Mortgage Guide
Understanding your mortgage is critical to avoid costly surprises. Ask these questions to get the best deal and terms for your situation.
Your mortgage is the largest debt you'll likely ever take on. The difference between a good and great mortgage can save you tens of thousands over the loan term. Understanding the fine print protects you from surprises.
Average mortgage amount: $300,000
Average loan term: 30 years
Interest rate difference: 0.5% can add $35,000+
Hidden fees: Can add $5,000+ to closing costs
Before you even submit an application, understand your options and gather the right information.
Common options include conventional loans, FHA loans, VA loans, USDA loans, and jumbo loans. Each has different requirements and benefits.
Conventional loans typically require 620+. FHA loans accept as low as 580 with 3.5% down. Better scores get better rates.
Conventional loans offer options at 3-20% down. FHA requires 3.5%, while VA and USDA offer 0% down options.
Use this to understand how much house you can afford without becoming house-poor.
Pre-qualification is an estimate. Pre-approval involves credit checks and verification and carries more weight in offers.
The interest rate determines most of your monthly payment. Understanding how rates work saves you money.
Rates change daily. Ask for the current rate and understand it may change before you lock it.
APR (Annual Percentage Rate) includes the interest rate plus fees, giving you the true cost of the loan. Always compare APRs.
Rate locks protect you from rising rates but cost money. Lock periods typically range from 30-90 days.
Discount points (1% of loan amount) typically lower the rate by 0.25%. Calculate if paying points makes sense for your timeline.
Some lenders offer "float down" options that let you take advantage of lower rates, sometimes for a fee.
Closing costs can add 2-5% to your purchase price. Understanding fees helps you budget and negotiate.
Get a Loan Estimate to see all fees including lender fees, title fees, recording fees, and prepayments.
Some fees are negotiable or can be shopped, like title insurance and home inspection. Others are fixed by the lender.
Ask specifically about application fees, origination fees, processing fees, and underwriting fees.
PMI is typically required when you put down less than 20% on a conventional loan. It can add $100-300/month to your payment.
Lenders typically require 2-6 months of property taxes and insurance at closing to set up your escrow account.
The contract terms determine your flexibility and total cost over time.
Fixed-rate loans offer payment stability. ARMs start lower but can increase over time. Understand which fits your situation.
15-year, 20-year, or 30-year? Shorter terms have higher monthly payments but save thousands in interest.
Some loans charge fees if you pay off early. Most conventional loans have no prepayment penalties, but check to be sure.
Making extra principal payments can shorten your loan term significantly. Some loans charge fees for this—avoid them.
Understand the grace period, late fees, and when foreclosure proceedings could begin. Most lenders offer hardship programs.
Understanding the timeline and process prevents surprises and anxiety.
Most loans close in 30-45 days. Pre-approval can speed this up. Know what timeline to expect for planning purposes.
Typically: W-2s, tax returns, bank statements, pay stubs, proof of assets, and verification of employment.
Underwriters may need additional documents at any time. Know your loan officer's preferred communication method and response time.
Will you work with one loan officer or a team? Know who to call when questions arise.
Delays happen. Understand the consequences and whether the lender can expedite if needed.
| Loan Type | Min Down | Min Credit | PMI Required | Best For |
|---|---|---|---|---|
| Conventional | 3-20% | 620+ | Only < 20% | Most buyers |
| FHA | 3.5% | 580+ | Always (for loan term) | Lower credit or smaller down |
| VA | 0% | None officially | No | Veterans, active duty |
| USDA | 0% | 640+ | No | Rural buyers |
| Jumbo | 10-20% | 680+ | Yes | High-value properties |
The CFPB recommends getting Loan Estimates from 3+ lenders. Rate differences of just 0.25% can save thousands over the loan term.
APR includes fees and gives you the true cost. A lower rate with high fees might cost more than a higher rate with low fees.
Understand what you're paying for a rate lock and whether the lender offers float-down options if rates drop.
Calculate the total cost over the loan term, not just monthly payments. This reveals the true cost of higher-rate loans.
Absolutely. The CFPB recommends getting Loan Estimates from at least 3 lenders. Rate differences of 0.25-0.5% can save you tens of thousands over the life of the loan.
Prepare 2 years of tax returns, W-2s or 1099s, recent pay stubs (typically the last 2-3 months), bank statements, retirement account statements, and proof of any other income. Self-employed borrowers may need additional documentation like business tax returns.
Pre-qualification is an informal estimate based on self-reported information. Pre-approval involves credit checks and verification of income/assets and carries more weight with sellers. Get pre-approved before house hunting seriously.
The 28/36 rule says spend no more than 28% of gross monthly income on housing costs and no more than 36% on total debt. This includes mortgage principal, interest, taxes, insurance (PITI), plus other debts like car loans and credit cards.
An escrow account holds funds for property taxes and insurance. Your monthly payment includes these estimated amounts, and the lender pays them when due. Most loans require an escrow account for taxes and insurance.