Real Estate

Homebuying

Refinancing

News & Insights

Tools

Better Mortgage Corporation is a direct lender dedicated to providing a fast, transparent digital mortgage experience backed by superior customer support.

Better Mortgage

Better Cover

Better Settlement Services

Better Real Estate

Better Mortgage Corporation

Read our collection of guides and articles about homebuying to help you on your mortgage journey.

![Second home vs Investment Property](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2F1af699dbb3d04c589790f3da308c47e2)

 ## What You’ll Learn

<p class="learnfont">A second home is a property you buy to use primarily as a vacation space for part of the year.</p>

<p class="learnfont">An investment property is a home you buy when you want to earn rental income, and not use the property yourself.</p>

  <p class="learnfont">Mortgage requirements and tax treatments differ for second homes and investment properties, so you’ll need to decide how you plan to use the home in advance.</p>

  </div>
  <br><br>

Pursuing a real estate investment can be an exciting venture, even if this isn’t your first time going through the paces. But if you intend to get a mortgage, you’ll need to decide exactly how you’ll use the home — as a personal vacation spot or to generate income from rentals.

Second homes and investment properties each have home loan and tax requirements. So, here’s what you should know if you’re trying to decide which [property type](https://better.com/content/primary-residence-second-home-or-investment-property-whats-the-difference/) may be best for your goals. 

## What is considered a second home?
A [second home](https://better.com/content/buying-a-second-home/) is typically thought of as a vacation home, or one you intend to use on a part-time basis. A second home must meet the following criteria to qualify for a second home loan:

The property must be suitable for year-round occupancy, even if you only intend to use it for part of the year.

&#8226; The home must be a single-unit dwelling.
&#8226; The property typically must be located at least 50 miles from your primary residence.
&#8226; You must have exclusive control over the property, without any timeshare or long-term rental agreements.
&#8226; The home may not be under the control of a property management company.


## What is considered an investment property?
An [investment property](https://better.com/content/investment-property-loans-5-things/) is also known as a rental property. Rather than occupying the home yourself, an investment property should be leased to tenants to generate rental income. Here are the requirements for investment property loan eligibility:

&#8226; The property cannot be owner-occupied.
&#8226; The home can have more than one unit, with up to four units allowed.
&#8226; You can rent out the property.
&#8226; The property can be located within 50 miles of your primary residence.
&#8226; A property management company can manage the home.


<br> 

 <div style="text-align: center">  
 <a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/preapproval/nxt-purchase?utm_source=website&utm_medium=webpage&utm_campaign=blog&utm_content=second-home-vs-investment-property">Get started with Better Mortgage</a>  
 </div>

 ## Tax implications for a second home vs. investment property
When it comes to taxes, second homes are treated similarly to your main home or [primary residence](https://better.com/content/primary-residence-second-home-or-investment-property-whats-the-difference/). You’ll typically be allowed to write off mortgage interest up to the [$750,000 limit](https://turbotax.intuit.com/tax-tips/home-ownership/buying-a-second-home-tax-tips-for-homeowners/L5Mzc5URo "external"). However, if you have multiple properties, you can only deduct up to $750,000 in mortgage interest between them. The limit is not per property. Instead, it is a total deduction amount.

On the other hand, investment properties may allow for more freedom regarding [eligible deductions](https://www.bankrate.com/mortgages/second-home-vs-investment-property/ "external"). Owners may deduct any amount of mortgage interest, as well as certain expenses, including:

&#8226; Property taxes
&#8226; Utilities
&#8226; Advertising costs
&#8226; Maintenance costs and supplies
&#8226; Insurance costs
&#8226; Depreciation

Because tax laws can be complex, it may be worthwhile to speak with a tax professional who can review the potential tax implications of either type of property. You may also wish to review [tips from the IRS]( https://www.irs.gov/businesses/small-businesses-self-employed/tips-on-rental-real-estate-income-deductions-and-recordkeeping) on rental real estate income, deductions, and recordkeeping.

## What to know before buying a home as an investment
Any investment deserves thorough consideration, and real estate is no different. Before jumping in, you’ll want to look at how often you intend to use or rent the property and whether an additional mortgage fits into your budget. Both property types will also require expenses for upkeep and maintenance that should be factored into your decision.

## Is buying a second home a good investment?
[Buying a second home](https://better.com/content/buying-a-second-home/) can potentially be a good investment as you may gain [home equity](https://better.com/content/home-equity-vs-refinance) if the home's value increases over time. You may also be able to rent out the property when you’re not using it. However, rentals are limited to a maximum of 180 days per year. 

Keep in mind that projected rental income cannot be used to help you qualify for a second home loan. So you’ll want to confirm you’ll be eligible given your current income and financial situation. 

To qualify you'll need:

&#8226; A good-to-excellent credit score
&#8226; A down payment of at least 10%
&#8226; Enough money in liquid savings to cover the mortgage for a few months if need be.

## Investment property vs second home: Which offers better rental income?
An [investment property](https://better.com/content/investment-property-loans-5-things) may be a good match if you prioritize generating money by collecting rent from tenants. You’ll also benefit from home equity, as the property’s value increases over time or due to upgrades.

However, mortgage requirements for investment homes can be more stringent and costly than other mortgage types. These home loans also usually come with the highest interest rates, credit score requirements, and liquid asset conditions of all occupancy types. This is because investment properties tend to have higher delinquency rates than other property types — which means increased risk for mortgage lenders. 

You’ll also typically need at least 10% of the purchase price for a down payment, though you may be able to use projected rental income to help you qualify for a mortgage. 

## Can I convert a second home into an investment property?
While converting a second home into an investment property may be tempting, there could be restrictions on doing so if you have a mortgage. 

Most lenders will require you to sign a document that states how you intend to use the property. Falsifying information on that document may count as mortgage fraud, which can be punishable by fines or prison time. 

Therefore, it’s best to decide how you want to use the home before applying for a mortgage.

## Explore your next property purchase with Better Mortgage
Whether you decide a second home or investment property is best for you, Better Mortgage can help you take the next step. 

With our streamlined digital process, you can be pre-approved for a mortgage in as little as 3 minutes.

<br> 

 <div style="text-align: center">  
 <a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/preapproval/nxt-purchase?utm_source=website&utm_medium=webpage&utm_campaign=blog&utm_content=second-home-vs-investment-property">Get started with Better Mortgage</a>  
 </div>

  <style>
    p.centercallout{ 
    text-align: center !important;
  }  
    p.legal{
    font-size:12px;
      font-style: italic; 
    }
  .ctabottom{
    font-size:25.629px !important;
    font-weight:700 !important;
    text-align:center;
  }

.learn {

  padding-left:25px;
  padding-top: 5px;
  padding-bottom: 5px;
  border-style: solid;
  border-width: 0px 0px 0px 3px;
  border-color: #291842;
  }
  .learnfont {
  font-size:16px !important;
  line-height: 20px !important;
  }
    .learnfontlist {
  font-size:16px !important;
  line-height: 10px !important;
      padding-left: 15px;
  }
.footnote{
  font-size:14px !important;
  color: #767676;
  text-align:center;
  }
.charttitle{
    font-size:24px !important;
  text-align:center;
  }

  p.chartsmall {
    font-size:12px!important;
  }

    #img1 {display:block;}
#img2 {display:none}

  @media all and (max-width: 600px) {

      .mobilehide{ display: none;
  }
    #img1 {display: none;}
    #img2 {display: block;}

    p.chartsmall {
    font-size:9px!important;
  }

  .headshot{
  width:150px;

  }

}
  .equation{
    padding-top:40px;
    padding-bottom:50px;
    padding-left:30px;
    padding-right:30px;
  text-align:center !important;
    background:#291842;
  }

  p.equationtop{
font-weight:300!important;  
    color:#ffffff;
  }
  p.equationbottom{
    font-weight:700!important;   
   font-size:28px;
    color:#ffffff;
  }
  .headshot{
    padding-bottom:15px;
  width:150px;

  }
  .centerqa{
  text-align:center!important;
  }

  th {
   padding-left:10px;
padding-bottom:10px;
    padding-top:10px;
   text-align:left!important;
   font-size:14px!important;
   background: #EDEDE8;
}

  td {
   padding-left:10px;
        padding-top:20px;
  padding-bottom:30px;
    font-size:14px!important;
   vertical-align: top;
   border-bottom: 1px solid #F4F4F4;
 }

  </style>

Discover the nuances of buying a second home versus an investment property and which option may be best for your goals.

Second Home vs Investment Property: What's the difference?

Blog post image for Second home vs Investment Property: What's the difference?

Second home vs Investment Property: What's the difference?

![Learn about a good debt-to-income ratio for a mortgage](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2Fed9faca9999f4ad2aea95c52bcba5236)

 <br>
  <div class="learn">
<p class="learnfont"><strong>What You’ll Learn</strong></p>

<p class="learnfont">What a debt-to-income (DTI) ratio is</p>

<p class="learnfont">Why DTI matters when buying a home</p>

  <p class="learnfont">How to calculate your debt-to-income ratio</p>

  <p class="learnfont">What mortgage lenders consider a good DTI and how to lower yours</p>

  </div>

## Table of contents

- [What is a debt-to-income ratio for mortgages?](#1)
- [How to calculate debt-to-income ratio for a Mortgage](#2)
- [DTI Requirements by Mortgage Type](#3)
- [What is a good debt-to-income ratio for a mortgage?](#4)
- [Conventional loan DTI requirements](#5) 
- [FHA loan DTI requirements](#6)
- [How to improve your DTI ratio](#7)

When you apply for a mortgage or any other type of loan, the top three things lenders look at are your income, your credit score, and your debt-to-income ratio, or DTI.
The first two are fairly self-explanatory—but what is DTI? And how do lenders use it in the mortgage process?

In short, your DTI is the balance between all the money you have coming in every month (income) and how much you’re obliged to pay every month to creditors (debt). This helps lenders know how safe or risky it would be to approve your loan.

Below, we’ll help you understand all the factors that make up your DTI, how to calculate it for yourself, and how to optimize it to get the best terms in your mortgage.

<div id="1"></div><h2>What is a debt-to-income ratio for mortgages?</h2> 

A DTI ratio simply represents how much of your gross monthly income is spoken for by creditors, and how much of it is left over to you as disposable income. 

It’s most commonly written as a percentage. So, for example, if you pay half your monthly income in debt payments, you would have a DTI of 50%. 

<div id="2"></div><h2>How to calculate debt-to-income ratio for a Mortgage</h2> 

Okay easy enough, but your ratio is likely not as clear-cut as “half your income” (and, as you’ll see later on, ideally it’ll be much less). How do you calculate your debt-to-income ratio? There’s math involved, but thankfully it’s pretty basic (no trigonometry required).

Simply divide all your monthly debt payments by your gross (pre-tax) income, and then multiply that number by 100. This will give you your DTI percentage.  

![Formula for calculating your debt-to-income ratio](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2F16baf6fd48da4deea516590cbeed3ca6)

In some cases, what constitutes “income” and “debts” is clear-cut. In other cases, not so much. Generally, lenders follow these guidelines for what to include for each. 

__Debt__ includes:

- Future or estimated monthly housing expenses (mortgage payment, homeowners insurance, property taxes)

- Student loans

- Auto loans

- Personal loans

- Minimum required credit card payments 

__Income__ includes:

- Pre-tax monthly salary (determined by dividing your annual salary by 12)

- Income from additional jobs or side hustles

- Revenue from rental property or other investments

- Regular income from annuities, trust funds, and retirement accounts

- Any child support or alimony payments you receive

Let’s look at a real-world example:

![How to calculate your debt-to-income ratio for a mortgage](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2Fa8e85d916c06432988ffc7343ae72bcd)

<p class="legal">The above scenario is for illustrative purposes only.</p>

<div id="3"></div><h4> DTI Requirements by Mortgage Type</h4>

Different types of mortgages have their own DTI requirements. For example, at Better Mortgage, the maximum DTI for FHA loans is 55%, and 50% for Conventional loans, while VA loans do not have a set maximum. It's important to understand these requirements when considering different mortgage options.

<div id="4"></div><h2>What is a good debt-to-income ratio for a mortgage?</h2> 

The lower your DTI, the better—this means less of your income is tied to recurring debt payments, and you’ll likely be more able to continue making payments on time even if you experience a minor financial setback. Borrowers with higher debt obligations relative to their incomes are less able to absorb those setbacks, and are at greater risk of defaulting on their loan. This is why high DTI is the [#1 reason](https://www.corelogic.com/intelligence/buy-stories/debt-to-income-is-the-number-one-reason-for-denied-mortgage-applications/ "external") mortgage applications get rejected.

So, what’s the magic number when it comes to DTI? Well, it varies slightly based on the [type of mortgage](https://better.com/content/types-of-mortgage-loans/), the lender, and other aspects of your financial profile.

Typically, though, most lenders prefer to see a DTI of under 36%. In other words, the total of your monthly debts, including your estimated monthly mortgage payment, will be less than 36% of your monthly gross income. However, it may be possible to get a mortgage with a DTI of up to 50% depending on the lender. If you have a DTI of 50% or higher, then it could be challenging or even impossible to get approved for a mortgage until you [lower your debt-to-income ratio](https://better.com/content/improving-your-debt-to-income-ratio-dti-when-applying-for-a-mortgage/).

![Debt-to-income (DTI) ratio brackets for a mortgage](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2F53b282d1d03741d4a43ff67b4718aa51)

<div id="5"></div><h4>Conventional loan DTI requirements</h4>  

A [conventional mortgage](https://better.com/content/conventional-loan-requirements/) is a home loan offered by a private lender—such as a bank or a mortgage company. Private lenders tend to have a little wiggle room when it comes to DTI, depending on the exact loan you’re applying for and your personal situation. But that wiggle room can only go so far, because DTI requirements are typically based on policies created by government-backed lenders like [Fannie Mae](https://selling-guide.fanniemae.com/sel/b3-6-02/debt-income-ratios) in order to protect customers. 

While many lenders require a DTI of no more than 43%, some lenders, including Better Mortgage, can provide mortgages to borrowers with DTIs up to 50%. This means even if your DTI is 49.999%, you could be eligible for a home mortgage loan.

<div id="6"></div><h4>FHA loan DTI requirements</h4>

[FHA loans](https://better.com/content/fha-homeready/) are mortgages backed by the Federal Housing Administration (FHA) and offered by an approved list of lenders (including Better Mortgage). The FHA is a government organization that insures these loans if their borrowers default. 

FHA mortgages require a lower minimum down payment and credit score than many conventional loans. This flexibility helps make homeownership more attainable for first-time homebuyers or those with lower income levels who may be ineligible for conventional loans. 

The maximum DTI for FHA loans is usually up to 50%, though this [may go higher](http://www.fhahandbook.com/debt-ratios.php "external") if you can meet other compensating factors. 

<div id="7"></div><h2>How to improve your DTI ratio</h2>

If you’ve run the numbers and you’re concerned that your DTI isn’t as low as you’d like it to be, there are two main ways you can decrease it: reduce your debt or increase your income. [Lowering your DTI](https://better.com/content/improving-your-debt-to-income-ratio-dti-when-applying-for-a-mortgage/) can make the mortgage process go smoother, so it might be worthwhile if you have time before you apply for a new mortgage or refinance. 

Here are a few DTI reduction strategies to consider:

- Pay down or pay off your car loan before applying for your mortgage.

- Start paying off your credit cards in full, one by one. (Just don't close the cards after you pay them off, as this can hurt your credit score.)

- If possible, refinance or consolidate current loans to reduce your monthly payments.

- Consider adding a [co-borrower](https://better.com/content/should-you-add-a-co-borrower-to-your-mortgage/) with a low DTI to your loan.

- Pick up a side gig or part-time job to help pay down debt.

- Expecting a raise or promotion in the next few months? Consider waiting to apply until it goes through.

- Consider using some of your down payment savings to pay down debt. Just make sure you’ll meet down payment guidelines, which can be as little as [3% to 5%](https://better.com/content/5-percent-down-payment/).

## Get clarity on your DTI with a pre-approval

At Better, we want you to be as prepared for buying a home and the mortgage process as possible.

Applying for a [pre-approval](https://better.com/preapproval/nxt-purchase?utm_source=website&utm_medium=webpage&utm_campaign=blog&utm_content=what-is-good-dti) takes as little as 3 minutes and will provide you with a clear picture of how much you can afford. You’ll undergo a soft credit check (which doesn’t affect your score) that allows our underwriters to look at your debts, income, and credit in detail to obtain a more accurate picture of your DTI.

Although your DTI ratio is just one important factor to consider when buying a home, carrying less debt relative to your income will make it easier to get a mortgage and help ensure you’ll be able to afford your home for years to come.

Better Mortgage can help you understand your DTI and the financing options available to you. Start your pre-approval process today.

 <div style="text-align: center">  
 <a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/preapproval/nxt-purchase?utm_source=website&utm_medium=webpage&utm_campaign=blog&utm_content=what-is-good-dti">Get pre-approved</a>  
 </div>

  <style>
    p.centercallout{ 
    text-align: center !important;
  }  
    p.legal{
    font-size:12px;
      font-style: italic; 
    }
  .ctabottom{
    font-size:25.629px !important;
    font-weight:700 !important;
    text-align:center;
  }

.learn {

  padding-left:25px;
  padding-top: 5px;
  padding-bottom: 5px;
  border-style: solid;
  border-width: 0px 0px 0px 3px;
  border-color: #291842;
  }
  .learnfont {
  font-size:16px !important;
  line-height: 20px !important;
  }
    .learnfontlist {
  font-size:16px !important;
  line-height: 10px !important;
      padding-left: 15px;
  }
.footnote{
  font-size:14px !important;
  color: #767676;
  text-align:center;
  }
.charttitle{
    font-size:24px !important;
  text-align:center;
  }

  p.chartsmall {
    font-size:12px!important;
  }

    #img1 {display:block;}
#img2 {display:none}

  @media all and (max-width: 600px) {

      .mobilehide{ display: none;
  }
    #img1 {display: none;}
    #img2 {display: block;}

    p.chartsmall {
    font-size:9px!important;
  }

  .headshot{
  width:150px;

  }

}
  .equation{
    padding-top:40px;
    padding-bottom:50px;
    padding-left:30px;
    padding-right:30px;
  text-align:center !important;
    background:#291842;
  }

  p.equationtop{
font-weight:300!important;  
    color:#ffffff;
  }
  p.equationbottom{
    font-weight:700!important;   
   font-size:28px;
    color:#ffffff;
  }
  .headshot{
    padding-bottom:15px;
  width:150px;

  }
  .centerqa{
  text-align:center!important;
  }

  </style>

Learn all about what a debt-to-income ratio (DTI) is, what a good debt-to-income ratio looks like, and why it matters when taking out a home mortgage.

What is a good DTI ratio for a home loan?

Blog post image for What is a good DTI ratio for a home loan?

<p><em>Sathi Roy, a non-commissioned Mortgage Expert at Better Mortgage, gives an overview of mortgage rates</em></p>

[![Orange Home On the Right Against Blue Sky with Text That Reads: Which Factors Affect Mortgage Rates?](https://media.better.com/content/prod/2017/10/howrateswork-headerimage.png)](https://better.com/schedule-call?TRACKINGSOURCE=blog_hmrw)

<p>"What factors determine the mortgage rates I can get? What are points and credits, and do I need them? How do I compare rates between lenders?" As someone who talks to both first-time homebuyers and refinance customers every day, I know how confusing and intimidating mortgage rates can seem. My goal is to help our customers clearly understand their options so that they can shop with confidence. That means being able to make informed decisions about the best loan product, rate, and terms for their situation.</p>

<p><br></p>

<div style="text-align: center">  
<a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/schedule-call?TRACKINGSOURCE=blog_hmrw">Schedule a call</a>  
</div>

<p><br></p>

<h3 id="whatfactorsgointomortgagerates">What factors go into mortgage rates?</h3>

<p>1) First, there’s a <strong>baseline</strong> for rates that is determined by the <strong>market</strong> – in very simplified terms, this is dependent on how the economy is doing. Lending institutions, and people like you and I, have no control over this baseline, which is why rates can fluctuate from week to week or even day to day. For example, in the current climate, mortgage rates typically range from about 3.5 to 5%.</p>

<p>2) Then there’s the <strong>property</strong> itself. Is it a detached single-family unit, or a condo? Your primary home, or an investment property? All those factors can affect your rate.</p>

<p>3) The <strong>type of mortgage</strong> you’re getting matters too. You can get loans with different payment terms, such as 15-year or 30-year fixed mortgages, which means you lock in the same interest rate and monthly payment amount for the life of the loan. There are also <a href="https://better.com/content/what-is-an-arm/">adjustable-rate mortgages</a>, which have a fixed rate for a set period (such as 5, 7, or 10 years), after which rates adjust each year according to the market. Depending on what kind of loan you’re looking for, the available rates will be different. </p>

[![ Green Diagram: What Affects Your Rates? The Market, Type of Mortgage, Your Credit Score, Down Payment Size, Your Point or Credit Choices...](https://media.better.com/content/prod/2017/10/whataffectsrates.png)](https://better.com/mortgage-rates/purchase)

 Green Diagram: What Affects Your Rates? The Market, Type of Mortgage, Your Credit Score, Down Payment Size, Your Point or Credit Choices...

<p>4) Your <strong>credit score</strong> plays a big role in determining your rates. It helps lenders evaluate your ability to pay back your loans, based on your borrowing history. The higher your credit score, the better rates you’ll be able to get, which can lead to significant savings over the life of your mortgage. <a href="https://better.com/content/how-your-credit-score-affects-your-mortgage/">Read more about credit scores and mortgages here.</a></p>

<p>5) The size of your <strong>down payment</strong> can also play a role in your rates (though not as much as your credit score). The exact impact of your down payment percentage depends on your unique financial scenario. We recommend talking to your dedicated Mortgage Expert to figure out how different down payment scenarios might affect your monthly mortgage payment.</p>

<p>6) <strong>You have control over your rate too</strong>. You can “buy” a lower rate by paying a lender more up front in the form of prepaid interest called “<strong>points</strong>.” Or you can take lender “<strong>credits</strong>” to lower your closing costs, in exchange for a higher rate. <em>(While buying a lower rate may seem appealing, keep in mind that depending on how soon you sell or refinance your home, it may not be worth the upfront expense.)</em> <a href="https://better.com/content/no-cost-mortgage/">Learn more about points and credits here.</a></p>

<p>7) Of course, the final factor is the <strong>lender</strong>. Each lender is going to take all of these factors into account and determine the rates they will offer you. They also decide how much they will charge you in points or other lender fees to give you those rates. Be careful – this is where lenders are known to <a href="https://better.com/content/dont-take-the-bait-heres-the-reality-of-refi-rates/">bait and switch</a>.</p>

<div class="inline-email-capture"></div>

<h3 id="findingtheratethatworksforyou">Finding the rate that works for you</h3>

<p>At Better Mortgage, we’ve built tools to help you run the numbers on different scenarios, so that you can easily see a breakdown of monthly payments and closing costs for different rates, terms, and points/credits. You can get started in seconds by checking today’s rates for home <a href="https://better.com/mortgage-rates/purchase"> purchase</a> and <a href="https://better.com/mortgage-rates/refinance"> refinance</a>.</p>

<p>But to get the most accurate rate quotes, here’s what I recommend to customers:</p>

<ol>
<li><a href="https://better.com/start"> Create an account on Better.com</a>  </li>
<li>Enter some property details and basic financial information. Since there are various factors that can go into determining your rate, the more information we have to work with, the better.  </li>
<li>Once you’ve entered your information, use the points and credits tool on our rate table to run the numbers on different scenarios for your situation.  </li>
<li>Create your own <a href="https://better.com/content/a-quick-guide-to-your-loan-estimate/">Loan Estimate</a> for each scenario, so you can compare the exact breakdown of costs for different options. </li>
</ol>

<p>Keep in mind that your Loan Estimate will include all closing costs, including an estimate of required third-party fees (like title, appraisal, recording fees, and taxes). These costs won’t impact your rate, but they may impact the size of your down payment since you’ll need to pay them upfront.</p>

<p>Of course, we’re always here to help guide you. You can get on the phone with a non-commissioned Mortgage Expert like me to talk through your options. <a href="https://better.com/schedule-call?TRACKINGSOURCE=blog_hmrw">Schedule a call today.</a></p>

<h3 id="gettingbetterprices">Getting Better prices</h3>

<p>At Better Mortgage, we’ve streamlined the mortgage process and <a href="https://better.com/content/5-reasons-why-loan-officer-commission-is-bulls-t/">done away with Loan Officer commissions and lender fees</a>, passing the savings to you. So once you have your Loan Estimates from us, feel free to shop around. We’re confident that we can get you the best terms.</p>

<h3 id="readytogetstarted">Ready to get started?</h3>

<p>We want to put you in control of your rates and your mortgage experience, while offering support and transparency along the way. Start exploring your options by checking today’s rates for home <a href="https://better.com/mortgage-rates/purchase"> purchase</a> and <a href="https://better.com/mortgage-rates/refinance"> refinance</a>, <a href="https://better.com/start"> creating an account</a>, and <a href="https://better.com/schedule-call?TRACKINGSOURCE=blog_hmrw">scheduling a call with a Mortgage Expert</a>.</p>

<div style="text-align: center">  
<a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/mortgage-rates/purchase">Check today's rates</a>  
</div>

Whether you’re buying or refinancing a home, mortgage rates can seem confusing. Here’s a quick overview to help you shop rates with confidence.

How mortgage rates work

Blog post image for How mortgage rates work

<p><em>Kurtis Rhee, Real Estate Partnerships Manager at Better Mortgage, explains how you can make your offer stand out in a seller’s market.</em></p>

<p><a href="https://better.com/start-purchase"><img src="https://media.better.com/content/prod/2017/10/blog_7waysoffer_headerimg.png" alt="Image of a Row of Six Multi-colored Homes Against Blue Sky That Reads Stand Out in a Competitive Market"></a></p>

<p>I talk to people every day who are wondering just how they’ll get their dream home in competitive markets like San Francisco, Denver, and Seattle. In these areas, sellers don’t just have multiple offers. They have offers from cash buyers – people who have enough funds to pay for the home outright. Cash offers are seen as less risky to sellers because they know the money is in the bank. Other offers are contingent on the buyer securing a loan from a lender, which could theoretically fall through. The key is finding a lender that removes that risk.</p>

<p>When you’re competing with cash buyers, making your offer stand out may seem impossible. But at Better Mortgage, we’re helping our customers do just that by adding as much certainty as possible before they even put an offer on their dream home. </p>

<p>Here’s how you can prepare to make the best offer possible (including one that might be even as competitive as cash). <br />
<br>  </p>

<h2 id="1doyourresearch">1. Do your research.</h2>

<p>Determine what’s important to you (and your partner, if you’re buying a home with someone else) before you start looking. In a competitive market, there may not be time to investigate school districts or debate how many bedrooms you need once you’ve found a home you’re interested in. Having your criteria established early on, including what you’re willing to be flexible on, can help give you clarity and reduce stress when you go shopping and start making offers.</p>

<p><br></p>

<div style="text-align: center">  
<a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/start-purchase">Discover how much house you can afford</a>  
</div>

<p><br></p>

<h2 id="2findagreatrealestateagent">2. Find a great real estate agent.</h2>

<p>A good real estate agent should have a solid understanding of the market (including how much homes like the ones you’re interested in are generally selling for), be proactive, and communicate well. Don’t just go with the first recommendation you get –  vet a few agents to make sure you’re comfortable with who you’re going with. <br />
<br>  </p>

<h2 id="3createcertaintyforthesellersagentandyou">3. Create certainty for the seller’s agent – and you.</h2>

<p>Of course, before you go shopping, you need to know how much you can get financing for. In a hot market, sellers won’t take your word for it – they’ll need proof from a lender. At Better Mortgage, we offer our customers a <a href="https://better.com/start-purchase">Verified Pre-Approval Letter</a>. It involves both you and us putting in a bit of extra effort up front to verify your financial details and documents so that we can tell you exactly how much you’re approved to borrow. You can also easily change the approval amount on the letter if you don’t want to share your full amount with sellers.

<p>Essentially, our Verified Pre-Approval Letter can give you the certainty and confidence of a cash buyer because it means that we’ve already underwritten your finances. Some of our customers even waive the financing contingency in their offer once they have their Verified Pre-Approval from us. Talk to your Better Mortgage Loan Consultant and your agent to understand if this may be a good course of action for your situation. <br />
<br>  </p>

<h2 id="4bringyourlendertothetable">4. Bring your lender to the table.</h2>

<p>Even with a pre-approval letter in hand, sometimes a seller needs to hear it from the horse’s mouth. If you can tell Better about a property before you make an offer, your dedicated Loan Consultant is more than happy to call the seller’s agent on your behalf to confirm that you’ve been fully underwritten and to eliminate fears that you will run into financing issues as a result of your income, assets, and debt. And because we fund and originate all of our loans in-house, our loan consultants, underwriters, and closing agents are always available to answer any questions and make sure the closing process goes smoothly. <br />
<br>  </p>

<h2 id="5getbackup">5. Get back up.</h2>

<p>In certain situations, your property might also qualify for a Better Mortgage Commitment Letter, which gives you the opportunity, if you choose, to waive both the financing and the appraisal contingency. The Better Mortgage Commitment Letter ensures that Better Mortgage will cover up to $50,000 (or 7% of the purchase price) of your escrow deposit should something prevent us from funding your loan through no fault of your own.<sup id="fnref:1"><a href="#fn:1" rel="footnote">1</a></sup> Eligibility is based on the property type and details of the loan – we can let you know if you qualify once you let us know the address of the property you’re interested in. <br />
<br>  </p>

<h2 id="6offeraquickclosing">6. Offer a quick closing.</h2>

<p>The best part about having a Verified Pre-Approval letter is that once your offer is accepted and you’re ready to apply for a loan, our underwriters have already done most of the work verifying your financial details. That means we can usually close your loan weeks faster than the industry average, many times within 21 days from locking your rate.(The industry average is as much as 50 days.<sup id="fnref:2"><a href="#fn:2" rel="footnote">2</a></sup>) <br />
<br>  </p>

<h2 id="7makeitpersonal">7. Make it personal.</h2>

<p>Selling a home can be just as big of a decision as buying one, and many sellers want to know that they’re leaving their home in good hands. It never hurts to write a sincere letter to the owners, letting them know why you love their home and assuring them that you’ll treat it well. If a seller is choosing between a few offers, your personal touch could be the deciding factor.</p>

<p><br> <br />
<a href="https://better.com/content/the-guide"><img src="https://media.better.com/content/prod/2017/10/FTHB_adforblogA.png" width="1200" border="0" align="middle" alt="Image of a Row of Six Multi-colored Homes Against Blue Sky That Reads Stand Out in a Competitive Market"></a> <br />
<br></p>

<p>Buying a home can be daunting, but we’re here to help make the process as smooth as possible. <a href="https://better.com/start/shopping-for-a-home">Apply for your pre-approval</a> today and <a href="https://better.com/schedule-call?loanType=purchase&amp;TRACKINGLOCATION=7wtmyoso&amp;TRACKINGBRANDING=purchase">schedule a call</a> with a non-commissioned Loan Consultant like me to talk about how we can help make your offer stand out.</p>

<p><br></p>

<div style="text-align: center">  
<a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/schedule-call?loanType=purchase&TRACKINGLOCATION=7wtmyoso&TRACKINGBRANDING=purchase">Schedule a call</a>  
</div>

<p><br></p>

<div class="footnotes"><ol><li class="footnote" id="fn:1"><p>We are committed to closing all single family/detached unit loans that have Verified Pre-Approval in 21 days or less. Our commitment for condos, attached units, and loans without Verified Pre-Approval is 25 days, and our commitment for jumbo loans is 30 days. <a href="#fnref:1" title="return to article">↩</a></p></li>
<li class="footnote" id="fn:2"><p>As of January 2017. <a href="https://www.housingwire.com/articles/36305-the-trid-ripples-time-to-close-mortgage-loans-continues-to-rise">https://www.housingwire.com/articles/36305-the-trid-ripples-time-to-close-mortgage-loans-continues-to-rise</a> <a href="#fnref:3" title="return to article">↩</a></p></li></ol></div>

Struggling to get your dream home in a competitive market? These tips can help you make an offer that truly stands out to sellers.

7 Ways to Make Your Offer Stand Out In the Housing Market

Blog post image for 7 ways to make your offer stand out in a competitive market

7 ways to make your offer stand out in a competitive market

[![ Shadowy Image of Modern and White Computer Chair, Desk and a Laptop](https://media.better.com/content/prod/2017/07/blog_improvingyourDTI_headerimg.jpg)](https://better.com/preapprovals/purchase)

<p>When I talk to customers about getting a mortgage, they’re often concerned about their <a href="/content/how-your-credit-score-affects-your-mortgage">credit score</a>, which is an indicator of their ability to pay back loans and can affect the rates they’ll be able to get. While credit scores are certainly important, what they often don’t know is that another number, <a href="/content/what-is-a-good-debt-to-income-ratio">debt-to-income ratio (DTI)</a>, can play an even bigger role in their ability to get a mortgage. In fact, a high DTI is the #1 reason mortgage applications get rejected<sup id="fnref:1"><a href="#fn:1" rel="footnote">1</a></sup>. So what's a DTI, exactly? Your debt-to-income ratio is all your monthly debt payments divided by your gross monthly income. I’ll get into the specifics of this calculation next.</p>

<p>Most lenders typically offer loans to creditworthy borrowers with DTIs as high as 43-47%. That limit is based on policies by government-backed lenders like Fannie Mae, put in place to protect customers against predatory lending practices. As of July 29th, 2017, we are working with Fannie Mae to offer loans with DTIs of up to 50% for creditworthy borrowers<sup id="fnref:2"><a href="#fn:2" rel="footnote">2</a></sup>. However, <strong>the lower your DTI, the more financing options will be available to you</strong>. Let’s look at what goes into calculating that number.</p>

<p><br></p>

<div style="text-align: center">  
<a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/preapprovals/purchase">Discover exactly what you can afford</a>  
</div>

<p><br></p>

<h2 id="howdtiiscalculated">How DTI is calculated</h2>

<p>On the one hand, the math for calculating your DTI is simple – we add up what your monthly debt will be once you have your new home (such as student loans, car loans, credit card bills, and your future mortgage payment) and divide it by your gross monthly income (how much money you earn before taxes).</p>

[![ Debt to Income Ratio = Monthly Debt Payments / Monthly Gross Income x 100](https://media.better.com/content/prod/2017/07/blog_improvingyourDTI_graphics-02.png)](https://better.com/preapprovals/purchase)

<p>The tricky part about calculating DTI is that there can be several moving parts.  </p>

<h3 id="forexample">For example:</h3>

<ul>
<li>If you haven’t found your new home yet, we won’t know your exact mortgage payments, property taxes, or insurance payments, so we’ll have to estimate.</li>
<li>If you already own a home, we’ll need to include both your future and current mortgage payments as debt (unless the purchase of your new home is contingent on the sale of your old home).
<br> <br />
In addition, when we calculate income (the other half of the DTI equation), we use <a href="https://better.com/content/so-youre-wondering-how-much-house-can-you-actually-afford/">conservative calculations</a> because we want to make sure you get a mortgage that’s affordable, now and in the future.  </li>
</ul>

<h3 id="forexample">For example:</h3>

<ul>
<li>If you’re self-employed or compensated by commission or <a href="https://better.com/content/rsu-income/">RSUs</a>, we may not be able to count all 100% of that income, given that these forms of income tend to be less consistent. </li>
<li>If you are <a href="https://better.com/content/self-employed-heres-how-to-get-a-mortgage/">self-employed</a>, it’s typically beneficial to write off your business expenses to lower your tax bill. But those tax deductions may also lower your qualifying income, since underwriters are looking at your net (not gross) income. </li>
<li>If you have rental income from an investment property, we’ll need to see that income on your tax returns (or rental checks if your taxes haven’t been filed yet) and we’ll only be able to use a portion of that income to be conservative. </li>
<li>If you plan on turning your current home into a rental property, you’ll need to have a lease agreement in place for us to consider the potential income. </li>
</ul>

[![ Got More Questions? Our Free Guide Has the Answers. Get the Guide](https://media.better.com/content/prod/2017/10/FTHB_adforblogD.png)](https://better.com/content/the-guide)

<h2 id="wecanhelpgiveyouclarityaboutyourdti">We can help give you clarity about your DTI</h2>

<p>At Better Mortgage, our goal is to give you as much certainty as we can, as soon as we can, about how much you’ll be able to get financing for. </p>

<p>When you get our <a href="https://better.com/preapprovals/purchase">3-minute pre approval</a>, we run a soft credit check (which doesn’t affect your score). This allows Mortgage Experts like me to look at your debts and credit in more detail and get a more accurate picture of your DTI. </p>

<p>If you’re planning on buying soon, we also encourage you to upgrade to our <a href="https://better.com/content/vpal/">verified pre-approval</a>. Our underwriting team will review things like your tax returns, pay stubs, and any other documents specific to your financial situation, so we can tell you exactly how much you are qualified to borrow. This helps ensure there aren’t surprises about your DTI when you do apply for a mortgage. </p>

<h2 id="tipstoconsiderforloweringyourdti">Tips to consider for lowering your DTI</h2>

<p>Lowering your DTI can have a big impact on the type of financing you can get. If you have some flexibility on when you plan on buying, taking time to lower your DTI (and improve your credit score) can save you a lot of money over the life of your loan.</p>

<h4 id="afewdtireductionstrategiestoconsider">A few DTI reduction strategies to consider:</h4>

<ul>
<li>If possible, pay off your car loan before applying for your mortgage.</li>
<li>If you plan on purchasing a car, considering waiting until after you’ve bought your home.</li>
<li>Start paying off your credit cards in full, one by one. (Don't close the cards after you pay them off, as this can hurt your credit score.)</li>
<li>If possible, refinance or consolidate current loans to reduce your monthly payments.</li>
<li>Consider adding a co-borrower with a low DTI to your loan (keep in mind that if they have a low credit score, it could negatively affect your financing options).</li>
<li>If you plan on using rental income, make sure you have lease agreements in place.</li>
<li>If you plan on living with a partner, parent, or roommate in your new home, talk to us about how we might include some of that income in your DTI calculation.</li>
</ul>

<h2 id="readytoexploreyouroptions">Ready to explore your options?</h2>

<p>We can help you understand your DTI and the financing options available to you. Start by getting your <a href="https://better.com/preapprovals/purchase">3-minute pre approval</a>. Then <a href="https://better.com/schedule-call?loanType=purchase&amp;TRACKINGLOCATION=iydtirdwafam&amp;TRACKINGBRANDING=purchase">schedule a call</a> so we go over the numbers with you.</p>

<p><br></p>

<div style="text-align: center">  
<a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/preapprovals/purchase">Get pre-approved and get clarity on your finances</a>  
</div>

<p><br></p>

<div class="footnotes"><ol><li class="footnote" id="fn:1"><p><a href="https://www.washingtonpost.com/realestate/fannie-mae-will-ease-financial-standards-for-mortgage-applicants-next-month/2017/06/05/9b391866-4a0b-11e7-9669-250d0b15f83b">https://www.washingtonpost.com/realestate/fannie-mae-will-ease-financial-standards-for-mortgage-applicants-next-month/2017/06/05/9b391866-4a0b-11e7-9669-250d0b15f83b</a> <a href="#fnref:1" title="return to article">↩</a></p></li>
<li class="footnote" id="fn:2"><p><a href="https://www.housingwire.com/articles/40382-fannie-mae-raises-debt-to-income-ratio-to-further-expand-mortgage-lending">https://www.housingwire.com/articles/40382-fannie-mae-raises-debt-to-income-ratio-to-further-expand-mortgage-lending</a> <a href="#fnref:2" title="return to article">↩</a></p></li></ol></div>

A high Debt to Income Ratio (DTI) is the #1 reason mortgage applications get rejected. Learn how your DTI can affect your mortgage and how to lower it.

Lower debt to income ratio (DTI) for a mortgage | Better Mortgage

Blog post image for Lower Debt to Income Ratio (DTI) for a mortgage

Lower Debt to Income Ratio (DTI) for a mortgage

<h2 id="builtforspeeddesignedtoputyouincontrol"><em>Built for speed, designed to put you in control</em></h2>

<p><em>We’ve created a straightforward online mortgage experience, so getting financing for a home is faster, more affordable, and completely transparent.</em></p>

<hr />

[![ Close Up of Red Home Against Light Blue Sky with Text That Reads: Step 1: Get Verified](https://media.better.com/content/prod/2017/06/Step1@1x.png.png)](https://better.com/preapprovals/purchase)

<h3 id="goingshoppinggetaverifiedpreapprovalletter">Going shopping? Get a Verified Pre-Approval Letter.</h3>

<p>We’ll determine exactly how much you can afford to borrow, so you can go house hunting with confidence. With our smart technology and a team of underwriters, we’ve made pre-approval faster than ever. It’s 100% online and completely free.</p>

<ol>
<li><p>Fill out our easy-to-understand <a href="https://better.com/preapprovals/purchase">online application</a>. We’ll start with a 3-minute basic pre-approval to give you quick a sense of what you can afford.</p></li>
<li><p>Next, qualified borrowers can upgrade to <a href="https://better.com/content/vpal/">Verified Pre-Approval</a> by linking your bank accounts and uploading documents (like tax returns and W2s). This allows us to verify your income, assets, debt, and credit. Pause and come back at any time.</p></li>
<li><p>We’ll provide a Verified Pre-Approval Letter detailing how much you are likely to secure funding for.<sup id="fnref:1"><a href="#fn:1" rel="footnote">1</a></sup> You can request a modification of your letter online anytime without any phone calls. Just because you can borrow a certain amount doesn’t mean you’ll want to offer that maximum amount to the seller.</p></li>
</ol>

[![ Green Quotation Mark](https://media.better.com/content/prod/2018/03/Grass_Quote.png)](https://better.com/preapprovals/purchase)

<h3 align="center">The verified pre-approval process was very quick, which enabled me to put in an offer the same day I started the pre-approval process. Another offer came in right after mine, so I would have lost the house if the process took longer.</h3>  

<p><p align="center">- Erika, Home purchase in CT<p></p>

<p><a href="https://better.com/content/so-youre-wondering-how-much-house-can-you-actually-afford/">What’s the benefit of a Verified Pre-Approval?</a> The more detailed, verifiable information you can give up front, the less chance that there will be surprises down the line when you apply for your loan. And when you’re competing with other homebuyers for your dream home, the certainty that you can afford it matters.</p>

<p>Questions along the way? <a href="https://better.com/schedule-call?loanType=purchase&amp;TRACKINGLOCATION=htgabm&amp;TRACKINGBRANDING=purchase">Chat with one of our friendly, non-commissioned Mortgage Experts.</a></p>


[![Home Covered in Green Vines with Text that Reads Step 2 Lock Your Rate](https://media.better.com/content/prod/2017/06/Step2@1x.png.png)](https://better.com/preapprovals/purchase)

<h3 id="foundyourdreamhomelockthebestrateperiod">Found your dream home? Lock the best rate, period.</h3>

<p>Because we’ve developed relationships with a variety of reputable investors and streamlined clunky processes, we can pass the savings on to you. We’re confident we can get you the best rate. </p>

<ol>
<li><p>Get a transparent <a href="https://better.com/mortgage-rates/purchase">rate quote</a> in seconds. Every quote will provide a monthly payment amount and options for paying points or taking credits (including a <a href="https://better.com/content/no-cost-mortgage/">no-cost option</a>).</p></li>
<li><p>Ready to lock? Lock your rate with us online, 24/7.<sup id="fnref:4"><a href="#fn:4" rel="footnote">4</a></sup></p></li>
</ol>


<p>Trying to do the math? Use our interactive tools to run the numbers on <a href="https://better.com/content/amortization-schedule/">taking credits or paying points</a> or to see your <a href="https://better.com/content/amortization-schedule/">amortization schedule</a>.</p>

<div class="inline-email-capture"></div>

<br></br>

[![ Close Up of Side Panel of Blue Home Behind Green Shrubs with Text that Reads: Step 3: Close Your Loan](https://media.better.com/content/prod/2017/06/Step3@1x.png.png)](https://better.com/preapprovals/purchase)

<h3 id="ratelockedwellfundyourloaninaslittleas21dayssupidfnref2ahreffn2relfootnote2asup"> Rate locked? We’ll fund your loan in as little as 21 days <sup id="fnref:2"><a href="#fn:2" rel="footnote"> 2 </a></sup></h3>

<p>We’ve taken the stress out of closing with a lightning fast, in-house underwriting process, helpful Processing Expert, and no added fees.</p>

<ol>
<li><p><strong>Lock and go:</strong> Once you have the purchase contract for your new home, you’re ready to <a href="https://better.com/content/why-locking-your-mortgage-rate-wont-box-you-in/">lock your rate</a>. That means we will honor the rates that are available to you on that day, even if they go up during your mortgage process. <br />
<br>(After you lock the rates for a particular day, you’ll still be able to change your loan type, change your points or credits options, add a co-borrower, or take advantage of market rates falling by .25%)</p></li>
<li><p><strong>Documents:</strong> Next, we’ll have you upload your <a href="https://better.com/content/what-documents-will-i-need-for-my-mortgage/">financial documents</a> (things like pay stubs, bank statements, and tax returns). We’ll also need a home insurance quote. <br />
<br> The great news is if you’ve already gotten a Verified Pre-Approval Letter with us, we already have most of the information we need.</p></li>
<li><p><strong>Follow-ups and property-related tasks:</strong> You’ll be assigned a Processing Expert, who will work with you to answer questions and make sure we have all the documents we need. You can also log in at any time to see what information we still need from you. In the meantime, we’ll start working on property-related tasks like your title, appraisal, and HOA questionnaire (if applicable).</p></li>
<li><p><strong>Underwriting your loan:</strong> Once we have what we need from you, our underwriting team works to review everything. During this time, your Processing Expert may follow up with you about any additional information needed. They’ll also be working to make sure all property-related tasks are completed. When everything is nearly finalized, we’ll ask you to pay for home insurance and confirm with us.</p></li>
<li><p><strong>Final approval:</strong> Once all the final documentation is in, we perform some final checks to make sure absolutely everything is in order.</p></li>
<li><p><strong>Closing and funding:</strong> Once your loan is finalized, we’ll send over the closing disclosures for you to review (which includes the final third-party costs, down payment, and prepaid costs). We’ll work with you to schedule the closing and get all the necessary documents signed. </p></li>
</ol>

<p>Wondering about the closing costs and third party fees you’ll need to pay? <a href="https://better.com/faq/home-purchase-loan-costs/how-much-will-it-cost-me-to-buy-a-home">Here’s a list</a>.</p>

[![Lock Down a Lower Rate with Green "Start" Button](https://media.better.com/content/prod/2017/06/blog_GetBetterMortgage_CTA_DreamhomeG.png)](https://better.com/preapprovals/purchase)

<div class="footnotes"><ol><li class="footnote" id="fn:1"><p>Our Verified Pre-Approval Letter tells you how much you are likely to secure financing for, barring unforeseen circumstances, such as issues with the appraisal or unique financial situations. Because this amount is based on actual documents, not just stated information, the amount shown in your letter may be less than the amount you initially asked for. <a href="#fnref:1" title="return to article">↩</a></p></li>


<li class="footnote" id="fn:4"><p>Better Mortgage will honor all pricing shown at lock requests made both during and after business hours, provided user-entered information is accurate. The accuracy of user-entered information will be determined during business hours. To date, we have honored 100% of the overnight rate lock requests. <a href="#fnref:4" title="return to article">↩</a></p></li></ol></div>

What's the best way to get a mortgage? At Better Mortgage, we’ve created an online mortgage experience, so getting financing for a home is completely transparent.

How to get a better mortgage

Blog post image for How to get a better mortgage

<a href="https://better.com/content/vishal-garg-better-ceo/">*Vishal Garg,*</a> *Better Mortgage [Founder and CEO](https://www.forbes.com/sites/dianatsai/2021/10/20/how-bettercom-quietly-became-a-77b-unicorn-personal-insights-from-founder-vishal-garg/?sh=5a1228ab40d0), demystifies the low down payment mortgage.*

<hr />

![3-5% down](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2F05c282c87bf744a39e0d801413078569)

Becoming a homeowner is a huge milestone in many people’s lives, but it can be hard to know when you’re ready. At Better Mortgage, we've found that many people don't take the next step because of how daunting it can seem to save up for a large down payment.

We want to help you see yourself as a homebuyer by giving you accurate, transparent information about your financing options. In addition to eliminating unfair <a href="https://better.com/content/5-reasons-why-loan-officer-commission-is-bulls-t/">commission structures</a>, lender fees, and <a href="https://better.com/content/dont-take-the-bait-heres-the-reality-of-refi-rates/">bait-and-switch</a> quotes, we work with government-backed investors like Fannie Mae and other reputable banks to offer a variety of loan types, to help people chose the best financing option for them.

<br>

<div style="text-align: center">  
<a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/preapprovals/purchase">Discover what you can afford</a>  
</div>

<br>

## Considering a 3-5% down payment

For example, we can offer qualified borrowers financing options with as little as 3% down. Now, I know what you’re thinking. That sounds risky. But it’s not – anymore. Before the housing crisis, these types of loans were often offered to people who were at a high risk of defaulting, such as people with extremely high <a href="https://better.com/content/improving-your-debt-to-income-ratio-dti-when-applying-for-a-mortgage/">debt-to-income ratios</a>. Since then, the mortgage industry has been regulated to protect people from those kinds of predatory loans.

For borrowers with great credit and a steady income, a 3-5% down loan can be a financially sound option, allowing you to start investing and building equity sooner.

## The difference between what you can afford and the size of your down payment

Essentially, you pay for your home with:

- An initial large payment (your down payment)</li>
- Ongoing installments, with interest (your monthly mortgage payment)</li>

Many potential homeowners focus on the first part, which is their down payment. But lenders are also looking at your *future* ability to pay, which is indicated by a steady income and a great <a href="https://better.com/content/how-your-credit-score-affects-your-mortgage/">credit score</a>.

## Let’s look at an example

Let’s say you have high student loan debt, but a stable career with steady income (and the tax returns and pay stubs to prove it). And you live in a city where your monthly rent is high – even higher than what a monthly mortgage payment might be.

In this instance, you may not have a 20% down payment saved up, since most of your income has gone towards rent and paying off student loans. But your income profile, and the fact that you’re already making high rent payments, can be a signal to lenders that you’ll be able to make consistent mortgage payments.

<br>

<div style="text-align: center">  
<a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/preapprovals/purchase">Get started today</a>  
</div>

<br>

#### The bigger picture: backed by data

An analysis of historical loan data by Laurie Goodman, Jun Zhu, and Taz George at the Urban Institute shows why government-backed investors like Fannie Mae see relatively little risk in qualifying mortgage loans with down payments as low as 3-5%:

Data shows that credit is a stronger indicator of default risk than down payment size. The percentage of defaults of 5-10% down loans versus 3-5% down is very similar.*

“Of loans that originated in 2011 with a down payment between 3-5 percent, only 0.4 percent of borrowers have defaulted. For loans with slightly larger down payments – between 5-10 percent – the default rate was exactly the same. The story is similar for loans made in 2012, with 0.2 percent in the 3-5 percent down-payment group defaulting, versus 0.1 percent of loans in the 5-10 percent down-payment group.” – Urban Institute

<p><a href="https://better.com/preapprovals/purchase"><img src="https://media.better.com/content/prod/2017/07/default_rates_FICO.jpg"></a></p>

What does this mean for Americans with goals of homeownership? For a couple with $25,000 saved up for a down payment, it could be the difference between being able to put 10% down for a 1-bedroom home that costs $250,000, versus putting 5% down and getting for a 2-bedroom home for $500,000.

## The bottom line

We think if you’re considering homeownership, you shouldn’t have to keep renting just to save up for a large down payment. Government-backed investors like Fannie Mae agree. They want to help more people build equity through homeownership, and they’re doing so by backing loans with as low as even a 3% down payment, for borrowers who fit the profile.

If you’re considering buying a home, we’re here to help you understand your options. Take a few minutes today to explore whether homeownership is a possibility with our <a href="https://better.com/preapprovals/purchase">3-minute basic pre-approval</a>. There is no fee, no obligation, and researching your financial options will not affect your credit score. You can also talk through your options by <a href="https://better.com/schedule-call?loanType=purchase&amp;TRACKINGLOCATION=5pdp&amp;TRACKINGBRANDING=purchase">scheduling a free call</a> with one of our non-commissioned Mortgage Experts.

<p><br></p>

<div style="text-align: center">  
<a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/preapprovals/purchase">Discover what you can afford</a>  
</div>

<p><br></p>

<p class="legal"><a href="http://www.urban.org/urban-wire/why-government-sponsored-enterprises-support-low-down-payment-loans-again-no-big-deal">*Why the Government Sponsored Enterprises' support of low-down payment loans again is no big deal</a></p>

  <style>
    p.centercallout{ 
    text-align: center !important;
  }  
    p.legal{
    font-size:12px;
      font-style: italic; 
    }
  .ctabottom{
    font-size:25.629px !important;
    font-weight:700 !important;
    text-align:center;
  }

.learn {

  padding-left:25px;
  padding-top: 5px;
  padding-bottom: 5px;
  border-style: solid;
  border-width: 0px 0px 0px 3px;
  border-color: #291842;
  }
  .learnfont {
  font-size:16px !important;
  line-height: 20px !important;
  }
    .learnfontlist {
  font-size:16px !important;
  line-height: 10px !important;
      padding-left: 15px;
  }
.footnote{
  font-size:14px !important;
  color: #767676;
  text-align:center;
  }
.charttitle{
    font-size:24px !important;
  text-align:center;
  }

  p.chartsmall {
    font-size:12px!important;
  }

    #img1 {display:block;}
#img2 {display:none}

  @media all and (max-width: 600px) {

      .mobilehide{ display: none;
  }
    #img1 {display: none;}
    #img2 {display: block;}

    p.chartsmall {
    font-size:9px!important;
  }

  .headshot{
  width:150px;

  }

}
  .equation{
    padding-top:40px;
    padding-bottom:50px;
    padding-left:30px;
    padding-right:30px;
  text-align:center !important;
    background:#291842;
  }

  p.equationtop{
font-weight:300!important;  
    color:#ffffff;
  }
  p.equationbottom{
    font-weight:700!important;   
   font-size:28px;
    color:#ffffff;
  }
  .headshot{
    padding-bottom:15px;
  width:150px;

  }
  .centerqa{
  text-align:center!important;
  }

  </style>

Considering a 5% down payment for your mortgage? We're here to help demystify the low down payment mortgage.

When a 5% down payment isn't a risk

Blog post image for When a 3-5% down payment isn't a risk

When a 3-5% down payment isn't a risk

<p><em>Viral Shah (Better Mortgage’s Head of Capital Markets) explains how an adjustable-rate mortgage works.</em></p>

<hr />

<div class="wistia_responsive_padding" style="padding:56.25% 0 0 0;position:relative;"><div class="wistia_responsive_wrapper" style="height:100%;left:0;position:absolute;top:0;width:100%;"><iframe src="https://player.vimeo.com/video/231570915?autoplay=1videoFoam=true" title="Wistia video player" frameborder="0" scrolling="no" class="wistia_embed" name="wistia_embed" allowfullscreen mozallowfullscreen webkitallowfullscreen oallowfullscreen msallowfullscreen width="100%" height="100%"></iframe></div></div>  

<script src="https://fast.wistia.net/assets/external/E-v1.js" async></script>  

<br> <br />

Choosing a mortgage type is one of the many decisions a homebuyer needs to make – and it’s a big one. After the 2008 housing crisis, many buyers were wary of adjustable rate mortgages (ARMs). But in instances where you’re planning on selling your home within 10 years, [they could be the better option](https://better.com/content/so-youre-considering-an-adjustable-rate-mortgage/).

Here’s a quick overview of what an adjustable rate mortgage is:

<h2>How do ARMs work?</h2>

While traditional fixed rate mortgages have the same rate for the entire life of the loan (typically 15, 20, or 30 years), adjustable rate mortgages (ARMs) are a bit different. ARMs have an initial fixed period where you will pay a fixed interest rate, followed by an adjustable period where the interest rate fluctuates. Current conforming ARMs use an index rate called the Secured Overnight Financing Rate (SOFR) to guide these adjustments. 

<strong>Naming:</strong> (Fixed period in years / number of adjustments per year). For example, *10/6m* means 10 year fixed with adjustments every 6 months after that. 

<strong>Fixed period:</strong> You’ll choose from a 5-year, 7-year, or 10-year fixed period, typically based on how long you expect to live in the house. After the fixed period, the rate adjusts twice per year (every 6 months).

<strong>Adjustable period:</strong> After the fixed period is over, the rate will adjust every 6 months based on the following formula: 30 day average of SOFR (Index) + (Margin). Investors set the value of the margin but it is typically between 2.75% and 3%. Regardless of what value is used, the margin always stays the same, but the value of the SOFR index will vary. The SOFR index is maintained by the New York Federal Reserve and can be accessed directly on the NY Fed website or on sites like the Wall Street Journal and its value changes daily. As of 2/22/2021, the 30-day average SOFR was 0.045%, which would mean your ARM loan interest rate could be .045% (Index) + (Margin) or between 2.795% and 3.045%.

<h2>How much can the rate move?</h2>

ARMs have “caps,” which limit the amount that the rate can increase. This protects you against sharp moves if you move into the adjustable period.

<strong>Initial Adjustment Cap:</strong> The most the total rate can increase by in the first adjustment period. Typically 2% for 5/6m ARMs and 5% for 7/6m or 10/6m ARMs.

<strong>Subsequent Adjustments Cap:</strong> The most the total rate can increase by in subsequent adjustments periods. Typically 1%.

<strong>Lifetime Adjustment Cap:</strong> The most the rate can increase above the initial fixed rate — ever. Typically 5%.

For example: If your initial 5/6m ARM fixed rate was 3%, once the fixed period is over, it can’t increase more than 4% every year, nor can it ever exceed 8% in total.

<h5>Example rates based on the current interest rate environment:</h5>

![Example Rates Based on the Current Rate Interest Environment](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2Fc8f48b0ce4ac43adbb003487ac4f1a6c)
<p class="legal">This table is for illustrative purposes only.</p>

At Better Mortgage, we recommend considering an ARM only if you’re reasonably certain you’re going to sell your house in 10 years or less: [here’s why](https://better.com/content/so-youre-considering-an-adjustable-rate-mortgage/).

If you’re curious about what ARM rates are like today, take a look at our [Rate Quote Tool](https://better.com/mortgage-rates/purchase). We’re here to help you figure out which option is right for you.

<br> <br>

 <div style="text-align: center">  
 <a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/start">Learn more</a>  
 </div>

 <br><br>

<p class="legal">This blog is for informational purposes only and should not be used for legal or financial advice.</p>

<style>  
.cms-ContentPost img {
  max-width: 100%;
  }

    p.legal{
    font-size:12px;
      font-style: italic; 
    }
</style>

While traditional fixed rate mortgages have the same rate for the entire life of the loan (typically 15, 20, or 30 years), adjustable rate mortgages (ARMs) are a bit different.

What is an ARM?

Blog post image for What is an ARM?

<p><em>The Loan Estimate is intended to provide a clear and concise summary of the terms and costs associated with any loan. Here’s how to read it with confidence.</em></p>

<hr />

<div class="wistia_responsive_padding" style="padding:56.25% 0 0 0;position:relative;"><div class="wistia_responsive_wrapper" style="height:100%;left:0;position:absolute;top:0;width:100%;"><iframe src="https://player.vimeo.com/video/231571084?autoplay=1 videoFoam=true" title="Wistia video player" frameborder="0" scrolling="no" class="wistia_embed" name="wistia_embed" allowfullscreen mozallowfullscreen webkitallowfullscreen oallowfullscreen msallowfullscreen width="100%" height="100%"></iframe></div></div>  

<script src="https://fast.wistia.net/assets/external/E-v1.js" async></script>  

<p><br><br> <br />
The Loan Estimate (LE) provides a clear and concise summary of the terms of your loan to help you understand the features, costs and risks associated with your mortgage as required by the Consumer Finance Protection Bureau (CFPB). Before moving forward with any lender, you should be sure to compare and understand your Loan Estimate.  </p>

<h2 id="yourinitialle">Your initial LE</h2>

<p>This is page 2 of sample LE in the CFPB-approved format. Make sure your lender provides an estimate in this format. Anything that looks different is not an official Loan Estimate.</p>

<p><a href="https://better.com/start"><img src="https://media.better.com/content/prod/2016/12/LE-page-2-no-annotation.png"></a> <br />
<em><p style="font-size:1.4rem;">Page 2 of the LE details your loan costs</p></em></p>

<h2 id="tipsforcomparinglesfromdifferentlenders">Tips for comparing LEs from different lenders</h2>

<p>Here are a few things to look out for: </p>

<h4 id="1thirdpartyfeesappearingononelendersleandnotanothers">1. Third-party fees appearing on one lender’s LE and not another’s</h4>

<p>You should raise this with your Mortgage Expert. While the fee amount can vary, the types of third-party fees associated with a loan are fairly constant. One lender may be missing something. </p>

<h4 id="2differencesinloanamountforarefinance">2. Differences in loan amount for a refinance</h4>

<p>A lender may increase your loan amount slightly to create a “<a href="https://better.com/content/no-cost-mortgage/">no closing cost loan</a>”. Borrowing a little more than the payoff on your current loan is one way to offset fees at the closing table, but this is increasing your debt to pay for your closing costs; it does not make them go away.  For an apples-to-apples comparison across lenders, you should get LEs with identical loan amounts.</p>

<h4 id="3promisesofcreditsafterclosethatdonotappearonthele">3. Promises of credits after close that do not appear on the LE</h4>

<p>This is a major red flag. The purpose of the LE is to create transparency and accountability. You lose both by transacting outside of the standard disclosure.</p>

<h4 id="4increasingcostsduringachangeincircumstance">4. Increasing costs during a change in circumstance</h4>

<p>Some lenders may advertise attractive rates and fees for one product, then switch into something less competitive (<a href="https://better.com/content/loan-estimate-101/">bait-and-switch</a>). You should ask about any additional fee and look at the relative competitiveness of the new product by continuing to shop before locking.</p>

<h2 id="abetterway">A Better way</h2>

<p>Better Mortgage is committed to a transparent and efficient mortgage process. Contact us by email (<a href="mailto:hello@better.com">hello@better.com</a>), phone (<a href="tel:888-501-3186">888-501-3186</a>), or chat with us via <a href="https://better.com/">Better.com</a> with any questions about your LE. We are happy to walk you through competing offers and answer any questions. No pressure, no sales — just a fast, easy and transparent process.</p>

<br> <br>

 <div style="text-align: center">  
 <a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/start">Get started</a>  
 </div>

<style>  
.cms-ContentPost img {
  max-width: 100%;
  }
</style>

Your loan estimate is a summary of the terms and costs associated with your loan. Learn how to read and understand it with confidence.

A quick guide to your Loan Estimate

Blog post image for A quick guide to your Loan Estimate

<p><em>If you refinance or sell your home in the average time frame, taking lender credits to offset your closing costs (a.k.a. a no-cost mortgage) will save you money in comparison to paying points.</em></p>

<hr />

<iframe src="https://player.vimeo.com/video/231571022" width="100%" height="360" frameborder="0" webkitallowfullscreen mozallowfullscreen allowfullscreen></iframe>

<script src="https://fast.wistia.net/assets/external/E-v1.js" async></script>  

<p><br> <br />
“Taking credits” refers to the practice of accepting a higher interest rate (and therefore higher monthly payments) in exchange for cash to offset your closing costs. If you take enough credits to offset all closing costs, this results in a “no-cost mortgage.” </p>

<p>The flip side of taking credits is “paying points,” which means paying a percentage of your mortgage balance upfront in exchange for a lower interest rate and lower monthly payments. </p>

<p>The typical cost of changing your rate by 0.125% is 0.625% of your loan amount. So on a $400,000 loan, if you took a rate increase of 0.125%, you would receive $2,500 in credits. If you reduced the rate by 0.125%, you would pay $2,500 in points.</p>

<blockquote>
  <p>There are many factors that determine whether paying points or taking credits is right for you. However, perhaps the most important one is how long you keep your mortgage without fully repaying it by selling your home or refinancing.</p>
</blockquote>

<p>By taking credits, you will save money early on by reducing your closing costs. But there will be a time in the future when you will lose money (compared to paying points) by paying the higher interest rate. The gamble is whether you get out of your mortgage before the time when you break even.</p>

<h4 id="figureifyoutakecreditsyouwillsavemoneyearlyinyourmortgagetermbyoffsettingclosingcosts">Figure: If you take credits, you will save money early in your mortgage term by offsetting closing costs.</h4>

[![ Graph: Years on X Axis and Total Savings If You Pay Points on Y Axis](https://media.better.com/content/prod/2016/09/concept-take-credits.png)](https://better.com/start) <br />
<em><p style="font-size:1.4rem;">This graph illustrates the concept of taking credits.</p></em>

<p>By paying points, you will lose money at the start by paying the closing costs. But there will be a time in the future when you break even and start to save money by paying the lower interest rate. If you leave your mortgage before that time, you lose money. The gamble is whether you will stay in your mortgage long enough to reach the time when you break even. </p>

<h4 id="figureifyoupaypointsupfrontyouwilllosemoneyearlyinyourmortgageterm">Figure: If you pay points upfront, you will lose money early in your mortgage term.</h4>

[![ Graph. Years on X Axis and Total Savings If You Pay Points on Y Axis](https://media.better.com/content/prod/2016/09/concept-pay-points.png)](https://better.com/start) <br />
<em><p style="font-size:1.4rem;">This graph illustrates the concept of paying points.</p></em>

<h2 id="payingpointswasthewrongdecisionformostborrowers">Paying points was the wrong decision for most borrowers</h2>

<p>Historical data tells us that for most borrowers in the last 25 years, paying points has been a bad decision. Recent research using data from 1990-2015 found that on average, borrowers have kept their mortgages only five years (<em>Agarwal, Ben-David, and Yao (2016), Journal of Financial Economics</em>). </p>

<p>Historical data from Freddie Mac is consistent, showing the majority of borrowers have refinanced, sold, or otherwise closed their mortgage within six years.</p>

<h4 id="figurethemajorityofloansinthefreddiemacdatasethavebeenactivelessthansixyears">Figure: the majority of loans in the Freddie Mac dataset have been active less than six years</h4>

[![ Graph. Number of Years Since Origination on X Axis and Loans Still Active (%) on Y Axis](https://media.better.com/content/prod/2016/09/loans-active.png)](https://better.com/start) <br />
<em><p style="font-size:1.4rem;">Fraction of loans still active out of the cohort originated in any given year. For instance: out of the loans originated in 2008, less than 40% were still active four years later. The other 60+% had refinanced, foreclosed, or sold.</p></em>

<blockquote>
  <p>What this means is that those who paid points usually left their mortgages before the break-even line, and therefore lost money. Had they taken credits (or a no-cost mortgage) instead, they would have saved money.</p>
</blockquote>

<p>While you might think this finding is due to the time-period studied and interest rate trends over that time, the authors of the research also ran an ex-ante simulation. Given the break-even nature of paying points, those who paid points should have been less mobile on average (e.g., slower terminations for non-rate-based reasons) than those who did not pay points. However, the research concluded that points-payers did not keep their mortgages a statistically different amount of time than non-points-payers.  </p>

<h2 id="sowhenshouldyoupayforalowerrate">So, when should you pay for a lower rate?</h2>

<p>There are a few scenarios where it does make sense to pay out of pocket for points:</p>

<ul>
<li>You think it’s really unlikely that you will move or refinance for a very long time.</li>
<li>Your projected income is going down in the future, meaning you would not be able to qualify for a similar mortgage.</li>
<li>Your tax rate this year is much higher than what you expect in future years. You want to deduct as much as possible when your tax rate is high, and points are deductible against income in the year you get the mortgage.</li>
</ul>

[![ Got More Questions? Our Free Guide Has the Answers. Sign Up to Download](https://media.better.com/content/prod/2017/10/FTHB_adforblogB-1.png)](https://better.com/content/the-guide)

<h2 id="runyourownscenario">Run your own scenario</h2>

<p>In the end, whether to pay points or take credits is a complex question. Things you probably rarely consider (like your future marginal tax rate) affect whether you should pay points or take credits in your particular situation. To make it a bit easier, we’ve provided a calculator that will help you explore different scenarios and make your own determination.<sup id="fnref:1"><a href="#fn:1" rel="footnote">1</a></sup> </p>

<p>The projected break-even time will be your guide. If you are considering paying points, you should do so only if you have a high level of certainty that you’ll stay in the mortgage longer than that. You are confident you won’t move, sell your house, pre-pay your mortgage, refinance for a better rate, take cash out for renovations, etc.</p>

<p>If you think any of the above scenarios might happen sooner than that, taking credits is likely a better option.</p>

<div id="widget-element"></div>  

<script src="https://media.better.com/widgets/pay-points.js"></script>

<h2 id="getaratequote">Get a rate quote</h2>

<p>You can <a href="https://better.com/start">get a personalized rate quote</a> from Better Mortgage in minutes, without affecting your credit score. </p>

[![ A Better Mortgage Starts with Better Information. Get a Better Mortgage](https://media.better.com/content/prod/2017/05/blog_nocostmortg_CTA@2x-1.png)](https://better.com/start)

<p>Every rate quote will provide options for paying points and taking credits, including a no-cost option. Try it and see which option is best for you.</p>

<div class="footnotes"><ol><li class="footnote" id="fn:1"><p>The calculator is provided for demonstrative purposes only. <a href="#fnref:1" title="return to article">↩</a></p></li></ol></div>

Historical data tells us that for most borrowers in the last 25 years, paying points has been a bad decision.

Homebuying

Featured tools

See the true monthly cost for any home

See your payment breakdown

Filter by: