Shopping for a home loan? This guide breaks down mortgage types, what lenders look for, the true costs (APR, points, PMI), and practical steps to lock a competitive rate. This is general information—not financial advice. Confirm details with your lender and official sources.
Mortgage Basics
- Principal & interest: Your monthly payment repays the amount borrowed plus interest.
- Escrow: Lender may collect property taxes & insurance with your payment.
- APR vs rate: APR includes interest + fees; use it to compare true cost between lenders.
Loan Types
- Fixed-rate: Same rate for the full term (e.g., 15 or 30 years). Stable payments.
- ARM (adjustable): Lower intro rate that adjusts later (e.g., 5/6, 7/6). Know caps/margins.
- FHA: Government-backed with lower down payment; mortgage insurance applies.
- VA: For eligible veterans/servicemembers; often no down payment and no PMI.
- USDA: For eligible rural areas; income/location limits apply.
- Jumbo: Above conforming limits; stronger credit/income often required.
Mortgage Resources (Ads):
Costs to Expect
- Down payment: Typically 3%–20%+ depending on program.
- Closing costs: Appraisal, title, origination, points, prepaids (taxes/insurance).
- PMI/MIP: Private mortgage insurance (conventional) or FHA MIP if low down payment.
- Points: Optional fee to lower the rate (discount points). Break-even matters.
Tip: Compare APR, not just rate. A lower rate with high fees can cost more overall.
Qualifying: What Lenders Review
- Credit: Higher scores usually unlock better pricing.
- DTI (debt-to-income): Many programs target ≤ 43% (varies).
- Income & assets: Pay stubs, W-2s/returns, bank statements, reserves.
- Property: Appraisal value, condition, and type (single-family, condo, 2–4 unit).
Pre-Approval, Rate Locks & Timeline
- Pre-approval: Verifies income/credit to set a price range and strengthen offers.
- Rate lock: Holds a rate for a set period (e.g., 30–60 days). Ask about extensions.
- Typical flow: Application → disclosures → appraisal → underwriting → conditions → clear to close.
First-Time Buyers & Refinance
- First-time programs: Down payment assistance and reduced MI may be available in some areas.
- Refinance: Rate/term to lower payment or shorten term; cash-out to access equity.
- When to refi: Consider if the rate drop beats closing costs within your time horizon.
Smart Buyer Checklist
- Check credit and fix errors before applying.
- Get multiple quotes the same day for apples-to-apples APR comparison.
- Avoid big purchases or new credit lines before closing.
- Ask for a fee worksheet/Loan Estimate and read every line.
Conclusion
Know your budget, compare APRs across lenders, and choose the loan type that fits how long you’ll keep the home. Small differences in rate and fees can mean big savings over time—shop smart and read every document before you sign.