Mortgage FAQs: Answers to Common Home Loan Questions

A mortgage is a loan used to purchase or refinance real estate. The property serves as collateral, and the borrower agrees to repay the amount borrowed over an established term.

A typical monthly mortgage payment may include principal, interest, property taxes, homeowners insurance, mortgage insurance when required and homeowners association dues when applicable.

Unfamiliar terminology can be reviewed in our complete mortgage glossary.

A good first step is to speak with a lender and complete a mortgage pre-approval before seriously shopping for a home.

• Establish a realistic purchase range
• Estimate your monthly housing payment
• Compare eligible loan programs
• Understand your down payment and closing-cost needs
• Identify credit or documentation issues early
• Obtain a lender letter to submit with an offer

Review our mortgage process timeline to see what happens from application through closing.

The amount you can afford is not determined by income alone. A lender will generally evaluate qualifying income, monthly debts, credit history, down-payment funds, taxes, insurance, mortgage insurance, association dues and program requirements.

There is an important difference between the maximum amount you may qualify to borrow and the payment you are comfortable making every month. A thoughtful budget should leave room for maintenance, utilities, savings and other goals.

Use our mortgage calculators to estimate affordability and monthly payments.

You can speak with either professional first, but completing a mortgage pre-approval before making offers is usually beneficial. A lender can establish your financing range and identify available programs, while an agent can focus the home search on properties that fit your budget and needs.

There is no single credit score that applies to every mortgage. Requirements vary by loan program, lender guidelines, down payment, debt-to-income ratio, credit history, property type, occupancy, reserves and automated underwriting findings.

Review our guide to mortgage credit score requirements.

Possibly. A lower score, late payment or past credit problem does not automatically mean you cannot qualify. A lender may consider how recently the issue occurred, your payment history since then, current balances, income stability, down payment, reserves and the selected program.

Your debt-to-income ratio, or DTI, compares qualifying monthly debt payments with gross monthly income. Debts commonly included are the proposed housing payment, auto loans, student loans, credit-card minimums, personal loans and other recurring liabilities.

Yes. Self-employed borrowers can qualify for many conventional, government-backed, jumbo and specialty programs. The lender generally needs to determine whether the income is stable, documentable and reasonably expected to continue.

A job change does not always prevent approval, but it can affect how income is calculated and verified. Tell your loan officer before changing employers, compensation structure, hours or employment status.

Mortgage rates are influenced by financial markets and the details of the individual loan. Factors may include inflation expectations, bond-market activity, economic data, credit profile, loan program, down payment, property type, occupancy, loan amount, term and lock period.

View current information on our Kansas City mortgage rates page.

The interest rate is used to calculate interest on the outstanding balance. APR is a broader cost measure that incorporates the interest rate and certain finance charges. Compare the interest rate, APR, points, credits, closing costs, mortgage insurance and projected payment.

A rate lock is an agreement that protects an eligible interest rate and pricing for an established period while the loan is processed. If closing is delayed beyond the expiration, an extension may be required.

There is no reliable way to predict the exact top or bottom of mortgage rates or home prices. Consider whether the payment fits your budget, how long you expect to own the home, local inventory, competing offers and your personal goals.

Discount points are upfront charges paid in exchange for a lower rate. One point generally equals 1% of the loan amount. Compare the added cost, monthly savings, break-even period and how long you expect to keep the mortgage.

Closing costs are expenses associated with obtaining the loan and completing the transaction. They may include lender charges, appraisal, credit report, title services, title insurance, recording charges, settlement fees, prepaid interest, escrow deposits, insurance, tax adjustments and discount points.

Read our complete guide to mortgage closing costs.

A Loan Estimate summarizes the proposed loan amount, rate, payment, taxes, insurance, mortgage insurance, closing costs, cash needed at closing, lock status and important loan features.

Cash to close is the estimated amount the borrower must bring to complete the transaction. It may include the down payment, closing costs, prepaid expenses and escrow deposits, less earnest money, seller contributions, lender credits and other applicable credits.

Some costs are subject to tolerance limitations, while others can change when transaction details or third-party charges change. Ask your loan officer to explain significant revisions rather than comparing only the final cash-to-close number.

The timeline depends on the program, property, appraisal, title work, documentation and contract deadline. A typical transaction progresses through application, disclosures, processing, appraisal, underwriting, conditional approval, final approval, Closing Disclosure, signing and funding.

See each step in the mortgage loan process.

The Closing Disclosure shows the final loan terms, interest rate, principal-and-interest payment, estimated escrow payment, closing costs, cash to close, credits and adjustments.

At closing, the borrower reviews and signs the final loan and property documents. The title or settlement company coordinates funds, recording and ownership documents.

Always verify wiring instructions through a trusted phone number before transferring funds.

An escrow account collects part of the expected property-tax and homeowners-insurance expenses with each monthly payment. The servicer holds the funds and pays the applicable bills when due.

Learn more about mortgage escrow accounts.

Requirements depend on the program, down payment, lender, property and applicable rules. Some loans require escrow, while other borrowers may qualify to waive it.

Private mortgage insurance, or PMI, protects the lender against part of the loss if a borrower defaults on a conventional loan. Its cost can vary based on credit, loan-to-value ratio, term, occupancy and coverage level.

Many mortgages allow additional principal payments without a prepayment penalty, but confirm the terms of your specific loan. Verify that the servicer applies the extra amount to principal.

Many residential mortgages can be paid off early without a penalty, but review your documents or contact the servicer. Request an official payoff statement before sending final funds.

A fixed-rate mortgage keeps the interest rate and scheduled principal-and-interest payment stable. The total payment can still change when property taxes, homeowners insurance, mortgage insurance or escrow requirements change.

After closing, the mortgage may be managed by the original lender or transferred to a loan servicer. The servicer handles payments, escrow administration, statements, payoff requests and payment-history questions.

Contact the loan servicer as soon as possible. Depending on the circumstances and available programs, the servicer may discuss repayment arrangements, forbearance, modification, deferral or other loss-mitigation alternatives.