MORTGAGE TIPS & FAQs
A clearer path to your next mortgage decision.
Buying a home, refinancing, or using home equity can feel complicated. This guide breaks down the key steps, questions, and terms in plain language so you can move forward with more confidence.
Choose a topic
MORTGAGE BASICS
Mortgage basics: start with the big picture
A mortgage is more than an interest rate. It is a long-term agreement that combines your loan amount, loan term, payment, costs, and the purpose of the financing. Before comparing options, be clear about what you want the loan to accomplish.
Common goals include:
- Buying a primary residence, second home, or investment property
- Lowering or changing a monthly payment through a refinance
- Changing the length of your loan term
- Accessing available home equity for a major expense, improvements, or debt consolidation
- Finding a program that better fits self-employed, investor, or nontraditional-income circumstances
There is no one best loan for everyone. The right fit depends on the property, your credit profile, income and assets, existing mortgage, equity, and goals.
Buying a home
Buying a home: the process from planning to keys
1. Review your budget and readiness.
Think about your stable income, monthly debts, savings, preferred monthly payment, and the costs of owning a home beyond the mortgage payment.
2. Talk with a loan officer before shopping seriously.
A prequalification or preapproval discussion can help you understand a possible price range, program options, and the documentation you may need. A stronger understanding of your financing can also help when you are ready to make an offer.
3. Choose a real estate agent and begin your home search.
Your agent can help you evaluate homes, write offers, and manage the contract process. Keep your budget in mind as you compare neighborhoods, property taxes, HOA dues, and potential repairs.
4. Make an offer and complete lender requests.
Once your offer is accepted, you will generally provide requested documentation and respond promptly to any follow-up questions. Avoid major financial changes while your loan is under review.
5. Appraisal, underwriting, and loan conditions.
The lender reviews the property and your loan file. The appraisal is an opinion of the property’s value; underwriting reviews whether the loan meets applicable guidelines.
6. Review your closing documents.
Compare the final terms, estimated payment, cash to close, and fees with what you expected. Ask questions early if something is unclear.
7. Close and move in.
After closing, keep a copy of your final documents in a safe place. They can be useful later if you refinance, sell, or need to review your loan details.
Before you apply: a practical checklist
Use this checklist to help you prepare for a smoother mortgage application process.
- Know your approximate monthly budget, not only your target home price
- Review your credit report and address errors when possible
- Keep recent pay stubs, W-2s, tax returns, bank statements, and identification organized, as applicable
- Plan for a down payment, closing costs, and a reserve for moving or home repairs
- Ask whether gift funds or down payment assistance may be an option
- Talk to your loan officer before opening new credit, financing a vehicle, or making large unexplained deposits or transfers
- Continue paying bills on time through closing
The full cost of homeownership
When you estimate affordability, include more than principal and interest. Depending on the loan and property, your total monthly housing cost may include:
Principal and interest
Property taxes
Homeowners insurance
Mortgage insurance, when applicable
Homeowners association dues
Maintenance, utilities, and potential repairs
Understanding loan options
Explore the most common loan programs to see which may be a fit for your goals.
Conventional loans are not insured or guaranteed by a government agency. They may be a fit for many borrowers and can offer low-down-payment options for qualified buyers.
FHA loans are government-insured loans that may offer more flexibility for qualified buyers, including some first-time buyers. Mortgage insurance requirements apply.
VA loans are available to eligible Veterans, service members, and certain surviving spouses. VA generally does not require a down payment or monthly private mortgage insurance, although other requirements and possible fees can apply.
Jumbo loans may be used when financing needs exceed applicable conventional loan limits. Guidelines may differ from standard conventional financing.
Non-QM and alternative-documentation options may be worth exploring for some self-employed borrowers, investors, and borrowers whose situation does not fit traditional documentation. Program requirements vary.
Down payment assistance may be available through certain programs for qualified homebuyers. Availability, income limits, property requirements, and program terms vary by location and program.
Your loan officer can help compare options based on your goals and individual qualifications. Loan programs, terms, and eligibility are subject to approval and may change.
Refinance and home equity: know the differences
Rate-and-term refinance: Replaces your existing mortgage with a new one. Borrowers may explore this option to change their rate, term, or payment structure. Closing costs and the impact on your existing loan should be reviewed.
Cash-out refinance: Replaces your current mortgage with a new, larger mortgage and provides the difference in cash. This may be considered for a major expense, renovation, debt consolidation, or other purpose. It changes your first mortgage, so compare the new loan terms with your existing loan carefully.
Home equity loan: A loan secured by the equity in your home that generally provides a lump sum. Because it is commonly a second mortgage, you may have a payment in addition to your existing first mortgage.
HELOC: A home equity line of credit that generally lets you borrow up to an approved limit during a draw period. Payment requirements, rates, and terms can vary; review how the payment may change when the draw period ends.
A useful comparison question: Do you want a lump sum or flexible access to funds? Would replacing your first mortgage make sense? What are the total payment, closing costs, repayment structure, and risks if your circumstances change?
Using your home as collateral involves risk. Default could result in the loss of your home. Discuss your goals and full financial picture with a qualified professional.
Refinance and home equity: know the differences
Rate-and-term refinance: Replaces your existing mortgage with a new one. Borrowers may explore this option to change their rate, term, or payment structure. Closing costs and the impact on your existing loan should be reviewed.
Cash-out refinance: Replaces your current mortgage with a new, larger mortgage and provides the difference in cash. This may be considered for a major expense, renovation, debt consolidation, or other purpose. It changes your first mortgage, so compare the new loan terms with your existing loan carefully.
Home equity loan: A loan secured by the equity in your home that generally provides a lump sum. Because it is commonly a second mortgage, you may have a payment in addition to your existing first mortgage.
HELOC: A home equity line of credit that generally lets you borrow up to an approved limit during a draw period. Payment requirements, rates, and terms can vary; review how the payment may change when the draw period ends.
A useful comparison question: Do you want a lump sum or flexible access to funds? Would replacing your first mortgage make sense? What are the total payment, closing costs, repayment structure, and risks if your circumstances change?
Using your home as collateral involves risk. Default could result in the loss of your home. Discuss your goals and full financial picture with a qualified professional.
Questions to ask before choosing a mortgage
- Which loan programs could fit my goals and why?
- What is my estimated total monthly payment, and what is included?
- What cash should I expect to bring to closing?
- Are there down payment assistance programs I may be able to explore?
- What documents will I likely need to provide?
- How long could the process take, and what could affect the timeline?
- What is the difference between the interest rate and APR?
- What happens if the appraisal comes in below the purchase price?
- What should I avoid doing while my loan is in process?
- For a refinance or home-equity loan: how do the new payment, costs, and long-term loan structure compare with my current mortgage?
Mortgage terms made simple
A quick glossary of common mortgage terms to help you feel more informed.
APR
Annual Percentage Rate. A measure designed to show the cost of credit, including certain finance charges, expressed as a yearly rate.
Appraisal
A professional opinion of a property’s value.
Closing Disclosure
A final disclosure that shows loan terms, projected payments, and closing costs. For many mortgage transactions, borrowers receive it at least three business days before closing.
DTI
Debt-to-income ratio. A comparison of certain monthly debt payments to gross monthly income.
Escrow
An account used to collect and pay certain property-related expenses, such as taxes and insurance, when required or elected.
Interest rate
The cost charged for borrowing the principal loan amount; it is different from APR.
Loan Estimate
A disclosure that outlines estimated loan terms, projected payments, and closing costs after you apply for a mortgage.
LTV
Loan-to-value ratio. A comparison of the loan amount to the property’s value.
Mortgage insurance
Insurance that may be required for certain loan programs or down-payment levels. Requirements vary by loan type.
Points
Fees paid to the lender at closing, sometimes used to reduce the interest rate. Whether points make sense depends on cost, rate, and how long you expect to keep the loan.
Underwriting
The review process used to determine whether the loan meets applicable guidelines and can be approved.
Verification of assets/income
Documentation used to review funds, employment, or income as required for the loan program.
Frequently asked questions
How much do I need for a down payment?
It depends on the loan program, property, and your qualifications. Some qualified buyers may have low-down-payment options, while eligible VA borrowers may have a zero-down option. Down payment assistance may be available through certain programs. Your loan officer can help you understand the options available for your situation.
Is a 20% down payment always required?
No. A 20% down payment is not required for every loan type. However, a larger down payment can reduce the loan amount and may affect mortgage insurance or other loan terms. The right amount depends on your goals, cash reserves, and program guidelines.
What is the difference between prequalification and preapproval?
Prequalification is generally an initial estimate based on information provided. Preapproval commonly involves a more detailed review of your financial information and supporting documents. The exact process varies by lender and loan program.
Does getting preapproved guarantee a mortgage approval?
No. A preapproval is not a final approval or commitment to lend. Final approval depends on the property, appraisal, updated documentation, underwriting review, credit, and satisfaction of all loan requirements.
What can affect my mortgage approval after I apply?
Changes to income, employment, credit, debts, assets, the property, appraisal results, or documentation can affect the process. Keep your loan officer informed before making significant financial changes.
Refinance & home equity FAQs
What is home equity?
Home equity is generally the difference between your home’s current value and the amount you owe on mortgages secured by it. It can change as property values and loan balances change.
What is the difference between a HELOC and home equity loan?
A HELOC is generally a revolving line of credit secured by your home, while a home equity loan generally provides one lump sum. Both are commonly second mortgages when you already have a first mortgage, so you may have an additional payment.
Will a HELOC affect a future refinance?
It can. If you refinance your first mortgage while you have a HELOC, the HELOC lender may need to agree to remain in its lien position. If that does not happen, the HELOC may need to be paid off or otherwise addressed as part of the refinance.
Is a cash-out refinance the same as a home equity loan?
No. A cash-out refinance replaces your current first mortgage with a new mortgage. A home equity loan is usually a separate loan secured by your home and may leave your first mortgage in place.
Can I cancel after signing a refinance or home equity loan?
For many non-purchase-money mortgages secured by a primary residence, federal law provides a three-business-day right to cancel. Exceptions and rules apply, so review your transaction documents and ask your lender if you have questions.
Let’s find the right mortgage solution.
Prime Choice Funding has been helping homeowners since 2007. Talk with an experienced loan officer about options that may fit your individual goals and situation.
Prime Choice Funding, Inc. | NMLS #117375 | Equal Housing Opportunity
For educational purposes only; this page is not financial, legal, or tax advice. Loan programs, rates, terms, and eligibility are subject to change and approval. Not all applicants qualify.