Most Popular Guide

Mortgage Basics Guide

Everything you need to know about mortgages: types, rates, down payments, and how to navigate the home buying process with confidence.

Try Mortgage Calculator Read Guide

Table of Contents

1. What is a Mortgage? 2. Types of Mortgages 3. Understanding Interest Rates 4. Down Payment Strategies
5. The Mortgage Process 6. Costs and Fees 7. Pre-approval Process 8. Tips for Success

What is a Mortgage?

A mortgage is a loan specifically used to purchase real estate. When you get a mortgage, you're borrowing money from a lender (like a bank or credit union) to buy a home. In return, you agree to pay back the loan over a set period of time, typically 15-30 years, with interest.

Key Mortgage Components

  • Principal: The amount you borrow
  • Interest: The cost of borrowing money
  • Term: The length of time to repay the loan
  • Monthly Payment: Principal + Interest + Taxes + Insurance (PITI)

The property you're buying serves as collateral for the loan, which means if you can't make your payments, the lender can foreclose on the property to recover their money.

Types of Mortgages

Understanding the different types of mortgages helps you choose the best option for your financial situation.

Fixed-Rate Mortgage

Interest rate stays the same throughout the loan term.

Predictable monthly payments
Protection from rate increases
Higher initial rates than ARM

Adjustable-Rate Mortgage (ARM)

Interest rate changes periodically based on market conditions.

Lower initial interest rates
Rates may decrease
Payment uncertainty

Common Loan Terms

15-Year Mortgage

Higher monthly payments, less total interest

30-Year Mortgage

Lower monthly payments, more total interest

Other Terms

10, 20, or 40-year options available

Understanding Interest Rates

Interest rates significantly impact your monthly payment and the total cost of your home. Here's what affects your rate:

Factors That Affect Your Rate

  • Credit Score:

    Higher scores get better rates

  • Down Payment:

    Larger down payments = lower rates

  • Loan Term:

    Shorter terms typically get lower rates

  • Debt-to-Income Ratio:

    Lower ratios qualify for better rates

APR vs Interest Rate

Interest Rate

The basic cost of borrowing money, not including fees.

APR (Annual Percentage Rate)

The total cost including interest rate plus fees and closing costs.

Tip: Always compare APRs when shopping for mortgages, as they give you the true cost of the loan.

Down Payment Strategies

Your down payment is one of the largest upfront costs when buying a home. Here's what you need to know about down payment options and strategies.

Down Payment Myths vs Reality

Myth: You need 20% down to buy a home
Reality: Many programs allow 3-5% down, some even 0%

Conventional Loans

3-5%

Minimum down payment for conventional mortgages

  • • PMI required if less than 20%
  • • Better rates with higher down payments
  • • More flexible terms

FHA Loans

3.5%

Government-backed loans for qualified buyers

  • • Lower credit score requirements
  • • Mortgage insurance required
  • • Loan limits apply

VA/USDA Loans

0%

Special programs for qualified buyers

  • • VA: Military veterans
  • • USDA: Rural areas
  • • No down payment required

Down Payment Sources

Acceptable Sources:
  • • Personal savings
  • • Gifts from family
  • • Down payment assistance programs
  • • 401(k) loans or withdrawals
Generally Not Acceptable:
  • • Credit cards
  • • Personal loans
  • • Borrowed money that must be repaid
  • • Recent large deposits (without explanation)

Ready to Calculate Your Mortgage?

Use our mortgage calculator to estimate your monthly payments and see how different down payments and interest rates affect your costs.

Calculate Your Mortgage
← Back to Guides Next: Investment Tips →