Mortgage Basics
Navigating the home buying process starts with a solid foundation. Understanding mortgage fundamentals empowers you to make informed decisions, ensuring you choose a financing path that aligns perfectly with your long-term financial goals and homeownership dreams.
Key Terms & Definitions
Escrow
An account where funds are held by a third party to pay for property taxes and homeowners insurance on your behalf.
APR
Annual Percentage Rate. A broader measure of the cost of borrowing money that includes interest rate and other loan fees.
PITI
Principal, Interest, Taxes, and Insurance. The four components that typically make up your total monthly mortgage payment.
PMI
Private Mortgage Insurance. An insurance policy that protects the lender if you default, usually required when the down payment is less than 20%.
Types of Mortgages
Frequently Asked Questions
What credit score do I need for a mortgage?
Generally, a minimum score of 620 is required for conventional loans. However, FHA loans may accept scores as low as 580 with a 3.5% down payment, depending on the lender.
How much do I need for a down payment?
Down payments vary by loan type: Conventional loans start at 3%, FHA at 3.5%, and VA or USDA loans offer 0% down options for eligible borrowers in designated areas.
What documents should I prepare?
You will typically need your most recent pay stubs, W-2 forms for the past two years, bank statements for all accounts, and recent tax returns to verify your financial standing.
What is the difference between APR and interest rate?
While your interest rate is the cost of borrowing the principal, the APR includes the interest rate plus other costs such as broker fees, points, and closing costs.