Mortgage Lenders Guide

The break-even rule

The classic rule of thumb is to refinance when you can drop your rate by at least 0.75 percentage points and you plan to stay in the home long enough to recover the closing costs. The math: break-even (months) = total closing costs ÷ monthly savings.

Example: $4,000 in closing costs and $150/month in savings = 27 months to break even. If you'll be in the home 5+ more years, the refi pays. If you might move in 2 years, it doesn't.

Reasons to refinance (beyond a lower rate)

Switch loan type — ARM to fixed, FHA to conventional (drops PMI), 30-year to 15-year (saves enormous interest). Cash-out refi — pull equity out for renovations or debt consolidation. Remove a co-borrower after divorce or separation. Drop PMI if home value has risen enough to exceed 20% equity. The Loan Estimate is the same form, the shopping rules are the same, and the closing costs are real — the math just needs to make sense.

How long should I get pre-approved for?

Pre-approval letters typically last 60–90 days. If you don't close on a home in that window, you'll need to refresh the pre-approval (the lender re-pulls your credit and re-verifies your finances). Don't get pre-approved 6 months before you're seriously shopping — it'll just expire.

Should I lock my rate or float it?

Once you have an accepted offer, most buyers lock the rate. Rate locks typically run 30, 45, or 60 days — long enough to close. Floating means waiting for rates to drop, which is gambling. If rates rise during your lock, you're protected; if they fall, some lenders offer a one-time "float-down" option, sometimes for a fee. Ask before signing.

What's the difference between APR and interest rate?

The interest rate is the cost of borrowing the loan principal. The APR (Annual Percentage Rate) includes the interest rate plus certain fees (origination, discount points, mortgage insurance), expressed as a yearly rate. APR is always higher than the rate. When comparing lenders, compare APRs, not just rates — one lender can advertise a lower rate but charge so much in fees that the real cost is higher.

Can I shop lenders if I'm self-employed?

Yes, and you absolutely should. Self-employed borrowers face stricter underwriting (typically 2 years of tax returns required, with net income — not gross — counted toward DTI), but the variation between lenders on self-employed loans is even bigger than on W-2 loans. Some lenders specialize in "bank statement" or "self-employed" loan programs that use deposits instead of tax returns. Mortgage brokers are particularly useful here.

Should I pay off debt before applying?

Generally yes — lower DTI gets you better rates and approval odds. But timing matters. Don't pay off old collections within 12 months of applying; "recent" payments can sometimes reset a 7-year clock or look like a payment hit. And don't close credit cards right before applying, since it lowers your available credit and raises your utilization (which can drop your score). When in doubt, get pre-approved first, then ask your loan officer what to pay down for the biggest impact.

What can I do during underwriting that will hurt my approval?

A lot, actually. Underwriters re-pull credit just before closing. Things that have killed approvals at the last minute: applying for new credit (car loan, credit card, store financing), large undocumented deposits (especially cash), changing jobs, missing a payment on anything, making large purchases on credit cards. Once you've started the mortgage process, freeze your financial life — no new accounts, no big transfers, no job changes — until after closing.