll ever make in their entire lives. According to the latest statistics on real estate prices from the National Association of Realtors, the typical house nowadays sells for approximately $359,900 as of July 2021.

Obtaining pre-approval from your mortgage lender — usually in the form of a pre-approval letter — gives you a guideline of how much you can afford to borrow based on your income, budget and available assets. Mortgage pre-approval can also make finding a house in listings easier by eliminating certain real estate options from contention given the cost.

The Bungalo app makes browsing for a home simple with the price filter function. You can set the floor and ceiling for how much you can spend, which will help you narrow down which house will be the ultimate winner until you find “the one.”

Another advantage of mortgage loan pre-approval is for the seller. Naturally, the seller needs to be certain that those they’re selling to are financially secure and serious about buying. The loan pre-approval letter provides them with that rest assurance by minimizing risk. Assuming the offer is accepted, the mortgage lender pays them the requisite amount, then you pay back the lender with interest over however many years. Simple as that.

What is the difference between a mortgage pre-approval and a mortgage prequalification letter?

What isn’t quite as straightforward is understanding how a mortgage pre-approval differs from pre-qualification. You’ve probably heard these terms before and thought, “Hmmm, must be the same thing.” While there are definitely a lot of similarities and the terms do get used interchangeably — wrongly, as it happens — they’re not identical.

In layman’s terms, mortgage pre-approval is a much more thorough vetting process of a prospective buyer. While both pre-qualification and pre-approval provide borrowers with an estimate as to what they can spend — which, come to think of it, maybe why the terms are often confused — pre-approval is a step up from mortgage pre-qualification. For example, if you’ve obtained a mortgage pre-qualification letter, your mortgage lender may not have assessed your credit score by pulling your credit report. They may also not have asked to see certain documents that they do require to get a mortgage pre-approval letter, such as tax information.

Additionally, because the mortgage pre-approval process is typically more involved than pre-qualification, it may take a bit longer to receive word on whether you are approved.

What information do you need for mortgage pre-approval?

Now that you know the why of mortgage pre-approval, how do you actually get that all-important pre approval letter? The truth is every process is different in terms of what a lender wants to see to determine your financial ability. In addition to filling out an application, here are a few of the pieces of information you’ll likely be asked to collect. Most of the items requested are designed to assess your financial wellness, which goes further than income level:

  • Proof of employment
  • Pay stubs (two most recent checks)
  • W-2 forms (usually from the past two years)
  • Bank statements showing your available savings
  • Retirement accounts (e.g. 401(k), CDs, IRAs, stocks, bonds, etc.)
  • Copy of your credit report

Your credit report — and accompanying credit score — contains a lot of information (e.g. accounts, date the accounts were opened, credit limits, balances, etc.), but it primarily allows your mortgage lender to see if you’re consistent about making your payments in a timely manner. Generally speaking, the higher the credit score, the better. Additionally, having a high credit score makes it more likely that you’ll be able to take out a loan at a low interest rate.

There are a number of ways to obtain your credit report. You are entitled to one free credit report every year from any of the three credit bureaus, TransUnion, Equifax and Experian. It should be as simple as visiting the website. However, it’s also possible that your lender may be able to pull your credit report for you, but they’ll of course need your permission in order to do that as well as certain personal information, such as your Social Security number, mailing address, date of birth and the like. Once again, pre-approval is not on

For many prospective homeowners, the most daunting piece of the buying process comes long before the negotiations and even the open houses: getting a home finance loan.

We get it — there’s a ton of moving parts to juggle whether you’re a first-time buyer or an experienced investor. By the time you’ve mastered the nuances of the market you’re looking in, which types of loans are available to you and what your budget will look like, the house you were so ready to move out of may look a lot more attractive.

Read on to learn how Bungalo® can help you navigate your mortgage like a real estate pro.

Researching your home finance loan options

Determining which loan makes the most sense for your financial situation will be your first step toward your future dream home. With so many loan types out there, let’s go over some of the most common and how to know whether they’re right for you:

Conventional loan

When you think of a mortgage, a conventional loan is likely what comes to mind.

In this situation, a private financial lender (such as a bank) funds your purchase. This is the most popular form of lending as conventional loans don’t have as strict of regulations on income, home type and location like other options out there. However, they can be difficult to obtain depending on your credit score and debt-to-income ratio. Given the market’s current low interest rates, a fixed rate mortgage will often make the most sense for home buyers.

If you don’t qualify for a government-backed loan or are looking to take advantage of a lower interest rate and monthly payment by putting forward a large percentage down, a conventional loan will likely be best for you.

FHA loan

If your credit score isn’t the greatest (let’s admit it: whose is?) and you’re looking to put down a lower down payment, check if you qualify for a home loan from the Federal Housing Administration.

The flexible credit and low down payment requirements make FHA loans especially attractive for single-income families and those working to get their credit scores up. You’ll just want to be mindful of whether you meet the specific requirements set forth by the FHA — generally, your house payment can’t exceed 31% of your income.

VA loan

Government-backed loans come in several forms, one of them being a VA loan insured by the Department of Veteran Affairs. With a VA loan, eligible service members, veterans and their spouses are able to qualify for a low-cost mortgage rate regardless of their credit score.

Just remember not everyone who served in the Armed Forces or National Guard automatically qualifies for a VA loan. You’ll want to check whether the duration of you or your spouse’s service aligns with the VA’s eligibility requirements.


Homeowners with an interest-only mortgage only pay the interest on their loan for a set period of time. After that set loan term expires, the borrower is expected to pay both the principal and the interest.

If you’re moving to a new area and are looking to settle and save before paying down your loan, an interest-only payment plan may make the most sense for you. However, your monthly payment will grow significantly after those first few years pass, so you’ll need to be especially mindful of your finances.

Now, with all of those mortgage types in mind, let’s go over how you can navigate the pre-approval process.

Applying for home finance loan preapproval

Getting pre-approved before you begin looking for your new home will help guide your search. You’ll want to get all of your ducks in a row, however, before meeting with your mortgage lender.

As you chase down all the documents floating around in your filing system, follow this checklist to stay organized:

  • Income and employment: W-2 wage earners will simply need a copy of their W-2 and two recent pay stubs. Those who are self-employed, freelancing or independent contractors will need a year-to-date P&L statement and two years of records including their Form 1099s.
  • Debts: Your debt-to-income ratio is an important piece of the lender approval process. Be sure to list all debt payments including student loans, credits cards and any outstanding auto loans.

  • Assets: Typically, you’ll want to copy two month’s worth of statements for every account whose assets you’re using to qualify — even the blank pages. Apologies to overworked printers everywhere.

Depending on your unique financial situation, there may be additional records your lender will ask you to show, such as rent payments or divorce documents. By getting organized and being pre-approved in advance, you can shop around and make sure you’re getting the best rate possible.

Turning your loan into a home

While you may think the foundation of your new home is made of concrete, it actually all roots back to the pre-approval process — well, maybe not literally, but you get what we’re saying.

Pre-approval has the potential to majorly impact your search as well your ability to eventually close on your dream home. While acquiring a loan may feel overwhelming, getting it out of the way earlier has some major benefits:

  • Setting your budget: You found your dream home. It has every feature you could have wanted and more. Then when you get approved for the loan type of your choice, you find out the price is … seriously out of your budget. Pre-approval helps you to know exactly what you’re able to afford in advance. You’ll avoid considerable wasted time and broken hearts.

  • Credibility: There are few bigger disappointments in the home buying process than to find out you’ve been out-bid or were going up against an all-cash buyer. Getting pre-approved gives you some major credibility that could make all the difference with your seller.

  • Closing process: Closing on a home can typically take anywhere from one to two months, which may extend even further out if you’re waiting on your mortgage approval. Having your lender agreement in advance will allow help to move forward through appraisal and inspection a little faster.

By having your loan pre-approved, you’ll be able to minimize the chance of not closing on your home and avoid losing money paid upfront for expenses.

Making an offer with your pre-approval letter

With an approval letter in your hand (or uploaded digitally to your computer), all that’s left for you to do is to find the home of your dreams.

At Bungalo, we’re here to make every step of the buying process as smooth and straightforward as it should be. From convenient self-tours, certified homes, and transparent pricing to closing on your new property.

Once you’ve been approved by the mortgage loan officer of your choice, all you have to do to create an offer is upload your approval letter and enter some information. Plus, after you submit your first-come, first-served offer, you can rest assured knowing you can’t be outbid.

Learn more about buying directly through Bungalo and be one step closer to move-in day.

This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, real estate, insurance, or investment advice. Bungalo always encourages you to reach out to an advisor regarding your own situation.

So you’re ready to buy a home! Whether you’re looking to explore a new state or are just in need of a change of scenery, before you can hit the open houses comes one important first step: finding the right lender.

By working with a mortgage broker in advance, you can shorten the closing process on the other end of your home buying journey while also eliminating the chance of any unwanted surprises. Believe us: Nothing’s worse than finding out the home of your dreams is suddenly off the table due to a geographic or financial constraint.

Learn more about finding the right lender and how Bungalo® can help simplify the path to becoming a homeowner.

Finding a lender that is right for you

With so many lenders out there, it’s easy to suffer from choice overload. The good news is by learning to navigate each loan option like a pro, you’ll know how to shop around and get the best mortgage agreement possible.

As you begin your search for the right lender, your choices will all pretty much fall into two categories: government-backed or conventional.


Your first step in the loan application process is determining whether you’re eligible for a government-insured loan. Although these loans have more specific stipulations and could narrow your market options, they’re a great way to attain a lower mortgage rate and smaller down payment requirement:

  • VA loan: If you or your spouse has served in the armed forces, you may qualify for a loan from the Department of Veterans Affairs. Not only does the VA offer low interest rates, but if you qualify, you’ll be able to purchase without a down payment.

  • FHA loan: The Federal Housing Administration provides competitive loans with no minimum salary requirement. However, you will need a credit score of at least 500 and two years of employment history. Depending on your score you’ll only need a down payment of 3.5% to 10%.

  • USDA loan: These low-interest mortgages require no down payment and are designed for low- or single-income families. The only “catch” to this bargain? You’ll only be able to buy a home in a designated rural or suburban area.

If none of these scenarios apply to you, don’t stress. For those with higher credit scores, going with a private mortgage broker could lead to an even better deal.

Conventional loan

If this isn’t your first home-buying rodeo or you have an established credit history, this is likely the best route for you.

When you hear conventional, just think of your bank or any other financial institution. This traditional type of mortgage loan is an agreement between you and a private business, featuring a payment plan typically centered on a fixed-rate mortgage.

Before we get into the pros, let’s break down some of the cons of going conventional: It’ll require a bigger down payment, a higher credit score and a lower debt-to-income ratio.

If that list made you cringe, take a breath.

Ready to keep going?

OK. So with all of that said, going the conventional route has plenty of benefits despite those somewhat daunting requirements. It can help minimize the paperwork involved on your end compared to a government loan, leading to a faster underwriting process. Plus, if you’re looking to shop around, you have no shortage of private loan types and sizes.

Compare the quotes each mortgage broker provides. Rank your choices based on the loan term in years, the interest rate and your total monthly payment. By going with the shortest loan term available you’ll be on the quickest path to becoming debt free.

The good news is that once you’ve put in the work and found the lender of your choice, Bungalo is happy to work with whichever institution makes the most sense for you.

Improving your chances for loan approval

No one loves hearing the word “no,” so how can you avoid it when it comes time to apply for your loan?

There’s no magic formula that ensures approval 10 out of 10 times, but there are some steps you can take to help ensure you get the answer you’re hoping for:

  • Credit score: While government-insured loans have lower credit requirements, most private ones ask for a score of 620 or more. We recommend checking the National Association of Realtors’ guide on how your score is calculated to understand how you can make the biggest impact on your standing.

  • Debt-to-income ratio: A mortgage company will compare your debt to your income to determine whether you can manage additional monthly payments. The Consumer Financial Bureau recommends getting your debt down to 43% of your income — or as low as possible — to qualify for a loan.

  • Down payment: Go big or go home, right? Offering a larger down payment will help reduce your loan-to-value ratio, giving you a better chance of approval.

Once you hear those magic words — “you’re approved” — it’s time to lock down your loan rate. Rates fluctuate with the market, and typically your lock-in lasts anywhere from two weeks to three months. If you’re getting pre-approved for your home loan fairly far in advance, keeping an on the market and monitoring how rates are changing will help ensure you get the best one possible.

What to be mindful about when selecting a mortgage lender?

All brokers are not created equal. We mentioned this earlier, but step one is to collect multiple quotes to compare rates and get a clear understanding of the lending landscape.

Step two requires a little bit of detective work.

Before meeting with your mortgage lender, do some research online to see if you can find the following information:

  • Do they require a demand feature agreement? If yes, that means the lender can ask at any time that you immediately pay your entire loan balance.

  • Do they offer a down payment assistance (DPA) loan program? An eligible first-time homebuyer may be able to receive DPA, reducing the amount you need to save for a down payment.

  • What are their closing fees? Lender fees are one of those sneaky expenses that can quickly inflate your total closing costs on the other end of buying a home. Every institution’s total cost for closing will vary, so be sure to factor that in during your lender interview process.

If the answers to these questions aren’t readily available, feel free to bring them up when you meet in-person or over the phone. Additionally, you’ll also want to look into the variety of mortgage products your broker offers, the ease of their application process and any available customer reviews online.

As a borrower, it’s important to not let yourself worry about one or two bad reviews. An influx of negative reviews over a recent period of time, however, should raise some red flags. Don’t be afraid to ask your loan officer about these reviews during one of your conversations and see what (if anything) their organization is doing to right the situation. 

Key questions to ask when deciding on a lender

As you interview multiple lenders, you’re free to ask as many questions as you want. While it’s important to comb through the paperwork before you sign on the dotted line, getting these answers early on can save you some serious headaches:

  • What is your current mortgage interest rate? As we mentioned above, locking in a low interest rate can help minimize your total loan payment for the duration of your mortgage.

  • How much time does it take to complete a mortgage? Typically, mortgage agreements last for about 25 to 30 years. Although longer-term mortgages cost less per month, shorter terms can help you pay off the balance that much quicker.

  • How long are your turnaround times on pre-approval, appraisal and closing? One of the biggest surprises first time buyers encounter is just how long it takes to fully close on the home. By getting a clear understanding of what the process looks like for each lender, you won’t be left in the dark waiting for move-in day.

If anything doesn’t feel right or you’re uncomfortable with the terms laid out by a potential lender, always feel free to keep looking. Considering the length of most mortgages, it seriously pays off to take the time to ensure you’re fully confident in your decision.

Getting started on your homeownership journey

With your pre-approval letter in hand, it’s time to find the home of your dreams!

At Bungalo, we understand that the path to homeownership isn’t always clear one. That’s why we do everything we can to simplify each step, from working with the financial lender of your choice to getting you into one of our certified homes that’s been inspected by an expert.

Once you’ve put in the research and connected with a lender, the fun part becomes: picking out your future home. Learn more about finding the right home at our blog.

This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, real estate, insurance, or investment advice. Bungalo always encourages you to reach out to an advisor regarding your own situation.

What is the Difference Between an FHA Loan and a Conventional Loan?

When you’re a first-time home buyer, reason suggests that you want to play it safe when it comes to the loan you choose. In other words, you probably seek to apply for a mortgage in which you’re likely to be approved.

Thus, conventional wisdom suggests you should go for a conventional loan, right? Well, much like looks, words can be deceiving.

An FHA home loan could potentially be a better fit for you. Generally speaking, the qualification standards for an FHA home loan are easier and don’t require as high of a credit score. That isn’t to throw shade at conventional loans, though.

But before we get too heavy into the details, let’s back up a bit, as you may be wondering what a conventional mortgage is and how it compares with other mortgage loan products. Depending on your needs and financial abilities, you may find that there’s nothing at all conventional about a conventional loan. Here at Bungalo®, FHA loans are among the more common loan program selections for buyers, but our specialists are more than happy to work with you if a conventional loan is the one you ultimately choose. Understanding the distinctions of each will help you make the right decision. So, let’s get into learning more about these loans and what makes each unique.

What is a conventional loan?

A conventional loan simply means that the loan is not insured by a federal agency. Unlike a VA loan – which is backed by the Department of Veterans Affairs – or an FHA loan – which is funded by the Federal Housing Administration, an arm of the Department of Housing and Urban Development – a conventional loan is essentially any mortgage product that is separate from the government.

What does “backed” mean? A government backed loan is an indication that the government guarantees a mortgage lender that they’ll be fully compensated in the event the borrower defaults.

The fact that a conventional loan is not a government backed loan makes it harder to obtain if you don’t have a high enough credit score. Since lenders make their approval decisions based upon risk – meaning the likelihood that a borrower will be able to make their mortgage payments – a conventional loan applicant must reach a higher threshold. Risk can also affect what interest rate is charged. A lower interest rate may be possible when other factors are taken into account.

Take your credit score. Your credit score is used for a lot of things by creditors in addition to interest rate determination. It serves as a barometer of how you manage your expenses. The higher the credit score, the more reliable a potential borrower is considered to be.

How high does your credit score need to be for a conventional loan? Truthfully, there is no magic number, as lenders assess creditworthiness through many different variables, such as salary, your tax documents, available savings, assets and a few other factors. Generally speaking, though, conventional loan approval requires a score of at least 620, according to Experian.

Now let’s talk about the FHA loan.

What is an FHA loan and why are they a top pick for first-time buyers?

As previously noted, an FHA loan is backed by the Federal Housing Administration. Ever since it was created – back in the mid-1930s – it’s been one of the more popular mortgage programs, particularly among first-time buyers, who represent about a third of the housing market at any given time, according to the National Association of Realtors. The reason why goes back to approval – it’s notably easier in comparison to a conventional loan. Whereas a conventional loan entails a credit score of 620 or more, it’s possible to be approved for an FHA loan with a FICO credit score that is between 500 and 580, or thereabouts.  

Another major selling point for the FHA mortgage is down payments. One of the most common misconceptions about down payments is you have to come up with 20% of the house’s list price to be approved for a loan. Not true. With an FHA loan, borrowers can put as little as 3.5% of a home’s cost toward the down payment. One of the biggest obstacles to homeownership is the down payment since certain mortgages require borrowers to spend more up front, conventional loans being one of them (depending on their credit score, which we’ll get into more later). The FHA mortgage program has made the American dream eminently more attainable.

More flexible DTI

An additional advantage of FHA loans is a more lenient debt-to-income ratio. Often referred to as DTI, debt-to-income ratio refers to what percentage of a borrower’s regular income goes toward major payments, such as a car loan or credit card debt. The higher the percentage, the less discretionary spending that person has. Approval for an FHA loan is possible with a DTI of 50%. So if half of what you earn goes toward payment obligations, you may still qualify. With a conventional mortgage, borrowers’ DTI usually have to be less than 50% (although not always).

So, let’s review: Conventional loans require higher credit scores, lower DTIs (again, usually) and occasionally larger down payments when compared to the FHA mortgage. So it would seem like an FHA loan is a no-brainer pick if you’re a first-time home buyer seeking simplicity and cost convenience.

The truth is conventional loans have several things going for them as well – we wouldn’t be writing about them if they didn’t. Let’s start with mortgage insurance.

Mortgage insurance may not be necessary

Private mortgage insurance is something that lenders frequently require borrowers to purchase as a precondition to mortgage approval. Whether it’s necessary or not depends on the size of the down payment. Usually, down payments that are less than 20% trigger the need for private mortgage insurance, which provides financial cover for lenders should a borrower default. Those that can come up with 20% or more don’t have to buy private mortgage insurance, which includes those who choose a conventional loan. This fact alone can save borrowers thousands over the life of a loan.

Can you guess which one mandates private mortgage insurance? You got it: FHA loans do. This means even if you can afford to pay one-fifth of a house’s price upfront, mortgage insurance is still necessary. It also can’t be canceled, whereas mortgage insurance can be with a conventional loan. In fact, it’s automatically canceled once a house’s equity has reached a certain threshold, usually of around 78%.

The only way to cancel mortgage insurance for an FHA mortgage is by refinancing to a conventional mortgage.

Another check in the conventional mortgage column has to do with down payments. Earlier, we mentioned that conventional mortgage borrowers frequently spend more on their down payment. But it’s actually possible to be approved for a conventional loan with as little as a 3% down payment. There’s a caveat to this, though. If your credit score is deemed to be too low, then a 3% down payment likely won’t fly. Since conventional loans aren’t backed by the government, exceptionally low down payments are typically reserved for those with stronger credit, such as a credit score that’s in the high 600s or 700s.

Bottom line: An affordable down payment is possible with a conventional loan, but you’ll have to reach a higher standard of creditworthiness.

Higher loan limit for conventional mortgage products

If you’ve seen home prices nowadays, you know that they can get pretty expensive. In fact, while interest rate levels have been in record low territory for a while now, the median price for a home has risen every month for 113 months in a row, according to the National Association of Realtors.

This means that you may need to borrow more from a mortgage lender to afford your monthly payment. Conventional mortgages are more lenient in that regard. While both a conventional loan and an FHA loan have loan limitations, a conforming loan tends to be more flexible and has a higher loan limit ceiling. Much of this depends on the market that a house is selling in and the rules established by the Federal Housing Finance Agency (FHFA), the entity that establishes the terms and guidelines of conforming loan products.

If the cost of a house goes beyond the limit established by the Federal Housing Finance Agency, you may still be able to get a conventional loan, but it would depend on your credit score. And once again, the more that you seek to borrow, the higher your credit score will need to be, especially if it’s a jumbo loan, which is a type of conventional loan that is outside the purview of the FHFA. This means it’s a non-conforming loan.   

Sellers frequently prefer conventional loan borrowers to FHA loan borrowers

Competition is a reality when you’re buying real estate; other people are almost assuredly to be interested in the property that you’re considering. You may have an edge on others with a conventional loan than with an FHA loan. There are several reasons why, but a big one has to do with appraisals. In order to be approved for an FHA loan, the property must go through an appraisal, the standards of which are governed by the FHA. In addition to assessing the property’s overall value, an appraisal examines the integrity of the building to ensure that it’s move-in ready. It also focuses on what repairs are needed so if anything needs to be fixed gets addressed.

These requirements place more onus on the seller as far as preparations are concerned. Since there isn’t as much red tape with conventional loans, sellers often choose the path of least resistance.

The same goes for inspections. In the event an FHA loan borrower decides before closing that they no longer want the house, the inspection stays on the home. That isn’t the case if the same scenario happened with a conventional loan borrower.

Bottom line: There’s more predictability and less regulatory scrutiny with a conventional loan borrower than an FHA loan borrower.

So, should you choose an FHA loan or a conventional mortgage? There’s truly no right or wrong answer – only the right one for you. And you can’t go wrong when you buy direct through Bungalo. Assuming pre-approval, we accept all mortgage loans and simplify the purchasing process, so you don’t have to worry about bidding wars or inspections; every Bungalo home undergoes multiple rounds of rigorous inspections conducted by licensed experts. So if you see it on our website, you know it’s move-in ready. This guarantee is backed by our 90-day post-close protection pledge. Contact us today to get started.

This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, real estate, insurance, or investment advice. Bungalo always encourages you to reach out to an advisor regarding your own situation.

Buying your first home can be one of the most exciting milestones in your lifetime. But it’s not as simple as picking your dream home in your ideal neighborhood, putting some money down and taking the keys. Home buying is a thorough process that involves meeting the requirements to take out a home loan or mortgage.

But what exactly is the difference between a home loan and a mortgage? Mortgages and home loans are both methods of borrowing that require you to use your home as a type of collateral to back the debt you’ve accrued by buying a home, according to Investopedia. They are similar in some ways, but also very different. A mortgage is a type of loan, but a loan isn’t always a mortgage.

Let’s take a closer look at the main differences between a home loan and mortgage to determine which option makes the most sense for you:

Home loan vs. mortgage: Defining the terms

Home loans and mortgages are often considered interchangeable terms when in reality they’re actually not quite one and the same. Here’s the breakdown:

Home loan

This is the money given to a soon-to-be homeowner from a lender that gives them the funding needed to make the purchase. Borrowers often work with an agent to calculate how much they can afford to borrow vs what the monthly payment will look like. This is often determined by the type of home loan acquired as well.


A mortgage is a legal document that protects the lender. When the lender gives out a loan for a home, they use the property as collateral for protection. This means that if a homeowner doesn’t keep up with payments, resulting in a default against the loan, the bank has the right to sell the property and use the money gained on the home to pay off the debt. If you don’t have any issues paying your lender back, the mortgage will be gone as soon as the home is paid off in full.

Types of home loans and mortgages

Homeowners have the option to choose between conforming loans and non-conforming loans. The main difference between the two is the conforming loans have strict guidelines when it comes to the application process: A higher credit score and down payment amount are generally essential to securing this type of loan. Non-conforming loans are more flexible in terms of credit scores, down payment amounts and loan limits.

Common loans and mortgage types include:

  • FHA loan
  • VA loan
  • USDA loan
  • Jumbo loan
  • Conventional loan
  • Fixed-rate mortgage
  • Adjustable-rate mortgage

Reverse mortgages and home equity

Once you’ve established yourself as a homeowner, you can also consider options like reverse mortgages and home equity loans.

Reverse mortgage
A reverse mortgage is described exactly as you would expect — instead of paying the lender every month, the lender pays you by converting your home equity into payments. According to the Federal Trade Commission (FTC), there are three different types of reverse mortgages:

  1. Single-purpose mortgages
  2. Proprietary reverse mortgages
  3. Federally-insured reverse mortgages

Reverse mortgages are great options for someone who wants to pay off their mortgage, have a secondary source of income or pay off health care-related debt. This money is generally considered tax-free, and you typically don’t have to pay it back for as long as you live in the home. 

Home equity

A home equity line of credit is a type of mortgage essentially used to consolidate debt that’s at a high-interest rate. It enables you to get a loan with a lower interest rate so you can pay off personal debts without picking up a secondary source of income. The biggest difference between gaining a home equity line and a traditional mortgage is that you get the funds after purchasing the home. The amount of the loan is determined by the difference between the existing balance on the mortgage as well as the current property value.

Applying for a mortgage or home loan

Gaining the home of your dreams starts with working with securing funds from a lender. The general process behind applying for a mortgage or home loan involves:

Doing the backend work in advance
Getting your credit score to a good place and saving toward your down payment shows your lender or mortgage broker that you’re in a good position to buy a home and make your monthly mortgage payment. Work on increasing your score by paying bills on time and build your savings up so you can approach a mortgage company with an idea of what you can afford.

Find the best mortgage lender

Shopping around for a mortgage lender is in your best interest as a borrower. This will ensure you can find the lowest interest rate, as well as reasonable fees and terms that work within your budget and expectations.

Choose a mortgage that meets your needs

There are quite a few options when it comes to home loans, which can be a lot to take in. Meeting with a mortgage broker during this process can help you navigate your different loan options and decide which terms will get you the best deal.

Get pre-approved!
Once you find the best mortgage lender for your situation, you can get pre-approved for a serious loan offer. This typically involves gathering a lot of documentation to a lender who will indicate that you are in good shape for a loan.

Working with Bungalo®

Mortgage and home loans can help you get the house you want, but the process that goes into securing a fair interest rate and getting the amount of money you need can be confusing, exhausting and downright overwhelming.

Thankfully, Bungalo takes the stress out of the rest of the homebuying process. In fact, we’ll work directly with any mortgage lender that you choose. Simply get your pre-approval letter and then you can make an offer. Did we mention you can submit your offer online in minutes? That’s right — no negotiations or bidding wars. It’s really that easy.

We’ll even provide an easy-to-navigate checklist for a quick and efficient closing process.

We make sure first-time homeowners feel good about their decision every step of the way. If you’re not familiar or completely comfortable with taking care of the buying process on your own, don’t worry. You’ll have a dedicated loan specialist who can help you through each step.

Don’t let applying for a home loan or mortgage keep you from finding the living space of your dreams. Are you ready to take control of the home buying process? Browse our website today to get started.

This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, real estate, insurance, or investment advice. Bungalo always encourages you to reach out to an advisor regarding your own situation.

If there is anything at Bungalo that we take particular pride in, aside from our Bungalo Certified guarantee, it’s the fact that we provide buyers (and sellers, for that matter) with a plethora of options. From a wide variety of newly built and renovated listings to the ability to finance with any mortgage lender under the sun, Bungalo aims to make the biggest financial decision of your life the easiest.

And when it comes to actual home loans themselves, no one lender holds more weight than another, provided you have an official preapproval letter.

You may wonder: What type of mortgage loans are available? How much do you need for a mortgage down payment (hint: It’s not always 20%, despite what you may have heard)? How does an FHA loan differ from a USDA loan or a VA loan? Let’s get to the bottom of these and a few other common questions that pertain to loan products.

What types of mortgage loans are out there?

Because there are so many kinds of home buyers — e.g. first-time, repeat, veterans, downsizing, retirement, renovating, investors, etc. — home loans are designed to fulfill the needs of all those who are in the market. Here are just a few of the more popular mortgages that most mortgage lenders offer. This list is by no means exhaustive:

  • FHA
  • Conventional
  • Jumbo
  • VA
  • USDA
  • Interest-only
  • Fixed rate
  • Adjustable rate

While most of the aforementioned are specific loan programs — an FHA loan is ideal for first-time buyers or who can’t afford a 20% down payment, while a VA loan is for active duty and career retired service members — some refer to how the interest rate is applied to monthly payments. For example, someone who takes out an FHA loan may at the same time have a fixed rate mortgage with a 30-year loan term — or an adjustable rate mortgage with a five-year loan term.

Confused? Don’t be. We’ll talk more about how a fixed rate mortgage differs from an adjustable rate mortgage in our “important questions to ask” section.  Your loan officer will also be able to answer your more specific or general questions, but you can use this article as a primer or refresher. You may want to look over our frequently asked questions section as well, as some of the queries there pertain to financing.

What are the different types of mortgage programs?

1. FHA Loan

The “FHA” in FHA stands for the Federal Housing Administration of the U.S. government. One of the more common loan programs available, an FHA loan is popular among first-time homebuyers because the qualification standards aren’t quite as stringent as other mortgage products. This is made possible by the FHA because the agency insures the loan offering. In other words, if for some reason the borrower is unable to pay off the loan in full, it’s backed by the FHA — the department will make the lender whole.

Here are a few of the favorable terms among FHA loans that make them so attractive to buyers who are new to the home marketplace:

  • Down payments can be as low as 3.5%
  • Borrowers don’t need a sterling credit score
  • Competitive interest rate terms
  • Loan limits generally range between $356,362 to $822,375

It’s worth noting that an FHA loan borrower may need to come up with a larger down payment than 3.5% of the home’s price if their credit score is too low. For example, if it happens to be lower than 580, they may still be approved, but the trade-off is having to come up with more money upfront, usually as much as 10% of the house’s list price, assuming the FICO score is between 500 and 579. This isn’t necessarily a bad thing, though. With more of the FHA loan repaid to the mortgage provider, the less the monthly loan repayment amount will be.

You can visit the Consumer Financial Protection Bureau’s website for more details on FHA loans. If you’re interested in FHA financing and want to confirm that it’s the best option for your needs, please don’t hesitate to let us know. We’re a click or call away.

2. Conventional mortgage
Unlike the FHA loan or VA loan programs, which are insured by the government, conventional mortgages are backed by private lenders. For this reason, a conventional mortgage can be a bit more difficult to gain approval, depending on the standards of the mortgage provider and the financial situation of the person who is seeking this loan.

These points help to illustrate what we mean by the word “difficult”:

  • Borrowers usually need a credit score that is 620 or higher
  • Down payments less than 20% will trigger the need for mortgage insurance
  • Debt-to-income ratio must usually be 36% or lower
  • Loan limits for conforming loans can’t be any higher than $484,350 in most counties

Conventional mortgage terms are largely influenced by whether they’re conforming or non-conforming. A conforming loan means that the rules and regulations pertaining to eligibility and how much you can borrow are determined by Fannie Mae and Freddie Mac, which are government-sponsored enterprises overseen by the Federal Housing Finance Agency. A non-conforming loan has no such standards in place. Thus, the terms can vary broadly, and those approved for a non-conforming loan may be charged higher interest rates. But once again, what that interest rate actually is depends on the financial situation of the borrower. A lower interest rate is possible with a strong credit score.

But when comparing a conforming loan to a non-conforming loan, the conforming loan is usually easier to gain approval (the key word here is usually). 

Check out the Consumer Financial Protection Bureau’s website for more information on conventional mortgage idiosyncrasies and how a conventional conforming loan compares and contrasts with a conventional non-conforming loan. 

3. Jumbo loan

When you’re looking to buy a house whose price exceeds the conforming loan limit, a jumbo loan may be appropriate. Many properties on the market these days can be quite pricey, as you’ve undoubtedly observed. But if you match a jumbo loan lender’s eligibility requirements, it may be the answer; they’re designed to finance properties that are selling at $548,250 or higher (in most counties). By definition, a jumbo loan is a non-conforming loan.

Yet because there is more risk involved for the mortgage provider loaning the money, a jumbo loan can be harder to get than others. Take a look:

  • Borrowers frequently need a credit score of 700 or higher
  • Down payments must usually be at least 20% of the home’s value
  • Debt-to-income ratio that’s no higher than 43%
  • Borrowers may need to show they have substantial savings or assets, enough to cover several months of mortgage payments

Because the underwriting standards are on the stricter side, the interest rate may be lower in comparison to other types of loan products where eligibility is more relaxed.

4. VA loan

If you served or are serving in any of the armed forces, there may be a VA loan with your name on it. Backed by the Department of Veterans Affairs, the VA loan program has helped millions of active duty and career-retired service members become homeowners since 1944, when the program became available. According to the National Association of Realtors, while some of the nation’s service members opt for a conventional mortgage, the vast majority of military members — 77% — buy with a VA loan. There are many reasons why, but perhaps the most attractive aspect is borrowers don’t have to come up with a down payment. That’s an enormous perk.

Of course, VA loans are exclusive to military members and their spouses. But beyond that, the eligibility criteria is pretty straightforward:

  • No minimum credit score
  • Standard VA loan limit is $548,250 in most counties
  • House must be used as a primary residence
  • Applicants need to obtain a VA certificate of eligibility

Just because you don’t need to come up with a down payment doesn’t mean you shouldn’t. Even a small down payment of a few thousand dollars can help you reduce your monthly loan repayment bill. Additionally, while there is a tremendous amount of affordability with a VA loan, they do require you to pay a VA loan funding fee. This is another reason why you may want to consider making a down payment, as it can diminish the VA loan funding fee amount.

Be sure to visit the VA’s website to learn more about the VA home loan program and how to apply.

5. USDA loan

You don’t necessarily need to don military fatigues to qualify for a home loan program with zero down payment. Made possible by the Department of Agriculture, the USDA loan program is designed for homeowners that seek the countryside rather than the city. In other words, the property must be somewhere that is considered rural and/or participating in the USDA Rural Development Guaranteed Housing Loan Program. (Although not technically rural, some suburbs are under the umbrella of  the USDA initiative.)

There are also income limits for those seeking to apply, meaning you can’t be earning more than a certain threshold in yearly salary. That amount varies by state and county and is also influenced by family size. Here are some of the other important factors relating to eligibility:

  • House must be used as a primary residence
  • Applicants must have an adjusted income that matches or is lower than the income limit in their county
  • Credit scores of 640 or higher are preferred

And that’s just barely scratching the surface. Going with a USDA loan can be a smart option, but because the program is highly regulated and the list of what it takes to qualify is extensive, a USDA loan tends to be harder to obtain.

But don’t let that deter you entirely. Visit the USDA’s website to learn more and to see if you live in a participating county.

Key questions to ask

What we’ve discussed will hopefully give you more direction as to which loan option is right for you. But if you’re still unsure, talk to your loan officer. These are some of the questions that they may ask to find the right fit:

  • Do you plan to move within a few years or stay put?
  • How much home can you afford?
  • Are you interested in renovating?
  • Is this your first time buying?
  • Do you prefer to spend the same monthly loan amount?

The first and last questions relate to interest rates. With a fixed interest rate, you pay the same amount in interest each month over the life of the loan. With an adjustable rate mortgage, the monthly amount is subject to change. It may go down, it may go up. But generally speaking, those who are thinking about moving may find an adjustable rate mortgage to be preferable and may make more sense financially.

Speaking of interest, no matter what loan you go with or which mortgage lender you choose, it’s important to select one that’s in keeping with your best interests. That’s why it pays to go with Bungalo. While we aren’t a home lender, we work with all of them. Additionally, instead of dealing with other potential suitors for a property, you can simply submit your offer online for a no-hassle home buying experience. And because every home we sell is Bungalo Certified, you can rest assured that it’s move-in ready, having undergone a rigorous home inspection — typically more than one.

For more information on why home buying is better when it’s done with Bungalo, contact us. And visit our blog as well for home owning and selling news you can use.

This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, real estate, insurance, or investment advice. Bungalo always encourages you to reach out to an advisor regarding your own situation.

The home financing process can feel overwhelming — especially if you’re a first-time homebuyer. Why are there so many types of loans? Which is the best for me? What even is preapproval? These questions are understandable. After all, you’re new to this. That doesn’t mean lenders will necessarily be more forgiving or steer you in the right direction.

To find the ideal home loan and put yourself on the right path to responsible homeownership, you’ll need to understand the basics of the process and the various options available to you. Here’s our quick guide:

What to do and know before applying for a home financing

You should carefully review your current financial situation to better understand if you’re in a position to finance your new home. Factors like your credit score and any existing debt can make it much harder to get approved or force you to take a less than optimal loan with a higher-than-expected interest rate. Typically, interest rates will depend on the kind of loan you have and the bank’s belief in your ability to repay the loan. If, for example, you’re still paying off a significant chunk of your student debt, it’s probably best to wait a few years and accumulate more money.

In addition to a careful analysis of your own finances, it’ll be beneficial to review what you’ll likely need for a monthly payment. Look at real estate listings in the area you’re looking to buy and determine whether a home with the amenities you’re looking for is feasible. You should also familiarize yourself with the added cost of taking out a loan and closing on a house. This will help ensure there aren’t any unpleasant surprises down the line.

Types of home loans and mortgages

Mortgage loans tend to vary based on just a few important factors — including the number of years needed to pay off the mortgage and whether it’s a fixed or floating rate mortgage. A fixed rate mortgage offers the same interest rate across the entire length of a mortgage. A floating rate mortgage, meanwhile, has an interest rate that fluctuates with market conditions. While this can potentially save you money, it’s also far more unpredictable. As a result, many home buyers tend to prefer a fixed rate mortgage.

Some common mortgage loan offerings include:

30 year fixed rate mortgage

This is by far the most common form of mortgage out there — and understandably so. The extended timeline means a lower monthly payment compared to a shorter loan type, and fixed interest rates mean you can feel confident knowing what you’ll be paying each and every month.

15 year fixed rate mortgage

The same concept as the 30 year fixed rate mortgage, but paid off in half the time. While that means a high monthly mortgage payment, you’ll typically get a lower interest rate and will own your home outright in a shorter period of time. This option is best for home buyers with the savings on hand to pay off their loan at a faster rate, or those who had a significant initial down payment. Paying off your mortgage quicker also makes it easier to refinance your home at a better rate down the road if necessary.

Adjustable rate mortgage

A common example of a floating-rate mortgage, the adjustable rate mortgage typically includes a fixed rate for a set period of time, called a “teaser” rate, followed by interest rates that change at a set interval. Adjustable rate mortgages can be a good deal if interest rates drop over time, but can also be deceptively expensive depending on the current state of the market. This can feel especially frustrating if you’ve gotten used to a lower “teaser” rate.

VA loan

If you’re a U.S. military veteran or active service member, you’re eligible for mortgage loans backed by the Department of Veteran Affairs. These loans come with several unique perks — including no requirement of either a down payment or mortgage insurance. Any military-qualified borrower should strongly consider this mortgage option.

FHA loan

This category of loans describes mortgages that are backed by the Federal Housing Administration, which runs several different loan programs. FHA-backed mortgages tend to be easier to qualify for than a conventional loan and have lower down payment requirements.

Interest-only mortgage

A relatively unique option, the interest-only loan involves the buyer initially paying off the lender’s interest, rather than the mortgage itself. This type of loan is only appropriate for buyers who have a relatively high monthly income that they can put toward quickly paying off their interest. 

The process of applying for home financing

Now that you understand the kinds of finances you’ll need on hand and the mortgage loan options available to you, it’s time to break down the process for actually applying for financing. Using your newly gleaned knowledge of loan types, find a mortgage lender that offers the kind of plan and terms that are appropriate for your needs. You must then provide a variety of financial documentation — either to get preapproved or apply for a mortgage outright. It’s the lenders’ responsibility, however, to give you options based on your financial situation.

Getting preapproved

A clear-cut way to expedite the mortgage approval process is to get preapproved before you begin even seriously looking at new homes. Preapproval is essentially a note from a lender saying your finances are in order to borrow up to a certain amount. It is, however, not a loan in itself, and doesn’t bind you to any home or payment. To get preapproved, you’ll need to submit a variety of financial documents, including your credit history, W-2 and 1099 forms.

Now that you know how much you’re approved to borrow for, you can set a price range and begin the house-hunting process. While endless open houses and bidding wars can be exhausting, Bungalo makes it easy, with touring on your schedule through our app and no bidding.

Fill out a mortgage application

Once you’ve found that dream home it’s time to apply for your mortgage (at last). Some common documentation that lenders ask for include tax returns, W2s from your last few years working and recent pay stubs. In addition to your general financial documentation, you’ll need information from the purchase of your new home, like the purchase and sales agreement.

Get approved!

In general, if you’ve already been preapproved for the amount you’re looking to borrow, this stage should be relatively hassle-free. Once you’ve been approved you can begin to work out the specifics of closing (the Bungalo closing checklist can help) and even set a moving date!

Alternative paths to buying a home

A traditional mortgage agreement isn’t the only way to become a homeowner. If you have the capital saved up, you can buy a home outright with cash. While this keeps the transaction simple and takes interest out of the equation entirely, it’s not a feasible option for most people, especially younger and first-time buyers. Other options include rent-to-own arrangements, where you get the option of purchasing a property after renting it for several years, or seeking a loan from a private financier. Private companies tend to lend to buyers who can’t qualify for a traditional mortgage, but often charge high interest rates.

No matter what path you’re taking to finance your home, there’s no doubt you’ll need to jump through several logistical hoops. Luckily, Bungalo has an easier way to buy. While you’ll still probably need to work with a lender to secure funding, we simplify the real estate buying process by:

  • Working with the mortgage lender of your choice: Get preapproved with the lender of your choice. Whoever offers the best deal for you, we’re happy to work with them.
  • Offering clear, “No Hassle” pricing: Bungalo homes accept the list price on a first-come, first-served basis. That means every willing and able homebuyer has an equal opportunity to own one of our homes.
  • Closing assistance: We offer an easy-to-use closing checklist that ensures you’ve done everything you need to hit your move-in-day target.

Reach out for more information on who we are, and how we help potential buyers find the homes of their dreams.

This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, real estate, insurance, or investment advice. Bungalo always encourages you to reach out to an advisor regarding your own situation.

You’re excited to buy a house, but there’s one key factor you must complete first: home financing. You know you need to work with a mortgage lender to get the funds for your new purchase, but what’s the best way to go about it?

The road to your home loan goes through prequalification and preapproval, two important steps toward closing on the home of your dreams. These steps are important, but there are a few complications to clear up while you pursue them.

First of all, what do they really mean?

Prequalification tends to come first and be a general check of your financial strength. Preapproval follows and gives you a clearer picture of how large a mortgage loan you are approved for. To purchase a home quickly and without fuss, especially in a competitive seller’s market, it can pay to go through both steps early in your homebuying journey.

This answer has to come with an asterisk because every mortgage lender will have a slightly different process of checks and approvals. One bank may have a “preapproval” approach that is very similar to another bank’s “prequalification” process.

Another slight wrinkle comes from the fact that prequalification and preapproval are similar in concept. They both involve checking your financial background and end with you receiving a letter that proves your general readiness to buy a home. As you’ll see, prequalification tends to lead smoothly into preapproval as your commitment deepens.

With those disclaimers out of the way, it’s time to dig into the matter of prequalified vs. preapproved, their meanings, and their roles in getting you into a new home you love.

What does mortgage prequalification mean?

Mortgage prequalification means a mortgage lender has judged that your finances are strong enough to pay for a home loan. This is an early step in the process of buying a new home, but a meaningful one. It shows that a bank has faith in you, helping you proceed with the purchase.

What will it take to get prequalified? The specifics differ from one lender to the next. While there may be a credit check involved, the kind of intensive check that can affect your credit score is more associated with preapproval — we’ll get to that in a moment.

Applying for prequalification means submitting your financial information to the lender, giving the bank a clear enough picture to determine whether you should be buying a house at this time.

The review process associated with mortgage prequalification likely won’t give you an exact dollar amount that you can borrow, and actually getting a home loan will require additional, more formal checks of your finances. With that said, prequalification is a good early step in the home financing process. It lets you estimate how much you can afford and may help you proceed into negotiations with sellers.

Going through the prequalification process with your home lender gives you information. If you’re not ready to apply for a loan, it’s good to know at this stage. If you’re financially sound enough, you can move on and start deciding which type of loan product is best for you.

What does mortgage preapproval mean?

If prequalification is a general review of your financial situation, preapproval is more about the specifics. How much home can you afford? This is the step where you will undergo a credit check that affects your credit score.

Rather than just relying on your self-provided financial information, the bank will perform due diligence before issuing you a preapproval letter. The more intensive nature of this process means preapproval will bring you closer to closing on a home.

This is the step where details about your mortgage come into focus. What type of home loan is right for you? What kind of interest rate is your lender prepared to offer you? What is the maximum amount you will be approved to borrow?

Getting preapproved will take longer than prequalification, with the extra checks taking time. While prequalification is sometimes a simple, all-online process, the same is not true of preapproval. There may also be application fees to contend with.

Seeing a preapproval letter with all of these details will help a seller close a deal, as it is proof you have the financial means to complete the transaction and buy the house in question.

Preapproval is not a contract with a lender. You can be preapproved by several lenders, determining which banks are ready to work with you. You don’t have to make a hard commitment until you’re actually signing the loan paperwork. You can wait until you have finalized loan estimates from one or more lenders before you put pen to paper.

How can you speed up the homebuying process?

Getting through mortgage prequalification and preapproval — in that order — is a good step to take to make sure you’re on a direct and quick path to buying a new home.

By going through these processes, you have proven you’re a serious prospect to purchase the home in question. This is important at any time, and especially in a seller’s market, where you’ll be competing with other potential buyers.

A lot of the major questions regarding your home loan application are settled during a typical preapproval journey: What type of loan suits you best? What is the upper value of a home you can afford? How much can you expect to pay in your down payment, and what type of interest rate do you qualify for?

You can get preapproved relatively early in your home search, to make sure you are through the process and have all the necessary information by the time you start making serious inquiries. You should keep in mind, however, that some preapproval letters expire after a set period has elapsed.

All of these preliminary steps toward homeownership have their own value. As you go through the financial checks and negotiations with lenders, you have plenty of opportunities to learn about your own financial situation and build confidence.

What is your best option after receiving home loan approval?

Actually making an offer on a home for sale can be a nerve-wracking process — or it can be easy. While working with a real estate agent is the traditional model of buying a home, there are new and more streamlined approaches to consider.

For example, when you work with Bungalo, every step of purchasing your dream home has been cut down to the essentials. Homes listed through Bungalo are clearly priced, fully checked and guaranteed for condition issues, and simple to close on.

Prequalification and preapproval are still parts of the home-buying experience when you choose Bungalo. You can work with any home loan provider, going through the steps to become preapproved.

This preapproval step is important because it enables the whole experience to proceed seamlessly. There won’t be an unexpected hitch, because the loan officer at the bank has already given you the OK for a certain amount of money. This way, you won’t risk losing money on one-time costs associated with a house purchase, including appraisal fees.

If you have a preapproval letter from a lender, you can submit your offer for a Bungalo-listed house online. The process takes minutes. Instead of the traditional methods of home buying, which involved bidding wars against competing offers and negotiations with sellers, this process leads smoothly into closing.

Check for Bungalo-listed houses in your area and start dreaming about your perfect new home.

This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, real estate, insurance, or investment advice. Bungalo always encourages you to reach out to an advisor regarding your own situation.

Okay, let’s clear something up. Sure, there was a time in pretty recent history that you could only buy a home if you were able to put a 20% down payment or more on that home (sounds like a lot of dough, no?). But today, with government-assisted, first-time home buyer programs and historically low interest rates, buyers of all backgrounds and income levels have plenty of down payment options to choose from (phew!). So instead of worrying where you’re going to find that 20% down payment, let’s take a look at some more inclusive alternatives.

Going the conventional loan route? A 20% home down payment is no longer the norm.

One caveat to putting anything less than 20% down: You’ll need to pay for Private Mortgage Insurance (PMI) so your lender is covered in          case you miss a mortgage payment.

One of the biggest misconceptions in home buying is the bigger down payment the better. Berenice Perez, Bungalo Mortgage VP of Consumer Experience, says that isn’t always the case. “I always advise buyers to leave themselves a savings cushion whenever possible,” says Perez. “If putting 20% down means you have to liquidate your entire savings, then I would highly encourage you to consider putting less down,” says Perez.

Pre-approved for a conventional mortgage? It’s actually possible to put as little as 3% down. It’s not all or nothing either: With many conventional lenders, you can now opt for a 5%, 10%, or 15% down payment too. At the end of the day, it just depends on what home you want to buy (location, mortgage value) and what makes sense for your own individual financial situation (savings, household income, credit history, debts).

Buying with an FHA Loan? Close on a home with as little as 3.5% down.

Backed by the Federal Housing Administration (FHA), FHA loans are a common financing path for first-time home buyers who don’t have a lot of cold hard cash to pay up front. But there are pros and cons to consider with this option. On the pro side, if you have the right credit score, you can get approved for an FHA loan with a low down payment of 3.5% for a variety of single-family homes and other housing options. On the con side, not all homes qualify for the FHA loan. The program’s rules basically take fixer-uppers off the table, protecting the home buyer from expensive repairs and other surprises. That means if you go this route, you’ll more than likely need to find a home that’s move-in ready (or close to it). You should also know that an FHA loan usually means higher Mortgage Insurance Premiums and with them, higher monthly mortgage payments. Perez says this is because “FHA loans carry two types of mortgage insurance so they can be a costly alternative in the long run.” Ultimately, you just have to decide if the slightly higher monthly payments are worth the low down payment.

Can’t afford a large sum up front? You may be able to buy with no down payment.

Depending on your household income and what locations you’re interested in, one lesser known low- or no- down payment program you might be eligible for is the US Department of Agriculture (USDA) Rural Housing Loan. Through the USDA loan, buyers who qualify can finance up to 100% of their home purchase. That means, aside from closing costs, you can pay zero dollars down, zip, nada. Don’t want to live next to a pasture? No problem. Many homes in suburban neighborhoods can qualify for the USDA loan too, so you can still live near the city.

Finally, there’s the US Department of Veterans Affairs (VA) loan, which helps military families and veterans become homeowners. The VA loan doesn’t require a down payment either, AND eligible buyers don’t have to pay for Private Mortgage Insurance. Thanks for looking out, Uncle Sam.

Point is, you have options for your home down payment. So put your mind at ease.

Even if you don’t have a big chunk of savings to drop on a down payment, you too can become a homeowner. “At the end of the day what matters most is that you feel comfortable with your monthly housing payment,” says Perez. “A good Loan Specialist will start there and work backwards to help you figure out the ideal down payment for your situation.”

Competitive rates, expert guidance.

Find out how easy financing your next home can be. Learn more about Bungalo Mortgage.

This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, real estate, insurance, or investment advice. Bungalo always encourages you to reach out to an advisor regarding your own situation.

At Bungalo, it’s our goal to take the frustration out of home-buying. We’re bringing much-needed transparency and simplicity to the process by putting every step—from tour to close—under one roof.

But there’s one thing we can’t wholly reimagine about the real estate industry: the jargon. From your first meeting with an agent to the moment you close on your dream home, the home-buying process is riddled with terms and acronyms that can be needlessly confusing and overwhelming.

Since we can’t give the common language of the real estate industry an overhaul, we put together this glossary of home-buying terms in plain language. Bookmark it. Print it. Save it on your phone. Think of it as a confidence-building resource to guide you through the myriad decisions and conversations that dot your path home.



Adjustable-rate mortgage (ARM): Also known as a variable-rate mortgage, this loan has an interest rate that is adjusted throughout the life of your loan.

Adjustment Period: This refers to the time when your interest rates in an ARM actually change. A 5/1 ARM, for example, means your interest rate stays the same for five years but can change every year after that. A loan with an adjustment period of one year is called a one-year ARM, meaning the interest rate can change once a year.

Amortization: Do you want your payments for your house to start high and get lower? Or do you want them to be consistent? Amortization lets you create a payment plan that simply lays out how much you will pay every month until the house is completely paid off. Most of these plans are designed to help you pay off the principal balance as soon as is feasible, so you can accumulate equity in the house and pay less interest overall on the loan.

Appraisal: It’s important that you and the seller agree on how much the home is truly worth. To determine the value of a home, an objective third-party inspector comes and appraises it—meaning they follow a list of rules and regulations to determine what shape the home is in. Other factors like location can also contribute to the home’s value.

APR (Annual Percentage Rate): This percentage is the interest rate on your mortgage for a given year.


Buydown: Looking for ways to lower your monthly mortgage payment? Consider buying down the rate—i.e. Paying your lender in fees so that you can pay less in interest. Typically, one point (which equals one percent of the loan) can reduce the interest rate by .25%. On a $300,000 loan, that might save you about $40 a month—or almost $500/year. You can opt for a a permanent buydown, you pay an amount that brings interest rate down for the life of the loan. In a temporary buydown, you’d pay to lower the interest rate on the loan temporarily.


Certificate of title: A title that gives you legal rights to do what you would like with your newly purchased property, this piece of paper shows that you own it—fair and square.

CMA (Comparative Market Analysis): A CMA is a report that helps you understand the housing market as a whole. It includes active, sold, canceled and pending listings which can be a great tool when trying to understand if the house you’re interested in fairly priced or a good investment. Your agent should be able to provide this information to you.

“Comps” or Comparable sales: This term refers to homes that are very similar to a home that you’re looking to buy. Do the houses around the one you’re eying have the same price per square foot break down? Comps will help you figure that out.

Contingencies: If contingencies are involved, you’ve nearly crossed the finish line. Both buyers and sellers have the option to add contingencies or conditions into the real estate contract that essentially say I agree to complete the purchase as long as X happens or as long as X is true. If contingencies are not met (often, within a specified time frame), either party has the option to back out. Contingencies include things like mortgage approval, so just hang tight until it all gets finalized.


Deed: This part of the process dates back to feudal England, where a physical piece of land (some dirt or a twig) would trade hands to signify the transfer of ownership. These days, we pass off a piece of paper called a deed, but the sentiment is the same. Unlike a certificate of title, a deed is used only for transfering property, and both parties are involved in the transaction.


Earnest money: An earnest money payment proves to the seller that you are serious about purchasing their home. This money (about 1% or 2% of the purchase price) gets placed in the hands of a third party, putting it in escrow, until after closing when it gets delivered to the seller. Also known as “good faith money” or “hand money,” think of this payment as a deposit—you’ll submit the remainder of the down payment later.

Effective age: A home can be listed as “built in the 1920s,” but you want to make sure that the effective age is lower than that. This is the age of a home that an appraiser claims based on the physical shape that the property is in—ideally not nearly 100 years old.

Escrow: An escrow is a third party holder (usually a title company) of your earnest deposit. They will only release the funds at closing.

Equity: This is the figure you get when you subtract the amount you owe on your home from the amount it is worth. So, if you owe very little on your home (which obviously happens as you make payments over time), you have a lot of equity—nice!


FHA Loan: For many aspiring homeowners, a 20 percent down payment and a credit score in the high 600s can be a major barrier to getting into the housing market. To help, consider a loan insured by the the Federal Housing Administration (of the Department of Housing and Urban Development)—these FHA loans require less money down and a lower credit score to qualify.

Fixed-rate mortgage: Once you’ve secured a mortgage, you can decide on a fixed-rate or variable-rate mortgage. If you choose a fixed rate, the interest rate won’t change—until about 30 years from now, then it won’t exist!







Loan officer: After you narrow your search for a home, the mortgage company will pair you with a loan officer. This person will work for the institution or bank that is supplying the money for your loan. They are responsible for gathering all the relevant information associated with your loan application, and they then give all of this information to the underwriter.


Mortgage broker: While this is an optional step in your home-buying process, you can hire a mortgage broker to manage loan offers from various lenders. In the end, ideally, you’ll have choices and can pick who is giving you your ideal loan.



Option: Purchasing an option means you’ve purchased the exclusive right to buy a particular property at a fixed price, within a given period of time.

Option period: Once think you’re ready to buy a house, you might want some extra time to make a final decision—a.k.a. An option period. Buyers can pay a small, non-refundable fee (often $500 or less depending on the house’s worth) to the seller to take the house of the market for ~7-14 days. The buyer can terminate the contract for any reason during this period without forfeiting their earnest deposit. Since the final inspection usually happens during the option period, it’s a low-risk investment for peace of mind as you enter the closing process.


PMI (private mortgage insurance): If your down payment is less than 20% of the total cost of the home, PMI will come into play. Essentially, you pay it in order to protect the lender from losing money in case you aren’t able to make your payments. Often, this additional fee can make it easier to obtain a loan, too.

Pocket listing: Rather than list their home publicly, some buyers will entrust their home to one real estate agent. This agent keeps the listing in their “pocket,” showing the home to only a select group of buyers in their network.

Pre-approved: If you anticipate needing loan (read: mortgage) to buy your home, you’ll want to confirm the bank will grant you that loan. You submit financial paperwork, and a loan officer will review it to confirm how much the bank will lend you before you need to take out the actual loan.

Pre-qualified: This is similar to pre-approval, but the figure the bank gives you is just an estimate based on an unverified account of your financial state—i.e. you don’t need to submit any paperwork. To ensure a seller will accept your offer, make sure to get pre-approved.



Real estate agent: An agent, unlike a broker, works for an agency (usually owned and operated by a broker). An agent hasn’t gone through as much schooling as a broker. This doesn’t mean one is superior to the other, but worth knowing a broker’s done more schooling and can sign off on more things.

Real estate broker: This person is similar to an agent (he can do everything an agent can), but he’s passed a few more tests and has his broker’s license. This mean he can own his own and manage his own brokerage where other agents can work.

Realtor: A realtor is an agent or broker that is a member of the National Association of Realtors—meaning they are bound to the standards and practices of that organization (but they do they same thing as an agent).


Seller’s disclosure: The seller’s disclosure requires a seller to provide a detailed report of everything that could be wrong with a home (no flooded basements or leaky roofs!). You should receive this disclosure before the inspection takes place.


Term sheet: Before things get legally binding, a term sheet comes into play. A term sheet is a document that will give you a general idea for what to expect if you are going to move forward with the transaction.


Underwriter: The person who actually determines if you qualify for a loan. Basically, they look over all of your information to see if you have the means to pay the money back






This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, real estate, insurance, or investment advice. Bungalo always encourages you to reach out to an advisor regarding your own situation.

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