Smart Mortgage Solutions for
Every Homebuyer
Tailored tools and expert insights to guide your homeownership journey.
Mortgage Calculators
Featured Articles for Mortgage Basics
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Home Affordability: How much can I afford on a mortgage?
This guide helps you determine how much home you can afford by breaking down key factors like income, expenses, and budgeting tips, so you can make confident and informed decisions.
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Mortgage Down Payment Guide: Tips, Benefits, and Requirements
This guide covers everything you need to know about mortgage down payments, including their benefits, saving tips, and options for low upfront costs, to help you make confident home-buying decisions.
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Private Mortgage Insurance (PMI): What It Is, How It Works, and How to Save.
This guide explains Private Mortgage Insurance (PMI), its purpose, costs, and types. Learn when PMI is required, how to remove it, and strategies to minimize costs. It also compares PMI with other loan options to help you make informed decisions.
Basic Mortgage Terms
Principal 
Definition
Principal is the original loan amount borrowed from a lender to purchase a home. Over time, as you make monthly mortgage payments, the principal decreases. For example, if you buy a home for $300,000 and make a $60,000 down payment, your principal loan amount will be $240,000.
Why it Matters
The principal directly affects your monthly mortgage payment and the total interest you’ll pay over the life of the loan. Paying down the principal faster (e.g., through extra payments) can save you thousands of dollars in interest.
Interest
Definition
Interest is the cost you pay to borrow money from a lender, calculated as a percentage of the principal loan amount. For example, if your loan has a 4% annual interest rate, this percentage is applied to your remaining loan balance over time.
Why it Matters
Interest can significantly increase the total cost of your home. A lower interest rate saves money, while higher rates mean more of your monthly payment goes toward interest rather than principal.
Annual Percentage Rate (APR)
Definition
APR represents the total annual cost of borrowing, including the interest rate and additional fees like loan origination, points, and closing costs. It provides a more comprehensive view of a loan’s true cost compared to just the interest rate.
Why it Matters
Comparing APRs between lenders can help you understand which loan is more affordable. A loan with a lower interest rate might have a higher APR due to hidden fees, so this metric gives you the complete picture.
Loan Term
Definition
The loan term is the time period over which you agree to repay your mortgage, often 15, 20, or 30 years. Shorter terms typically come with higher monthly payments but lower overall interest costs, while longer terms offer lower monthly payments but higher total costs.
Why it Matters
The loan term influences your budget and financial strategy. For instance, a 15-year loan helps build equity faster, while a 30-year loan offers more flexibility with lower monthly payments.
Down Payment
Definition
The down payment is the upfront amount you pay toward the purchase price of a home, usually expressed as a percentage. For example, a 20% down payment on a $250,000 home is $50,000. Down payments reduce the loan amount and may eliminate the need for additional insurance, such as PMI.
Why it Matters
A higher down payment reduces your monthly payment and total interest costs. It can also help you avoid PMI, which adds to your monthly expenses. Conversely, lower down payment options may allow you to buy a home sooner but come with higher costs.
Private Mortgage Insurance (PMI)
Definition
PMI is a type of insurance required by lenders when your down payment is less than 20% of the home’s purchase price. It protects the lender in case you default on the loan but does not benefit you as the borrower. You can learn more about it Here.
Why it Matters
PMI increases your monthly payment but can help you qualify for a loan with a lower down payment. Understanding when PMI applies and how to remove it (e.g., reaching 20% equity) can save you money in the long run.
Fixed-Rate Mortgage
Definition
A fixed-rate mortgage has an interest rate that remains constant for the entire loan term, ensuring predictable monthly payments. This type of loan is ideal for buyers who want long-term stability.
Why it Matters
Fixed-rate loans are particularly beneficial in low-interest-rate environments because they lock in affordable payments. They’re also ideal for those with stable incomes who want consistency in their financial planning.
Adjustable-Rate Mortgage (ARM)
Definition
An ARM offers a lower initial interest rate for a fixed period (e.g., 5 years) before adjusting periodically based on market conditions. Rate adjustments typically occur annually and are tied to an index like the LIBOR or SOFR.
Why it Matters
ARMs can be appealing if you plan to sell or refinance before the adjustable period begins. However, the potential for rate increases makes them riskier than fixed-rate mortgages, especially in rising interest rate environments.
Debt-to-Income Ratio (DTI)
Definition
DTI is the percentage of your gross monthly income spent on debt payments, including your mortgage, car loans, credit cards, and other obligations. For example, if your monthly debt is $1,500 and your income is $5,000, your DTI is 30%.
Why it Matters
Lenders use DTI to assess your ability to manage monthly payments. Lower DTIs (typically under 36%) increase your chances of loan approval and better rates. Knowing your DTI helps you understand your borrowing capacity.
Closing Costs
Definition
Closing costs are the fees and expenses paid during the final stages of purchasing a home, typically ranging from 2-5% of the loan amount. These include appraisal fees, title insurance, and loan origination fees.
Why it Matters
Closing costs can add thousands of dollars to your out-of-pocket expenses. Being aware of these costs helps you budget effectively and compare offers from lenders who may reduce or waive certain fees.
Escrow
Definition
An escrow account is a separate account managed by your lender to hold funds for property taxes and homeowner’s insurance. Your monthly mortgage payment often includes contributions to this account.
Why it Matters
Escrow ensures timely payment of taxes and insurance, protecting both you and the lender. Reviewing your escrow balance annually helps you avoid surprises like shortages or overages.
Amortization
Definition
Amortization is the process of gradually paying off a loan through fixed monthly payments over the loan term. Each payment covers interest and principal, with the principal portion increasing over time.
Why it Matters
Understanding amortization helps you plan for long-term costs. Extra payments toward the principal can accelerate payoff and reduce total interest paid.
Pre-Approval
Definition
Pre-approval is a lender’s conditional commitment to offer you a loan based on your financial information, including credit score, income, and debt. It provides an estimated loan amount and interest rate.
Why it Matters
Pre-approval strengthens your buying position, showing sellers you’re a serious buyer. It also helps you understand your price range before shopping for a home.
Loan-to-Value Ratio (LTV)
Definition
LTV measures the loan amount as a percentage of the home’s value. For example, a $180,000 loan on a $200,000 home results in a 90% LTV.
Why it Matters
Lower LTVs often result in better loan terms, lower interest rates, and no PMI requirements. A high LTV may limit your borrowing options.
Mortgage FAQs
How do I qualify for a mortgage? 
How much down payment do I need?
- Conventional loans typically require 5-20%.
- VA and USDA loans may allow 0% down.
A larger down payment may reduce your loan amount and could eliminate the need for Private Mortgage Insurance (PMI).
What is PMI, and how can I avoid it?
What’s the difference between a fixed-rate and adjustable-rate mortgage (ARM)?
ARM: Provides a lower initial interest rate for a fixed period (e.g., 5 years), then adjusts periodically based on the market. ARMs are typically better for short-term ownership but may lead to higher payments over time.
How much house can I afford?
What is a debt-to-income (DTI) ratio, and why does it matter?
What are closing costs, and how much are they?
How does my credit score affect my mortgage?
What is an escrow account, and how does it work?
Can I pay off my mortgage early?
What is equity, and why is it important?
Should I get pre-approved for a mortgage?
What documents do I need to apply for a mortgage?
- Recent pay stubs and W-2s (or tax returns if self-employed).
- Bank statements.
- Proof of assets (savings, investments).
- A credit report.
- Identification (e.g., driver’s license, Social Security card).