Mortgage loans
Understand the rules, save thousands. Learn how mortgage lending works before you talk to any lender.
Core concepts
Fixed vs Adjustable Rates
Fixed rates stay the same for the entire loan. Adjustable rates (ARMs) start lower but can change after an initial period. Your choice depends on how long you plan to stay.
APR vs Interest Rate
The interest rate is what you pay on the loan. APR includes fees and gives you the true cost. Always compare APR, not just rates.
Points and Buy-downs
Points let you pay upfront to lower your rate. One point = 1% of loan amount. Makes sense if you stay long enough to break even.
Closing Costs
Fees paid at closing: origination, appraisal, title, etc. Typically 2-5% of loan amount. Some are negotiable, some are not.
Example scenarios
These are typical rate ranges as of late 2024. Rates change daily. Use these to understand options, not as quotes.
| Loan Type | Typical Rate Range | Best For |
|---|---|---|
| 30-Year Fixed | 6.00-7.00% | Best for long-term homeowners who want predictable payments |
| 15-Year Fixed | 5.25-6.25% | Lower rates but higher monthly payments. Saves significant interest. |
| 5/1 ARM | 5.00-6.00% | Fixed for 5 years, then adjusts. Good if you plan to move or refinance soon. |
| FHA Loan | 5.75-6.75% | Lower down payment (3.5%), easier qualification. Requires mortgage insurance. |
Before you talk to any lender
Red flags to watch for
Pressure to decide quickly
Good lenders give you time. High-pressure tactics often mean bad deals.
Unusually low rate quotes
If it seems too good to be true, check for high points or hidden fees.
Vague fee explanations
Legitimate lenders explain every fee clearly. Vagueness hides junk fees.
Prepayment penalties
Most modern loans don't have these. Avoid loans that penalize early payoff.
Tools for mortgage shoppers
Run the numbers before you commit.
Mortgage FAQs
Conventional loans typically want 620+. FHA accepts 580+ (or 500 with 10% down). Better scores get better rates, but you have options even with fair credit.
Conventional: 3-20%. FHA: 3.5%. VA/USDA: 0% for eligible borrowers. More down = lower payments and no PMI at 20%. But don't drain your savings.
Yes. Pre-approval shows sellers you're serious and tells you your real budget. Get quotes from multiple lenders within 14-45 days to minimize credit score impact.
Fixed if you're staying 7+ years or want predictability. ARM if you'll move or refinance within 5-7 years and want a lower initial rate.