Question 1

What is amortization?

Accepted Answer

Amortization is the process of paying off a loan through regular scheduled payments. Each payment covers both principal and interest, with the interest portion decreasing over time as the balance is paid down.

Question 2

What is a debt-to-income ratio (DTI)?

Accepted Answer

Your DTI is the percentage of your gross monthly income that goes toward debt payments. Lenders use it to assess your ability to manage monthly payments. Most conventional loans require a DTI below 43%.

Question 3

What is PMI (Private Mortgage Insurance)?

Accepted Answer

PMI is insurance that protects the lender if you default on your loan. It is typically required when your down payment is less than 20% of the home's purchase price.

Question 4

How much should I put down on a house?

Accepted Answer

While 20% is the traditional benchmark to avoid PMI, many first-time homebuyer programs allow down payments as low as 3–3.5%. The right amount depends on your savings, loan type, and monthly budget goals.

Question 5

What credit score do I need to buy a house?

Accepted Answer

Most conventional loans require a minimum credit score of 620. FHA loans allow scores as low as 580 with a 3.5% down payment, or 500 with 10% down. Higher scores typically qualify for better interest rates, which can save thousands over the life of the loan.

Question 6

What is the difference between pre-qualification and pre-approval?

Accepted Answer

Pre-qualification is an informal estimate of how much you might borrow based on self-reported information. Pre-approval is a formal process where the lender verifies your income, assets, and credit resulting in a conditional commitment letter. Sellers take pre-approval much more seriously.

Question 7

What are closing costs and how much should I budget?

Accepted Answer

Closing costs are fees paid at the end of a real estate transaction, typically ranging from 2% to 5% of the loan amount. They include lender fees, title insurance, appraisal, attorney fees, and prepaid items like homeowners insurance and property taxes.

Question 8

What is a rate buydown?

Accepted Answer

A rate buydown is when you pay discount points upfront to reduce your mortgage interest rate. One point equals 1% of the loan amount and typically lowers your rate by 0.25%. A 2-1 buydown temporarily reduces your rate by 2% in year one and 1% in year two before settling at the full rate.

Question 9

What is home equity and how do I build it?

Accepted Answer

Home equity is the difference between your home's current market value and what you owe on your mortgage. You build equity by making mortgage payments (which reduce your principal), through home price appreciation, and by making improvements that increase your home's value.

Question 10

What is a HELOC?

Accepted Answer

A HELOC (Home Equity Line of Credit) is a revolving line of credit secured by your home's equity. It works like a credit card you borrow what you need, repay it, and borrow again during the draw period. HELOCs typically have variable interest rates and are commonly used for home improvements or debt consolidation.

Question 11

How does an escrow account work?

Accepted Answer

An escrow account is managed by your mortgage servicer to collect and pay property taxes and homeowners insurance on your behalf. Each month, a portion of your mortgage payment goes into escrow. When taxes and insurance bills are due, the servicer pays them from this account.

Question 12

What is the difference between a fixed-rate and adjustable-rate mortgage?

Accepted Answer

A fixed-rate mortgage keeps the same interest rate for the entire loan term, giving you predictable monthly payments. An adjustable-rate mortgage (ARM) starts with a fixed rate for an initial period (e.g., 5 or 7 years), then adjusts periodically based on a market index. ARMs can be beneficial if you plan to sell or refinance before the adjustment period begins.

The numbers behind the decision.

Run the numbers yourself.

Mortgage glossary.

Financial guides.

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The Truth About Down Payment Assistance Programs

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