What is the difference between a mortgage and a home loan?▾
They're the same thing — "mortgage" is the legal term for the lien placed against the property. The mortgage document pledges the home as collateral for the loan. If you stop making payments, the lender can foreclose (take ownership) through a legal process. In common usage, mortgage and home loan are interchangeable.
What does PITI stand for?▾
PITI = Principal, Interest, Taxes, and Insurance. This is the total monthly housing cost: (1) Principal — the portion repaying the loan balance, (2) Interest — the cost of borrowing, (3) Property Taxes — typically 1–2% of home value annually divided monthly, and (4) Insurance — homeowners insurance plus PMI if down payment was under 20%. Lenders often require property taxes and insurance to be paid through an escrow account.
What is PMI and how do I get rid of it?▾
Private Mortgage Insurance (PMI) is required when your down payment is less than 20% of the purchase price. It protects the lender (not you) if you default. Cost: 0.5–1.5% of loan amount annually. PMI is automatically canceled when you reach 78% LTV (Homeowners Protection Act). You can request cancellation at 80% LTV. With 3% down on a $400k home, PMI could cost $125–250/month for 5–10 years.
What is the difference between pre-qualification and pre-approval?▾
Pre-qualification is a quick estimate based on self-reported information — no credit check, not binding. Pre-approval is a thorough review: the lender verifies income, assets, and credit (hard inquiry) and issues a conditional commitment letter. Sellers and agents strongly prefer pre-approved buyers. In competitive markets, many sellers won't accept offers without pre-approval letters.
How does refinancing work and when should I do it?▾
Refinancing replaces your existing mortgage with a new one — usually to lower the rate, change the term, or access equity. The "breakeven rule": divide closing costs (typically $3,000–6,000) by monthly savings to find breakeven months. If you plan to stay past the breakeven point (often 24–48 months), refinancing makes sense. The general guideline: refinance if you can lower your rate by 0.75–1%+.
What are points and should I buy them?▾
Mortgage discount points are upfront fees paid to permanently lower your interest rate. 1 point = 1% of the loan amount and typically reduces your rate by 0.25%. On a $400,000 loan: 1 point = $4,000 to save ~0.25% ($67/month on a 30-year). Breakeven: about 60 months. If you plan to stay 7+ years, buying points often makes sense. Don't pay points on a loan you'll refinance or sell within 3 years.
What is the debt-to-income limit for a mortgage?▾
Most conventional lenders use two DTI limits: (1) Front-end ratio (housing only): max 28%. (2) Back-end ratio (all debts): max 36–45%. FHA loans allow back-end DTI up to 57% with compensating factors. Lenders calculate DTI using gross monthly income. On a $90,000 salary: max housing payment ~$2,100 (28%); max total debt ~$2,700 (36%).
What is an escrow account?▾
An escrow account is a separate account managed by the lender (or servicer) to collect and pay property taxes and homeowners insurance. Each month, a portion of your payment goes into escrow. When the annual tax bill or insurance renewal comes due, the servicer pays it from escrow. This ensures these critical expenses are always paid, protecting the lender's collateral interest.
What is LTV and why does it matter?▾
Loan-to-Value (LTV) = Loan Balance ÷ Home Value × 100. Lenders use LTV to assess risk. LTV under 80%: no PMI, best rates. LTV 80–95%: PMI required, slightly higher rates. LTV 95%+: very limited loan options, high rates. LTV is recalculated as you pay down the mortgage and as the home appreciates. Home equity = (1 − LTV/100) × 100%.
How does a 15-year vs. 30-year mortgage compare?▾
On $400,000 at 7% (2024 rates): 30-year = $2,661/month, total interest = $558,036. 15-year = $3,595/month, total interest = $247,100. Savings: $310,936 in interest. Trade-off: $934 more per month. That $934 difference invested monthly at 9% for 30 years would grow to ~$1.76 million — potentially more than the $310k interest saved.
What is a jumbo loan?▾
A jumbo loan exceeds the conforming loan limits set by Fannie Mae and Freddie Mac. For 2024: $766,550 for most areas (higher in high-cost metros like NYC and San Francisco). Jumbo loans aren't sold to Fannie/Freddie, so lenders keep them on their books — requiring stricter standards (720+ credit, 10–20% down, 6 months reserves) and typically charging 0.25–0.5% higher rates.
What happens during the home closing process?▾
Closing (also called settlement) is the final step of the home purchase. Typically 30–60 days after contract acceptance: title search, title insurance, home inspection, appraisal, final underwriting, clear-to-close. On closing day: sign ~100 pages of documents, pay closing costs (2–5% of purchase price), hand over down payment, and receive the keys. Total time from application to closing: 30–90 days.