Purchase Mortgage: Your Complete Guide to Buying a Home

When you buy a home, most buyers finance the purchase with a mortgage loan. The lender provides funds to cover the purchase price minus your down payment, and you repay the loan over a set term, typically 15 or 30 years, with interest.

Your monthly payment includes principal (the amount borrowed), interest, property taxes, and homeowners insurance, often abbreviated as PITI. Many lenders collect taxes and insurance through an escrow account so you make one combined payment each month.

Before house hunting, most buyers get pre-approved. Pre-approval involves a lender reviewing your credit, income, and assets to determine how much you can borrow. A pre-approval letter signals to sellers that you are a serious, qualified buyer.

Several loan programs exist, each designed for different borrower profiles:

• Conventional loans are not backed by the government. They typically require a credit score of 620 or higher and a down payment of at least 3% to 5%. Private mortgage insurance (PMI) is required if your down payment is below 20%.
• FHA loans are insured by the Federal Housing Administration and allow credit scores as low as 580 with a 3.5% down payment. They are popular among first-time buyers.
• VA loans are available to eligible veterans and active-duty service members. They require no down payment and no PMI.
• USDA loans serve buyers in eligible rural and suburban areas. They offer zero down payment and reduced mortgage insurance.

Your lender can help you determine which program offers the best combination of rate, fees, and flexibility for your situation.

Several factors influence the interest rate you are offered:

• Credit score is the single largest factor. Higher scores unlock lower rates because they signal lower default risk to lenders.
• Down payment size matters because a larger down payment reduces the lender's exposure. Putting 20% or more down eliminates PMI and may qualify you for a lower rate.
• Loan term affects pricing. A 15-year fixed rate is typically lower than a 30-year rate, but the monthly payment is higher.
• Debt-to-income ratio (DTI) measures your monthly debts against your gross income. Most lenders prefer a DTI of 43% or less.
• Property type and occupancy also play a role. Primary residences get the best rates, while investment properties carry higher rates due to increased risk.

Understanding the timeline helps you plan and avoid delays:

• Step 1: Get pre-approved. This tells you how much you can borrow and strengthens your offer.
• Step 2: Find a home. Work with a real estate agent to tour properties and identify the right fit.
• Step 3: Make an offer. Your agent helps you craft a competitive offer based on comparable sales.
• Step 4: Complete inspections and appraisal. The lender orders an appraisal to confirm the home's value. You hire an inspector to check for defects.
• Step 5: Final underwriting and clear to close. The lender verifies all documentation and issues a final approval.
• Step 6: Closing. You sign the loan documents, pay closing costs, and receive the keys.

The entire process typically takes 30 to 45 days from accepted offer to closing, though timelines vary by market and lender.