A mortgage is a loan that helps you buy a home when you can’t, or prefer not to, pay the full cost upfront. A lender provides the funds to purchase the property, and the home itself serves as collateral, meaning the lender can claim the property if payments stop.

You repay the loan over many years, typically in fixed monthly payments that include:

• Principal: the amount you originally borrowed
• Interest: the cost of borrowing that money

By spreading payments over 15 to 30 years, mortgages make homeownership more affordable and achievable for many buyers.

Why People Choose to Get a Mortgage

Affordability & Access

• Makes buying a home possible without needing the full purchase price upfront
• Allows you to move into a home sooner with only a down payment
• Helps you preserve savings for emergencies, retirement, education, or other goals

Building Wealth Over Time

• Every monthly payment builds equity and increases your ownership stake
• Equity can grow further if the property value rises
• Mortgage payments act as a form of long-term “forced savings,” unlike rent

Financial Advantages

• Depending on your situation, mortgage interest (and sometimes property taxes) may be tax deductible
• Predictable monthly payments can help with long-term financial planning

Stability & Control

• Provides long-term housing stability without landlord restrictions
• Shields you from rising rents
• Gives you freedom to customize, improve, and invest in your home

Mortgage insurance is a policy a lender may require when a homebuyer makes a down payment of less than 20%. This insurance protects the lender, not the borrower if you fall behind and stop making your mortgage payments. By lowering the lender’s risk, mortgage insurance makes it possible for buyers to qualify for a loan they may not otherwise receive.

Mortgage insurance does increase your overall cost. It is typically added to your monthly mortgage payment and may also affect your closing costs.

Different Types of Mortgage Insurance

Conventional Loans – Private Mortgage Insurance (PMI)

With a conventional loan, lenders usually require Private Mortgage Insurance (PMI). PMI costs vary based on your down payment amount and credit score, but it often ends up being less expensive than FHA mortgage insurance. PMI is paid monthly through your escrow account and usually does not require significant additional closing costs.

A key advantage: If you meet certain criteria, such as reaching a specific equity level, you may be able to cancel PMI and remove the cost from your monthly payment.

Federal Housing Administration (FHA) Loans – FHA Mortgage Insurance (MIP)

All FHA loans require Mortgage Insurance Premiums (MIP). While your credit score does not impact your MIP rate, your premium may be higher if your down payment is less than 5%. FHA insurance includes:

• a monthly premium, and
• an upfront fee paid at closing.

FHA allows the upfront fee to be rolled into your loan amount. This reduces the amount you pay at closing but increases the total amount you borrow.

Department of Veterans Affairs (VA) Loans – VA Funding Fee

VA loans do not require monthly mortgage insurance. Instead, they use a one-time VA funding fee, which serves a similar purpose. The cost of this fee depends on factors such as:

• type of service,
• down payment amount,
• disability status,
• whether the loan is for a purchase or refinance, and
• whether this is your first VA loan.

Like FHA loans, the funding fee can be rolled into the mortgage to reduce upfront costs, though it increases the total loan amount.

An escrow account is a special account your mortgage lender or servicer sets up to collect and pay your property taxes and homeowners insurance on your behalf. Each month, part of your mortgage payment goes into this account. This spreads the cost of taxes and insurance over the year, helping you avoid large, once-or-twice-a-year bills and making sure those payments are made on time.

How Escrow Payments Are Calculated and Adjusted

At the start of your loan, the servicer estimates your yearly taxes and insurance costs, divides that amount by 12, and includes it in your monthly mortgage payment.

Each year, the servicer performs an escrow analysis to compare what was collected with what was needed.

• If there is a surplus — you may receive an escrow refund.
• If there is a shortage — you’ll need to cover the difference. Most servicers let you either pay the shortage in one lump sum or spread it out over your upcoming mortgage payments.

What to keep in mind

Your servicer manages the escrow funds, but you still play an important role. It’s up to you to stay informed — review your annual escrow analysis, pay attention to any changes in your monthly payment, and remember that you are ultimately responsible for making sure your property taxes and insurance are paid correctly and on time.

PITI stands for Principal, Interest, Taxes, and Insurance; the four key parts that usually make up your monthly mortgage payment.

• Principal: the part of the payment that reduces the amount you borrowed.
• Interest: the cost you pay for borrowing money.
• Taxes: property taxes, paid to your city, county or state, often collected monthly by your lender then held in escrow.
• Insurance: this refers to homeowners or hazard insurance, the policy that protects your home in case of damage (fire, storms, etc.). In some loans, this section may also include mortgage insurance.

Why PITI Matters

Using PITI gives you a full picture of what your monthly cost will really be, not just the loan payment, but the ongoing costs tied to owning a home. Lenders also use PITI when checking your budget to make sure the loan is one you can comfortably afford over time.

What to remember when you have a low down payment

If your down payment is lower (common for first-time buyers or those with limited savings), there might be additional costs beyond standard PITI. These are not the same as hazard/home insurance.

• PMI (Private Mortgage Insurance): typically required on conventional loans if your down payment is less than 20%. It protects the lender in case you default. Once you build enough equity (usually around 20-22%) you may be able to cancel PMI.
• MIP (Mortgage Insurance Premium) on FHA-backed loans: required for all borrowers under such loans, regardless of how much you put down. It typically involves an upfront premium (at closing) and a monthly premium added to your payment.

Figuring out what you can comfortably afford starts with understanding how lenders look at your finances. A common tool they use is the 28/36 rule, which is based on your Debt-To-Income (DTI) ratios. These ratios help outline a realistic range for your monthly payments.

• Front-end ratio (housing only):
  Your total monthly housing expenses including your mortgage payment, property taxes, homeowners insurance, and any HOA fees should ideally stay at or below 28% of your gross monthly income (income before taxes/deductions).
• Back-end ratio (all debt + housing):
  When you combine your housing costs with all other monthly debt obligations, such as car loans, student loans, and credit cards, the total should generally stay under 36% of your gross monthly income.

These are guidelines, not hard rules. Some lenders may approve a loan even if your ratios are somewhat higher, depending on factors like your credit score, down payment, and overall financial picture.

It’s also important to consider your own comfort level. Even if you qualify for a higher loan amount, the best choice is one that leaves room for saving, planning for unexpected expenses, and maintaining a lifestyle that feels sustainable for you and your family.

Want to see how different loan amounts, rates, or terms could shape your monthly payment? Try our mortgage calculator on the Mortgage Tools page.

There isn’t a single amount that works for everyone. While many people hear the traditional advice to put down 20%, that number is not a strict requirement.

• A larger down payment can be helpful. It reduces the size of your loan, lowers your monthly mortgage payment, and gives you more equity in the home from day one.
• Many loan programs allow you to buy with less upfront. For example, FHA-insured loans may require as little as 3.5% down for those who meet the credit criteria.
• There are also assistance programs that can help. State and local housing finance agencies, as well as nonprofit organizations, offer down-payment and closing-cost assistance that can cover part—or sometimes most—of what you need.

Bottom line: The best down-payment amount depends on your financial situation, credit profile, and comfort level. Some buyers choose a higher down payment for lower long-term costs, while others rely on low-down-payment programs and assistance options to make homeownership more attainable.

When you buy a home, two important reviews often take place: one to assess what the home is worth, and another to check how well the home works. Both steps involve licensed professionals, and both play a key role in helping you make a confident and informed purchase.

“WORTH” — What an Appraisal Does

Appraisal is an independent, professional estimate of the home’s current market value. A licensed appraiser evaluates the property, looking at comparable sales, size, condition, location, and features to determine a fair and unbiased value.

Why it matters:

The appraisal helps the lender confirm that the amount they are loaning does not exceed the home’s actual value. This protects the lender, and you by making sure you are not overpaying for a property.

What happens if the appraised value is lower than your offer:

• You may need to renegotiate the purchase price with the seller, or
• Make up the difference yourself if you still want to proceed with the loan.

“WORKS” — What a Home Inspection Does

Home inspection looks at the physical condition of the property. A licensed inspector evaluates the structure and major systems such as the roof, foundation, plumbing, electrical, and HVAC to identify issues that may not be visible during a standard walkthrough.

Why it matters:

The inspection gives you a clear understanding of the home’s condition and any repairs or maintenance it may need. This helps you avoid unexpected problems after moving in.

What happens if the inspection finds serious issues:

• You may ask the seller to complete repairs before closing, or
• Request a reduction in the purchase price or a seller credit to address the concerns, or
• Withdraw your offer entirely if your contract contingencies allow it.

First-Time Buyer Tip — Start with the Home Inspection

If you’re buying your first home, it’s often best to schedule the inspection first, right after your offer is accepted. Learning about the home’s condition early can save you time and money before moving forward with the appraisal and loan process.

Once the inspection confirms the home is in acceptable condition, the lender will order the appraisal as part of finalizing your mortgage approval.

Bottom Line

• The appraisal answers: “Is this home worth what we’re paying?”
• The home inspection answers: “Does this home work, is it safe and sound?”

Together, they help ensure you are making a smart investment and entering homeownership with confidence.

Refinancing can be a powerful financial tool, but only when it clearly works in your favor. The key question isn’t can you refinance, it’s should you. Below are the most common questions homeowners ask when deciding if refinancing makes sense.

When Refinancing May Make Sense

A. Interest rates are lower
Mortgage rates change over time. When rates drop, refinancing may help lower your monthly payment or reduce the total interest you’ll pay. Depending on your loan balance and term, even a 1% rate reduction can lead to meaningful savings.

B. Your credit or finances have improved
If your credit score has increased or you’ve reduced your debt since getting your mortgage, refinancing could put you in a better position. Stronger finances may help you qualify for a lower interest rate or better loan terms.

C. You want better loan terms
Refinancing allows you to adjust your loan to better match your goals. You might switch from an adjustable-rate mortgage to a fixed-rate loan for more stability, extend your loan term to lower monthly payments, or shorten your term to build equity faster and pay off your home sooner.

D. You need access to cash
Some refinance options allow you to use the equity you’ve built in your home to access cash. This can be helpful for home improvements, large expenses, or other financial needs, while spreading repayment out over time.

When Refinancing May Not  Make Sense

A. The costs outweigh the savings
Refinancing comes with upfront costs, such as closing fees. If the savings from your new loan don’t exceed those costs over time, refinancing may not be worth it.

B. You plan to sell your home soon
If you expect to sell your home soon, you may not own it long enough to recover the cost of refinancing. In that case, refinancing could cost more than it saves.

C. You’re well into your loan term
Refinancing later in your mortgage, especially into a new 30-year loan, can increase the total interest paid over time. While monthly payments may go down, the long-term cost could end up being higher.

What Does “Break-Even” Mean When Refinancing?

Your break-even point is the amount of time it takes for your monthly savings to cover the cost of refinancing.

For example, if refinancing costs $3,000 and saves you $100 per month, your break-even point is about 30 months. If you plan to stay in your home longer than that, refinancing may make sense. If not, it may be better to keep your current loan.

A streamline refinance is a simpler way to refinance your mortgage if you already have an FHA or VA loan. It’s designed to help homeowners improve their current loan by lowering the interest rate, reducing the monthly payment, or switching from an adjustable rate to a fixed rate mortgage. Because these programs are meant for existing borrowers, the process usually involves less paperwork and fewer requirements, which can make refinancing faster and easier than a traditional refinance.

FHA Streamline Refinance

• Designed for homeowners with an existing FHA loan.
• No new appraisal required in most cases.
• Usually, there is no credit check or income verification, though some lenders may review mortgage payment history.
• Closing costs can often be paid at closing or rolled into the loan amount.
• You can often refinance even if your home is “underwater” (you owe more than it’s worth).
• Upfront mortgage insurance premiums (MIP) may apply but can typically be rolled into the loan.

VA Streamline Refinance (IRRRL)

Also called a VA Interest Rate Reduction Refinance Loan (IRRRL).

• For homeowners who already have a VA loan.
• No home appraisal needed.
• No credit check or income verification required by the VA though some lenders may review mortgage payment history.
• Closing costs and the VA funding fee can usually be added into the loan.
• Can lower your monthly payment or switch from an ARM to a fixed rate.
• No private mortgage insurance (PMI) on VA loans.

Homeowners often ask whether refinancing or taking out a home-equity loan is the better option. The right choice depends on your interest rate, how much cash you need, and how long you plan to stay in your home. Here’s how the two options typically compare.

When is a refinance usually the better option?

A. You can secure a much lower interest rate
A cash-out refinance replaces your existing mortgage with a new first-lien loan. First-lien loans typically offer lower interest rates than second-lien home-equity loans, which can lead to meaningful savings.

B. You want one simple monthly payment
With a cash-out refinance, your original mortgage and the cash you access are rolled into one loan. That means one payment instead of juggling multiple loans.

C. You plan to stay in your home long enough to offset closing costs
Refinancing usually comes with higher upfront costs (often around 2%–6% of the loan amount). If you’ll be in the home long enough to recoup those costs through lower payments or better terms, refinancing can pay off.

D. You need a larger amount of cash or want to change your loan terms
Refinancing may allow you to borrow more under a first lien (subject to loan-to-value limits). It also gives you flexibility to:

• Shorten your loan term (for example, from 30 years to 15)
• Switch from an adjustable rate to a fixed rate

When is a home-equity loan probably the better choice?

A. You already have a very low mortgage rate
If current market rates are higher than your existing rate, refinancing could mean giving up a great deal. A home-equity loan lets you access cash while keeping your original mortgage untouched.

B. You need a moderate amount of cash with lower upfront costs
Home-equity loans typically have lower closing costs than cash-out refinances, making them a simpler and more affordable option for smaller borrowing needs.

C. You may move soon
If you don’t expect to stay in the home long enough to benefit from refinancing, a home-equity loan can make more sense since it avoids the higher refinance costs.

D. You don’t want to reset your mortgage term
Refinancing often resets your loan’s amortization schedule back to 15 or 30 years. A home-equity loan keeps your original mortgage, and its payoff timeline intact.

Bottom line:
A refinance works best when it improves your rate, simplifies your finances, or supports long-term goals. A home-equity loan can be the smarter move when you want flexibility, lower upfront costs, and to preserve a strong existing mortgage rate.

Earnest money is a “good faith” deposit you include with your offer to show the seller you’re genuinely committed to buying the home. Instead of going directly to the seller, the deposit is held in a secure escrow account managed by a neutral party. This protects both sides while the key steps of the sale; inspections, appraisals, and financing are completed. If the purchase moves forward, your earnest money is applied toward your down payment or closing costs.

How Much Is Typical?

Most buyers typically offer 1% to 3% of the home’s purchase price as earnest money. In competitive markets, buyers may choose to put down more to strengthen their offer, since a larger earnest money deposit can signal stronger commitment to the seller.

What If the Deal Doesn’t Close — Will I Get My Money Back?

That depends on the wording of your purchase agreement and what contingencies you include. Common contingencies that can make earnest money refundable include:

• A home inspection that uncovers serious problems
• An appraisal showing the home’s value is lower than agreed price
• Issues with title or ownership, or discovery of legal problems with the property
• A financing contingency, if your loan falls through and you can’t get the mortgage

If the contract allows you to walk away under those conditions, your earnest money should be refunded.

When Do You Risk Losing the Earnest Money?

You may lose your earnest money deposit if you back out of the purchase for reasons not protected by your contract contingencies. Common situations include:

• Waiving contingencies to make your offer more competitive
• Changing your mind without a valid, contract-protected reason
• Missing important deadlines for inspections, appraisals, financing, or other required steps
• Breaching the purchase agreement by not meeting its terms or obligations
• Agreeing to a “non-refundable” clause in the contract

Why Earnest Money Matters

Earnest money strengthens your offer by showing the seller you’re serious, which can be especially important in a competitive market. It also allows the home to be taken off the market so inspections, appraisals, and financing steps can move forward without interruption. If the sale is completed, the earnest money is simply applied toward your down payment or closing costs.

Closing costs are the one-time fees and expenses paid by buyers and sellers to complete a real estate transaction. These costs are separate from your down payment and are paid at closing.

Your lender will provide a Loan Estimate early in the process, which outlines your projected closing costs, so you have a clear understanding of your upfront expenses. While costs vary by state, loan type, and lender, most closing fees fall into four main categories:

1. Origination Fees

Origination charges are upfront fees charged by the lender to process and underwrite your loan.

These typically cover:

• Loan application processing fee
• Underwriting fee
• Administrative services fee

Origination charges generally range from 0.5% to 1% of the loan amount, though some lenders may charge a flat fee.

You may also see charges related to interest rate pricing, such as discount points or lender credits. These options directly affect both your upfront closing costs and your long-term interest rate. To better understand how they work, see our FAQ: Discount Points vs. Lender Credit — What’s the Difference?

In some cases, these fees may be negotiable. A lender may also offer the option to reduce or waive certain fees in exchange for a slightly higher interest rate.

2. Settlement & Title Fees

Settlement and title fees are charged by the title or escrow company responsible for handling the property transfer and ensuring the title is clear.

These fees typically cover:

• Title search
• Title insurance (lender’s and/or owner’s policy)
• Escrow services
• Deed preparation
• Notary services

Many of these fees are flat charges. Depending on your state, you may have the ability to shop for certain title-related services.

3. Third-Party Fees

Third-party fees are paid to outside vendors (not the lender) for services required to finalize your loan.

Common examples include:

• Appraisal fee
• Credit report fee
• Flood certification
• Tax service fee

These fees are typically fixed and are generally not negotiable, as they are charged by independent service providers.

4. Taxes & Government Fees

These fees are paid directly to state or local government agencies and vary by location.

They may include:

• Recording fees
• Mortgage taxes or stamp duties
• Transfer taxes

Because these fees are set by government entities, they are non-negotiable.

How Much Should You Expect to Pay?

Closing costs typically range from 2% to 5% of the purchase price, though the exact amount depends on your location, loan type, and specific transaction details.

Understanding these costs ahead of time helps you plan confidently and avoid surprises at closing.

When you take out a mortgage, you may be offered discount points or a lender credit. Both choices change what you pay up front and what you pay each month. Discount points mean paying more at closing to secure a lower interest rate. A lender credit reduces your upfront costs but raises your interest rate and monthly payment. Knowing how each option works helps you choose what best fits your budget and long-term plans.

What Are Discount Points?

Discount points are optional fees you can pay at closing, usually equal to 1% of your loan amount per point, to lower your mortgage interest rate. Paying points reduce your monthly payment and can save you money in interest over time, especially if you plan to stay in the home for many years.

Good if:

• You plan to stay in your home long enough for interest savings to outweigh the upfront cost
• You have extra cash available at closing
• You want lower monthly payments for long-term affordability

What to watch for:

• Higher upfront cost at closing
• Savings take time to outweigh the cost of the points
• Not cost-effective if you sell or refinance within a few years

What Is Lender Credit?

Lender credit works in the opposite direction. Instead of paying more at closing, you accept a slightly higher interest rate, and the lender gives you a credit to reduce your closing costs. This can make buying a home more affordable upfront, especially if cash is tight or you want to preserve savings for other needs.

Good if:

• You want lower upfront costs at closing
• You expect to move or refinance in the near future
• You prefer to keep more savings available for emergencies or other expenses

What to watch for:

• Higher monthly mortgage payments
• More interest paid over the life of the loan
• Not ideal if you plan to stay in the home long-term

What Works: No One-Size-Fits-All

There’s no single right choice, and you’re never required to pick either option. Discount points and lender credits simply give you flexibility. What matters most is choosing the path that supports your budget, your plans, and your comfort level today and in the years ahead.

When you apply for a home loan, you’ll receive two key documents that outline your costs:

• One early in the process (estimate), and
• One just before closing (final)

Both are required under federal law (TRID) and are designed to help you understand and compare your loan clearly.

“ESTIMATE” — What a Loan Estimate (LE) Does

The Loan Estimate is an early snapshot of your loan terms and closing costs.

You must receive it within three business days of submitting a completed application.

Why it matters

It helps you:

• Understand expected costs
• Compare offers from multiple lenders

What to keep in mind

• You may receive multiple LEs if you shop lenders
• Costs are good faith estimates and can change before closing

“FINAL” — What a Closing Disclosure (CD) Does

The Closing Disclosure shows your final loan terms and exact costs.

You must receive it at least three business days before closing.

Why it matters

• It’s your final review window before signing
• The numbers here are what you’ll actually pay

Important note

If certain major changes occur (APR, loan product, prepayment penalty), a new 3-day waiting period may be required.

What Should NOT Change (Zero Tolerance)

These fees cannot increase at all (unless there’s a valid change in circumstance):

• Interest rate (if locked)
• Lender fees (origination, points, underwriting, application)
• Transfer taxes
• Required third-party services where you cannot shop

If they do increase, the lender must typically cover the difference.

What May Change — Within Limits

These can increase up to 10% in total:

• Recording fees
• Third-party services where you chose from the lender’s list

No limit (can vary freely)

These often change and are not capped:

• Prepaid interest
• Homeowner’s insurance
• Escrow deposits
• Services you shop for independently

Home Advantage Tip — Compare Before You Close

When you receive your Closing Disclosure, compare it line by line with your Loan Estimate.

Focus on:

• Interest rate
• Lender fees
• Total closing costs
• Cash to close

This is your chance to catch errors or unexpected increases before signing.

Together, they create transparency, so you know exactly what to expect before closing.