Mortgage FAQ

A mortgage is a loan secured by the property you're buying. You agree to make scheduled payments — typically 15 to 30 years — and the lender holds a lien on the property until paid off. If you stop paying, the lender can foreclose.

PITI is Principal, Interest, Taxes, and Insurance — the full monthly housing payment most lenders use when underwriting your loan. PMI and HOA are added on top if they apply.

A 15-year loan has a higher monthly payment but substantially lower total interest. A 30-year keeps the payment low and preserves flexibility, but you'll pay roughly 2x to 3x more total interest over the life of the loan.

Escrow is an account your servicer uses to collect and pay your property taxes and homeowners insurance. Each month a slice of your payment goes into escrow, and the servicer pays the bills when due.

Rate locks protect you for 30 to 60 days while your loan closes. If rates are stable or rising, locking immediately is sensible. If rates look likely to drop and your closing date is far out, a float-down option lets you capture lower rates if they fall.

Pre-approval is a conditional loan commitment based on a documented review of your income, assets, credit, and debt. It's stronger than pre-qualification and signals to sellers that you can actually close.

An FHA loan is a mortgage insured by the Federal Housing Administration. It allows down payments as low as 3.5%, credit scores starting at 580, and more lenient debt-to-income guidelines. The trade-off is mortgage insurance premiums (MIP) that typically stay for the life of the loan.

A VA loan is a mortgage backed by the Department of Veterans Affairs, available to eligible service members, veterans, and surviving spouses. It allows zero down payment, has no monthly mortgage insurance, and is generally the lowest-cost mortgage in the market.

A USDA loan is a zero-down mortgage program for properties in eligible rural and suburban areas. There are income limits (typically 115% of area median income) and the property must be in a USDA-eligible map zone.

A conventional loan is any mortgage not backed by a government agency. Most conventional loans are conforming, meaning they meet Fannie Mae or Freddie Mac guidelines. They allow down payments from 3% to 20%+, require PMI under 20% down, and use stricter credit standards than FHA.

A jumbo loan exceeds the conforming loan limit set annually by the FHFA. In 2026 the baseline conforming limit is around $806,500 in most counties. Jumbo loans usually require larger down payments, higher credit scores, and bigger reserves.

A DSCR (debt-service coverage ratio) loan is an investor mortgage that qualifies based on the property's rental income rather than your personal W-2. Most lenders want a DSCR of 1.0 or 1.25. Rates are typically 1–2% above conventional.

An adjustable-rate mortgage has a fixed rate for an initial period (typically 5, 7, or 10 years) and then adjusts annually based on an index. ARMs are usually 0.5–1.0% cheaper than fixed-rate loans during the intro period, but expose you to rate increases later.

There is no single right answer. Putting 20% down avoids PMI, lowers your monthly payment, and may improve your rate. Putting 3–5% down preserves cash for emergencies and reserves. Most first-time buyers put down between 3% and 10%.

Yes. Conventional, FHA, VA, and USDA loans all permit gift funds from immediate family, with a signed gift letter and a paper trail showing the funds entering your account.

FHA loans start at 580 with 3.5% down. VA loans usually want 620+. Conventional loans want 620 minimum with the best pricing at 740+. USDA loans want 640+ for most lenders' overlays.

A lot. Conventional rates can swing 0.5–0.75 percentage points between a 660 and 740 credit profile. On a $400,000 loan that's $150–$200 per month of difference. Always pull your tri-merge report and dispute errors before applying.

Earnest money is a good-faith deposit (usually 1–3% of the purchase price) you put down when your offer is accepted. It's held in escrow and applied to your down payment at closing.

Private mortgage insurance is a monthly fee that protects the lender (not you) on a conventional loan with less than 20% down. PMI typically costs 0.4% to 1.5% of the loan amount per year and is automatically cancelled at 78% LTV.

Yes. Request cancellation at 80% LTV on the original schedule, or appraisal-based cancellation at 80% LTV based on current value. The appraisal-based path is the fastest if your home has appreciated.

No. FHA MIP has an upfront fee (1.75%) plus an annual premium (0.55–0.85%), and on most FHA loans is permanent for the life of the loan unless you refinance.

Yes — any lender will require it as a condition of closing. After payoff, it's technically optional but going without it is a major financial risk.

Premiums have risen due to climate-related catastrophe losses, inflation in rebuild costs, and carriers exiting high-risk markets. National average premiums crossed $2,300 in 2025.

Closing costs are the fees due at the end of a purchase or refinance: lender fees, third-party fees, prepaids, and points. Expect 2–5% of the purchase price.

Often, yes. Conventional allows up to 3–9%, FHA up to 6%, VA up to 4%, USDA up to 6% — depending on down payment and program.

The Loan Estimate is a standardized three-page disclosure your lender must provide within three business days of your application. It lets you compare lenders apples-to-apples.

Title insurance protects against defects in the property's chain of ownership. Lender's title insurance protects the lender (required); owner's title insurance protects you (optional but recommended).

Yes to both. The appraisal protects the lender by confirming value. The inspection protects you by uncovering structural, mechanical, and safety issues.

Refinancing replaces your existing mortgage with a new one — typically to lower your rate, shorten your term, or pull cash out. You go through underwriting, pay closing costs, and the new loan pays off the old one at closing.

Calculate your break-even: total closing costs divided by monthly savings. If you'll keep the loan past the break-even point, refinance. Don't refinance for a 0.25% drop with $6,000 in closing costs.

A cash-out refinance replaces your current mortgage with a larger one and gives you the difference in cash. Conventional is capped at 80% LTV; VA allows up to 100%; FHA allows up to 80%.

Streamline refinances (FHA Streamline, VA IRRRL) are simplified rate-and-term refinances for existing borrowers. They skip income docs, often skip the appraisal, and close fast.

Possibly. VA IRRRLs and FHA Streamlines don't require an appraisal. Conventional rate-and-term refis allow up to 97% LTV in some cases.

Amortization is the scheduled monthly conversion of debt into ownership. Each payment splits between interest (charged on the current balance) and principal (which reduces the balance).

Interest is charged each month on the remaining balance, which is at its maximum in month one. As the balance falls, the interest share falls and the principal share grows.

Dramatically. Adding $200/month of principal to a $320,000 loan at 6.75% shortens the term by roughly 5–7 years and saves about $90,000 in interest.

Specify in writing or in your payment portal that extra funds are 'applied to principal.' Otherwise some servicers treat them as prepaid future installments.

Paying half your monthly payment every two weeks results in 26 half-payments per year — equivalent to 13 full monthly payments instead of 12, or one extra payment per year.

House hacking is buying an owner-occupied 2–4 unit property (or single-family with extra bedrooms), living in part, and renting the rest. Owner-occupied financing keeps the down payment low while tenants offset your mortgage.

Cap rate is net operating income divided by property value, expressed as a percentage. It's a yield metric used to compare income properties pre-leverage.

Cash-on-cash return is annual pre-tax cash flow divided by total cash invested (down payment + closing costs + initial repairs). It measures your return on the actual cash you put into the deal.

Buy, Rehab, Rent, Refinance, Repeat. You buy a distressed property, fix it, rent it, then do a cash-out refinance based on the new appraised value to recycle most of your capital into the next deal.

Usually 20–25% down for Fannie/Freddie investor loans, 20–30% for DSCR loans. The exception is house hacking — owner-occupied multi-unit financing allows 3.5–5% down.

The 1% rule says monthly rent should equal at least 1% of the purchase price. It's a quick screening heuristic for rental properties.

The 50% rule says operating expenses (taxes, insurance, repairs, vacancy, management) typically run about 50% of gross rent over the long term.

Mortgage rates are driven primarily by the bond market — specifically mortgage-backed securities which track the 10-year Treasury yield with a spread. Lenders add a margin and adjust for your credit, LTV, and loan type.

Only indirectly. The Fed sets short-term rates; mortgage rates follow long-term Treasuries and MBS yields, which reflect inflation expectations and Fed policy outlook.

Interest rate is what you pay on the principal. APR wraps in upfront loan costs (origination, points, mortgage insurance) and re-expresses everything as an annualized rate. APR is the better comparison for two offers.

Discount points are upfront fees you pay to lower your interest rate. Each point typically costs 1% of the loan and reduces the rate by about 0.25%.

Pay points if you plan to keep the loan past the break-even period (often 5–7 years) and you have the cash without sacrificing reserves. Skip them if you might refinance, sell, or pay extra principal.

Multiple times per day. The bond market reprices continuously during business hours, and major lenders republish rate sheets once or twice daily.