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A mortgage is a loan used to purchase or refinance a home. The property serves as collateral for the loan, meaning the lender can foreclose if payments aren't made. Mortgages typically have terms of 15-30 years and require monthly payments of principal and interest.

A general rule is that your monthly housing payment shouldn't exceed 28% of your gross monthly income, and your total debt payments shouldn't exceed 36%. However, some loan programs allow higher ratios. Use our mortgage calculator to estimate payments based on different home prices.

Pre-qualification is an informal estimate based on self-reported information. Pre-approval involves a thorough review of your finances, credit check, and documentation verification. Pre-approval carries more weight with sellers and shows you're a serious buyer.

APR represents the true annual cost of a loan, including the interest rate plus fees like origination fees, discount points, and mortgage insurance. It's higher than the interest rate and allows you to compare the total cost of different loan offers.

PMI is insurance that protects the lender if you default on your loan. It's required on conventional loans when you put down less than 20%. PMI can be removed once you reach 20% equity in your home through payments or appreciation.

LTV is the loan amount divided by the home's value, expressed as a percentage. For example, a $200,000 loan on a $250,000 home has an 80% LTV. Lower LTV ratios typically qualify for better rates and terms.

DTI compares your monthly debt payments to your gross monthly income. There are two types: front-end DTI (housing payment ÷ income) and back-end DTI (all debt payments ÷ income). Lenders use DTI to assess your ability to repay.

PITI stands for Principal, Interest, Taxes, and Insurance - the four components of most mortgage payments. Principal reduces the loan balance, interest is the cost of borrowing, taxes are property taxes, and insurance includes homeowners insurance and PMI if applicable.

Home equity is the difference between your home's current market value and the remaining mortgage balance. Equity builds through mortgage payments (paying down principal) and home appreciation. You can access equity through home equity loans or HELOCs.

Discount points are fees paid upfront to reduce your interest rate. One point typically costs 1% of the loan amount and reduces the rate by about 0.25%. Points make sense if you plan to keep the loan long enough to recoup the upfront cost through lower payments.

Conventional loans are not backed by the government and follow Fannie Mae/Freddie Mac guidelines. Government loans (FHA, VA, USDA) are insured or guaranteed by federal agencies, often allowing lower down payments and more flexible qualification requirements.

FHA loans are insured by the Federal Housing Administration. They require as little as 3.5% down, accept credit scores as low as 580, and allow higher debt-to-income ratios. However, they require mortgage insurance premiums (MIP) for the life of the loan.

VA loans are available to eligible veterans, active-duty service members, National Guard and Reserve members, and surviving spouses. They offer 0% down payment, no PMI, competitive rates, and no prepayment penalties. A Certificate of Eligibility is required.

USDA loans are for eligible rural and suburban properties. They offer 0% down payment and competitive rates for borrowers with moderate incomes (typically up to 115% of area median income). The property must be in a USDA-eligible area.

Fixed-rate mortgages maintain the same interest rate for the entire loan term, providing predictable payments. Adjustable-rate mortgages (ARMs) have rates that change periodically based on market conditions, typically starting with a lower rate that adjusts after an initial period.

Minimum credit scores vary by loan type: Conventional (620+), FHA (580+), VA (no minimum but lenders typically want 620+), USDA (640+). Higher scores qualify for better rates. Some lenders may accept lower scores with compensating factors like larger down payments.

Down payment requirements vary: Conventional (3-20%), FHA (3.5%), VA (0%), USDA (0%). While you can put down less, a 20% down payment avoids mortgage insurance on conventional loans and typically qualifies for better rates.

Typical documents include: 2 years of tax returns, 2 months of bank statements, recent pay stubs, W-2s, employment verification, asset statements, and identification. Self-employed borrowers may need additional documentation like profit & loss statements.

Yes, but options may be limited. FHA loans accept scores as low as 580 (500 with 10% down). Some lenders offer conventional loans to borrowers with scores in the 580-620 range. Consider improving your credit score first for better rates and terms.

Closing costs are fees paid at closing, typically 2-5% of the loan amount. They include lender fees (origination, underwriting), third-party fees (appraisal, title insurance, attorney), prepaid items (taxes, insurance), and escrow deposits. Some costs are negotiable.

An origination fee is charged by the lender for processing your loan application. It's typically 0.5-1% of the loan amount. This fee compensates the lender for underwriting, processing, and funding your loan. Some lenders offer no-origination-fee loans with slightly higher rates.

Yes, lenders require homeowners insurance to protect their investment. You'll need to provide proof of coverage before closing. The annual premium is typically divided by 12 and included in your monthly mortgage payment through an escrow account.

Property taxes are assessed by local governments based on your home's value. They're typically paid through your mortgage payment into an escrow account, and the lender pays the tax bill when due. Tax amounts vary significantly by location.

The typical mortgage process takes 30-45 days from application to closing. This includes time for processing, underwriting, appraisal, and final approval. Having all documents ready and responding quickly to lender requests can help speed up the process.

Underwriting is when the lender verifies your financial information and assesses the loan risk. An underwriter reviews your credit, income, assets, employment, and the property appraisal. They may request additional documentation or clarification before making a final decision.

An appraisal is an independent assessment of the home's value conducted by a licensed appraiser. The lender orders it to ensure the loan amount doesn't exceed the property's value. If the appraisal comes in low, you may need to renegotiate the price or bring more money to closing.

At closing, you'll sign final loan documents, review the Closing Disclosure, pay closing costs, and receive the keys. You'll sign the promissory note (your promise to repay) and mortgage/deed of trust (giving the lender a lien on the property). Funds are then disbursed to complete the purchase.

Most mortgages allow early payoff without penalties, but check your loan terms. You can make extra principal payments, bi-weekly payments, or pay a lump sum. Early payoff saves interest but consider opportunity cost - you might earn more by investing the extra money elsewhere.

Refinancing replaces your current mortgage with a new one, typically to get a lower interest rate, change loan terms, or access home equity. You'll go through a similar process as your original mortgage, including application, underwriting, and closing.