Loan Education
Mortgage Basics: What You Need to Know Before Buying a Home
A mortgage is a loan secured by the home you buy. You repay it over a set term — commonly 15 or 30 years — with monthly payments that cover principal and interest, and often property taxes and insurance. If you don't repay, the lender can foreclose on the home.
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Fixed-rate vs. adjustable-rate mortgages
| Fixed-rate | Adjustable-rate (ARM) | |
|---|---|---|
| Interest rate | Stays the same for the life of the loan | Fixed for an initial period, then adjusts periodically |
| Payment | Predictable principal and interest | Can rise or fall after the initial period |
| Best for | Buyers who plan to stay long-term and want stability | Buyers who may move or refinance before adjustments begin |
Common loan types
- Conventional loans: not government-backed; PMI usually required with less than 20% down.
- FHA loans: insured by the Federal Housing Administration; designed to help buyers with smaller down payments or lower scores.
- VA loans: for eligible service members, veterans and surviving spouses.
- USDA loans: for eligible buyers in qualifying rural areas.
15-year vs. 30-year terms
A 15-year mortgage has higher monthly payments but usually a lower rate and far less total interest. A 30-year mortgage has lower payments, offering more monthly flexibility, but costs more over time.
How your payment is applied
Mortgages are amortized: early payments go mostly to interest, and later payments go mostly to principal. An amortization schedule from your lender shows the exact split. Extra principal payments can shorten your loan and save interest — check that there's no prepayment penalty.
The mortgage process
- Check your finances and credit. See the Home Buyer's Financial Readiness Guide.
- Get preapproved so you know your budget and sellers take your offer seriously.
- Shop multiple lenders. Compare Loan Estimates on the same day for a fair comparison.
- Make an offer and lock your rate.
- Underwriting and appraisal. Respond to document requests promptly.
- Review your Closing Disclosure at least three business days before closing.
- Close and receive your keys.
Understanding rates and points
The rate you're quoted depends on your credit, down payment, loan type and the market. Discount points let you pay upfront to lower your rate. Compare the APR, which includes certain fees, as well as the interest rate. Learn more in our guide to loan interest rates and fees.
For more on borrowing, visit Loan Education.