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First time homebuyers can get the lowest downpayment & rates

As a first time homebuyer the more you educate yourself the better chances you will have of being able to stop paying rent and becoming a homeowner right away. Explanation for different types of loans and assistance programs for homebuyers can be found further down the page here. This site has been made as comprehensive and helpful as possible, but don't let all the information here overwhelm you. Take your time and glance through the whole site often as to not to miss anything new or important.

Mortgage Calculators, Planners, and Average Rates

Copy and paste the addresses below into your browser in order to go to their corresponding websites:

Mortgage calculators and other useful resources can be found at:

yourhome.fanniemae.com/calculators-tools

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For information regarding mortgage rates visit:

freddiemac.com/pmms

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Consumer Financial Protection Bureau's Loan estimate explainer at:

consumerfinance.gov/owning-a-home/loan-estimate/

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You can find a lot of useful information at:

hud.gov/helping-americans

and

hud.gov/helping-americans/buying-a-home

and

hud.gov/states

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Information regarding FHA loans and programs:

hud.gov/fha

and

usa.gov/government-home-loans

and

usa.gov/buying-home-programs

and

HUD Lender Finder (tip: you can just enter the City and State to see the lenders in that area):

hud.gov/hud-partners/single-family-lender-list

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Veterans Housing Assistance Programs:

va.gov/housing-assistance/

and

va.gov/housing-assistance/home-loans/

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Small Business Administration Commercial Loan Programs:

sba.gov/funding-programs/loans

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Some useful guides for homebuyers and sellers from the National Association of Realtors can be found at:

nar.realtor/the-facts#Consumers

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Here is a general description for Home Inspections provided by the International Association of Certified Home Inspectors based in Boulder Colorado (keep in mind that each State could have their own rules):

nachi.org/sop.htm

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A guide to Home Appraisals provided by Appraisal Institute:

appraisalinstitute.org/the-appraisal-profession/how-consumers-interact-with-appraisers

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Some useful info regarding Credit Scores can be found at the addresses below:

usa.gov/credit-score

and

consumerfinance.gov/ask-cfpb/where-can-i-get-my-credit-scores-en-316/

and

consumerfinance.gov/ask-cfpb/how-do-i-get-and-keep-a-good-credit-score-en-318/

and

usa.gov/credit-report-errors

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It might be a good idea to lock your Mortgage interest rate before closing if you anticipate that it might go up.

You can find more info at:

consumerfinance.gov/ask-cfpb/whats-a-lock-in-or-a-rate-lock-en-143/

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Information on Mortgage Insurance can be found at:

consumerfinance.gov/ask-cfpb/what-is-mortgage-insurance-and-how-does-it-work-en-1953/

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Closing Disclosure Explainer:

consumerfinance.gov/owning-a-home/closing-disclosure/

(tip: you can ask your lender to pay for the closing costs in exchange for paying a higher interest rate or check to see if you qualify for any assistance programs as explained a little further down the site here at Mortgage.us)

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More Home Buying and Mortgage Tools and Resources:

consumerfinance.gov/consumer-tools/mortgages/

and

consumerfinance.gov/owning-a-home/

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For information regarding Home Equity Loans and Home Equity Line of Credit visit:

consumer.ftc.gov/articles/home-equity-loans-and-home-equity-lines-credit

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For explanation of Home Equity Conversion Mortgages for Seniors most commonly referred to as Reverse Mortgages visit:

hud.gov/hud-partners/single-family-hecmhome

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For information about avoiding foreclosure visit:

hud.gov/helping-americans/avoiding-foreclosure

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For information regarding Construction-to-Permeant loan visit:

Participating lenders for Construction-to-Permeant loan program:

rd.usda.gov/files/RD-RHS-SFHGSingleCloseLendersBuildersInfo.pdf

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For information regarding farm land mortgages visit the websites below:

fsa.usda.gov/resources/farm-loan-programs

and

ola-fsa.fpac.usda.gov/ola-web/home

and

fsa.usda.gov/sites/default/files/2024-10/Farm%20Loans%20Overview%202024.pdf

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Some helpful websites about how to get the best home insurance:

National Association of Insurance Commissioners (NAIC):

content.naic.org/sites/default/files/committees_c_trans_read_wg_related_shopping_tool_singles.pdf

also

Check your ‘State Insurance Department’ such as the one for Texas below:

tdi.texas.gov/consumer/home-insurance-shopping-guide.html

and

helpinsure.com/

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Below are some helpful websites for doing repairs and remodeling and picking the right contractors (Important: before signing any major project, buyers should check their state's official consumer affairs or contractor licensing bureau to verify active insurance and search past code violations) :

hud.gov/helping-americans/home-improvements

and

rd.usda.gov/programs-services/single-family-housing-programs/single-family-housing-repair-loans-grants

and

usa.gov/home-repair-programs

and

bbb.org/all/home-improvement/how-to-hire-a-reliable-and-trustworthy-general-contractor

and

nahb.org/other/consumer-resources/checklist-for-finding-and-hiring-a-builder-or-remodeler

and

nar.realtor/the-facts/consumer-guide-hiring-a-remodeling-contractor

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Explanation for many Mortgage key terms can be found at the address below:

consumerfinance.gov/consumer-tools/mortgages/answers/key-terms/

Such as:

5/1 Adjustable Rate Mortgage

Ability-to-repay rule

Adjustable Rate Mortgage (ARM)

Amortization

Amount financed

Annual income

Annual Percentage Rate (APR)

Appraisal fee

Automatic payment

Balloon loan

Bi-weekly payment

Closing Disclosure

Construction loan

Conventional loan

Co-signer or co-borrower

Credit history

Credit report

Credit score

Debt ratio

Deed-in-lieu of foreclosure

Delinquent

Demand feature

Down payment

Down payment programs or grants

Earnest money

Equity

Escrow

Fannie Mae

FHA funding fee

FHA loan

FHA mortgage limits

Finance charge

First-time home buyers (FTHB) loan programs

Fixed-rate mortgage

Forbearance

Force-placed insurance

Foreclosure

Freddie Mac

Good Faith Estimate

Government recording charges

Higher-priced mortgage loan

HOA dues

Home appraisal

Home equity line of credit (HELOC)

Home equity loan

Home inspection

Homeowners' Association (HOA)

Homeowner's insurance

HUD

HUD-1 settlement statement

Index

Initial adjustment cap

Initial escrow deposit

Interest-only loan

Interest rate

Interest rate cap

Jumbo loan

Lenders title insurance

Lifetime adjustment cap

Loan assumption

Loan deferment

Loan estimate

Loan modification

Loan-to-value ratio

Loss mitigation

Margin

Monthly expenses

Mortgage

Mortgage closing checklist

Mortgage closing costs

Mortgage insurance

Mortgage loan modification

Mortgage refinance

Mortgage term

Origination fee

Owner's title insurance

PACE financing

Partial claim

Payoff amount

PCS orders

PITI

PMI

Prepaid interest charges

Prepayment penalty

Principal

Property taxes

Qualified mortgage

Qualified Written Request (QWR)

Repayment plan

Reverse mortgage

Right of rescission

Second mortgage

Security interest

Seller financing

Servicer

Shared appreciation mortgage

Short sale

Subprime mortgage

Survey

Title service fees

Total interest percentage (TIP)

Total of payments

TRID

USDA loan

VA loan

consumerfinance.gov/consumer-tools/mortgages/answers/key-terms/

Assistance programs with down payment and closing costs:

National Homebuyers Fund (NHF):

nhfloan.org/

Chenoa Fund:

chenoafund.org

HUD Good Neighbor Next Door Program:

hud.gov/helping-americans/good-neighbor

There might be some Major Bank Grants available such as Bank of America "America's Home Grant" (up to $7,500 for closing costs) and the Chase Homebuyer Grant. Also some lenders might allow you to include the closing cost in the mortgage loan in exchange for paying a higher interest rate. In addition there are many State, and Local Assistance Programs that offer grants (funds that don't need to be repaid) or forgivable loans to help cover upfront costs.

There are also some organizations like Habitat for Humanity, Catholic Charities USA, Rebuilding Together, American Red Cross, or FEMA that might provide pathways to affordable homeownership, renovations, and emergency housing.

Different Types of Homes

Types of houses include structural types like detached single-family homes, townhomes, condos, and duplexes, alongside distinct architectural styles such as Ranch, Victorian, Colonial, Craftsman, and Mid-century Modern. These homes can range from, suburban, to urban, or rural designs tailored to site constraints, density, and lifestyle preferences.

Common Structural Types

Single-Family Detached:

A standalone home with no shared walls, offering maximum privacy.

Townhome / Rowhome:

A multi-level, attached home sharing one or two walls with neighbors but typically owning the structure and land.

Condo (Condominium):

A privately owned unit within a larger building or complex with shared common areas.

Duplex / Multifamily:

A single building containing two separate homes, either side-by-side or stacked.

Manufactured / Modular / Mobile Home:

Homes built off-site and transported to the property.

Common Architectural Styles

Ranch:

Single-story homes, often with an open layout and attached garage.

Victorian:

Ornate, multi-story homes featuring decorative trim, bay windows, and steep roofs.

Colonial:

Symmetrical, rectangular homes usually featuring two or three stories with the kitchen on the main floor and bedrooms above.

Craftsman Bungalow:

Known for low-pitched roofs, exposed rafters, and front porches, common in California.

Mid-century Modern:

Emphasizes clean lines, flat planes, large windows, and integration with the landscape.

Mediterranean:

Features stucco walls, red tile roofs, and arches, often with balconies.

Unique and Regional Types

Farmhouse:

Traditionally functional homes on rural land, often featuring large porches.

Cottage/Cabin:

Small, cozy homes, often in rural or rustic settings.

Adobe/Pueblo Revival:

Earth-toned houses with rounded edges, commonly found in the Southwest.

Specialty Homes

Container Homes:

A container home is a residential structure built using one or multiple recycled or repurposed steel shipping containers that are usually 20ft or 40ft long. These sturdy and modular units are a good choice for making an affordable, sustainable, and cost-effective home.

Tiny Homes:

A tiny home is a, typically, 100 to 400-square-foot dwelling, rarely exceeding 500 square feet, designed for simple, sustainable, and affordable living. They are either built on permanent foundations or on trailers (THOWs).

Self Sustainable Homes:

Self-sustaining homes, often called eco-homes, off-grid houses, or homesteads, are autonomous dwellings designed to operate without external utility infrastructure. They utilize renewable energy (such as solar, wind, or thermal), rainwater harvesting, on-site waste treatment, and other sustainable ways and materials to provide food, water, and power.

Smart Homes:

A smart home is a fully automated residence equipped with internet-connected devices (IoT) that allow residents to remotely monitor, automate, and control functions like lighting, security, climate, irrigation, and appliances. With the integration of Superintelligence AI, Automation, and Robotics a smart home can be taken to the next level and be made fully autonomous.

3D Printed Homes:

3D printed homes are residential buildings constructed using large-scale additive manufacturing, where robotic printers extrude layers of material, typically concrete, to create the structure. This innovative method offers significant advantages in speed, cost efficiency, and design flexibility compared to traditional construction.

Different types of Mortgage Loans:

Mortgage loans are categorized by interest rate behavior (fixed vs. adjustable), government backing (conventional vs. government-insured), and loan size (conforming vs. jumbo). Key options include Conventional loans for borrowers with stable credit, FHA loans for smaller down payments, and VA or USDA loans offering 0% down options for military families and rural buyers. Ultimately, selecting a Fixed-Rate mortgage provides long-term payment predictability, while an Adjustable-Rate Mortgage (ARM) delivers lower introductory rates tailored for short-term financial strategies.

Key Types of Mortgage Loans:

Fixed-Rate Mortgages (FRMs):

Home loans featuring an interest rate that is locked and remains completely unchanged for the entire life of the loan (most commonly 15- or 30-year terms). Because the rate never fluctuates with market changes, these mortgages provide long-term payment stability and financial predictability, making them the ideal choice for buyers planning to stay in their homes long-term.

Adjustable-Rate Mortgages (ARMs):

Home loans featuring an interest rate that remains fixed for an initial period (typically 3, 5, 7, or 10 years) before adjusting periodically based on prevailing market indexes. These loans offer lower introductory rates and payments compared to fixed-rate mortgages, making them an ideal short-term strategy for buyers who confidently plan to sell the property or refinance before the initial fixed period ends.

Government-Backed Loans:

Mortgages insured or guaranteed by federal agencies—such as the FHA, VA, or USDA—to protect lenders against default. Because the government absorbs a portion of the lender's risk, these programs offer highly accessible qualification criteria, including down payments as low as 0% to 3.5% and minimum credit score requirements ranging from 500 to 580.

FHA Loan:

A government-backed mortgage insured by the Federal Housing Administration (FHA), a division of HUD, designed primarily for low-to-moderate-income borrowers and first-time homebuyers. These loans feature flexible credit requirements, allowing qualification with scores as low as 580 for a 3.5% down payment, though they require upfront and annual Mortgage Insurance Premiums (MIP) regardless of the down payment size.

VA Loan:

A government-backed mortgage guaranteed by the Department of Veterans Affairs for active-duty service members, veterans, and eligible surviving spouses. These loans offer highly competitive interest rates, flexible underwriting guidelines, and require no down payment or private mortgage insurance (PMI).

USDA Loan:

A government-backed mortgage designed for low-to-moderate-income households purchasing a primary residence in designated rural and suburban communities. These loans feature 0% down payments, flexible credit requirements, and below-market interest rates, provided the total household income does not exceed 115% of the area's median income.

Conventional Home Loans:

Are issued directly by private financial institutions such as commercial banks, credit unions, or independent mortgage lenders. Unlike FHA, VA, or USDA loans, these are not insured or guaranteed by the federal government. Conventional home loans generally require higher credit scores (typically 620+) and strict income verification, though some programs allow down payments as low as 3% to 5%. After a lender originates a conventional loan, they frequently sell it to Fannie Mae or Freddie Mac on the secondary market to free up capital for new lending, while a separate mortgage servicing company is appointed to manage the ongoing monthly payments.

Jumbo Loans:
Are also issued by private institutions and are not insured by the Government. These are considered specialized loans for financing high-value homes that exceed the conforming loan limits set by Fannie Mae and Freddie Mac.

Specialty & Other Options

Home Equity Loans and HELOCs:

Financial products that allow homeowners to borrow against the built-up equity in their property, typically functioning as a second mortgage. A Home Equity Loan provides a lump-sum payout with a fixed interest rate and predictable monthly payments, while a Home Equity Line of Credit (HELOC) operates as a revolving line of credit with a variable interest rate, allowing borrowers to draw and repay funds flexibly as needed.

Refinance Loans:

The process of replacing an existing mortgage with a new loan containing entirely new terms, interest rates, and structures. Homeowners typically utilize a Rate-and-Term Refinance to lower their monthly payments, secure a lower interest rate, or shorten their loan length (e.g., switching from a 30-year to a 15-year mortgage). Alternatively, a Cash-Out Refinance allows owners to replace their current loan with a larger mortgage, pocketing the difference in cash based on their built-up home equity.

Lot Loans:

Designed to purchase land now with the flexibility to build later, using the plot itself as collateral. Unlike construction loans, there is no immediate requirement to break ground. However, because vacant land carries higher risk for lenders, these loans typically require larger down payments (20% to 50%) and shorter repayment terms than traditional home mortgages, with lenders often requiring construction to begin within 2 to 5 years or structuring the loan with a short-term balloon payment.

Construction and Construction-to-Permanent Loans:

Construction-to-Permanent Loans are a type of Construction Loan. While a standard construction loan provides short-term funding only for the building phase, a Construction-to-Permanent Loan combines the construction financing and the long-term mortgage into a single, seamless package with one closing cost only.

Commercial Mortgage Loans:

Are property-secured financing vehicles primarily utilized to acquire, develop, or refinance income-generating real estate. These transactions are typically structured through four main capital sources: low-rate Traditional Bank Loans from commercial lenders or credit unions, government-backed SBA 504 and 7(a) Loans designed for owner-occupied business properties, short-term Commercial Bridge Loans used to stabilize underperforming assets, and asset-based Hard Money Loans deployed by private investors for rapid funding execution.

Land and Development Loans:

Are usually done by Community banks, credit unions, agricultural lenders such as the local farm credit cooperatives, commercial banks, specialized private lenders and hard money lenders, and government agencies such as USDA rural development program and farm services agency (FSA) in the form of Acquisition and Development (A&D) Loans, Construction Loans, Bridge & Fix-and-Flip Loans, Raw Land Loans, Unimproved Land Loans, Improved Land Loans, SBA 7(a) Loans, USDA Business & Industry (B&I) Loans, and Horizontal Infrastructure Loans.

Tip: you might be able to qualify for a mortgage loan even without a job by proving financial stability through alternative means, such as substantial assets, passive income, or a co-signer. Key strategies include asset depletion loans, using high liquid assets to cover payments, or using income sources like investments, retirement accounts, or rental properties.

Some Tips for First Time Homebuyers:

IMPORTANT: PLEASE READ BEFORE USING THESE TIPS

Buying a home and obtaining a mortgage can be one of the largest financial transactions you will ever make. The purpose of these 25 tips is to give first-time homebuyers a practical education about the process, explain many of the things you will encounter, help you know what questions to ask, and give you a starting point for additional research.

These tips are general educational information and are not a substitute for legal, tax, financial, mortgage, real estate, insurance, inspection, or other professional advice.

Mortgage laws, regulations, loan programs, underwriting requirements, forms, fees, interest rates, conforming loan limits, tax rules, insurance requirements, deadlines, and other procedures can change from time to time at the Federal, State, County, and local levels. Requirements can also differ according to the type of mortgage, the lender, the property, and your individual circumstances.

Therefore, use these tips as a starting point for learning, but verify important information before acting.

Mortgage.us provides many official government and industry resources throughout this website. For current and location-specific information, check the appropriate official sources, such as:

CFPB.gov

HUD.gov

FHFA.gov

USDA.gov

USA.gov

FDIC.gov

IRS.gov

FEMA.gov

NAR.realtor

Benefits.va.gov

FannieMae.com

FreddieMac.com

ConsumerFinance.gov

You should also consult your mortgage lender or mortgage broker, realtor or real estate agent, real estate attorney, title or closing professional, insurance professional, tax professional, home inspector, and other qualified professionals when appropriate.

Most importantly, do not rely on only one source for important information. When something could have a significant financial, legal, or practical consequence, verify it through several reliable sources.

For example, if you are told that a particular loan program requires a certain down payment, check the current official program requirements, ask your lender how they apply to you, and, if necessary, obtain a second professional opinion.

Think of these 25 tips as your introductory course in buying your first home.

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1. Start With the Numbers, Not Your Emotions

Buying your first home is exciting, and it is very easy to fall in love with a particular house before determining whether you can comfortably afford it.

Try to separate the emotional decision of “I love this house” from the financial decision of “I can afford this house.”

A house is both a place to live and a major financial obligation. If the numbers do not work comfortably, it may be better to walk away from the property than to spend years struggling with a payment that is too large.

Before seriously shopping for a home, establish a realistic budget.

Start by looking at your actual monthly income and expenses. Include housing, utilities, food, transportation, insurance, medical expenses, childcare, student loans, credit cards, entertainment, subscriptions, savings, retirement contributions, and other recurring expenses.

Then consider the expenses that come with owning a home that you may not have as a renter.

These can include:

Property taxes.

Homeowners insurance.

Flood insurance or other supplemental insurance when required or advisable.

Mortgage insurance.

HOA or condominium fees.

Utilities.

Routine maintenance.

Lawn and landscaping expenses.

Pest control.

Repairs.

Appliance replacement.

Roof repairs or replacement.

Heating and air-conditioning repairs.

Plumbing and electrical repairs.

You should also have money available for unexpected expenses.

For example, suppose you are currently paying $1,800 per month in rent and believe you can afford a $2,500 mortgage payment. That does not necessarily mean you can comfortably afford a $2,500 housing expense. If the new house also requires $350 per month for property taxes, $200 for insurance, $150 for HOA dues, and you should reasonably reserve another amount for maintenance, your actual housing expense could be considerably higher.

A mortgage lender may approve you for more than you personally feel comfortable spending. That is because mortgage underwriting is designed to determine whether you meet the lender’s qualification requirements; it is not designed to understand every detail of your lifestyle or determine what will make you financially comfortable.

The Consumer Financial Protection Bureau recommends that prospective buyers prepare their finances, determine what they can afford, review their credit, and gather their application documents before shopping seriously for a mortgage. (CFPB.gov)

A good rule of thumb is:

Do not ask only, “How much house can I qualify for?”

Also ask:

“How much house can I comfortably afford while still being able to save money, handle emergencies, enjoy my life, and maintain the property?”

If the answer to those two questions is different, pay close attention to the second answer.

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2. Shop for Your Mortgage and Compare Loan Estimates

Do not automatically accept the first mortgage offer you receive.

Mortgage rates, fees, points, lender credits, mortgage insurance, loan programs, underwriting requirements, and other terms can differ from one lender to another.

Consider speaking with several lenders or mortgage brokers before choosing your mortgage.

A mortgage broker may be able to compare loan products from multiple lenders, while a bank or credit union may offer products directly. There is no universal rule that one type of lender will always provide the best deal.

When you apply for a mortgage, federal rules generally require the lender to provide a Loan Estimate within three business days after receiving the information that constitutes an application. The Loan Estimate is designed to help you understand the proposed loan’s terms, projected payments, and costs.

The important point for a first-time buyer is that a Loan Estimate is much more useful for comparison than simply asking different lenders, “What’s your interest rate?”

Compare the entire offer.

Look at:

The interest rate.

The APR.

The loan amount.

The loan term.

The projected monthly principal and interest.

Mortgage insurance.

Property taxes and homeowners insurance used in the estimate.

Origination charges.

Discount points.

Lender credits.

Other closing costs.

Cash required to close.

Whether the rate is locked.

How long the rate lock lasts.

Whether there are conditions or fees associated with the rate lock.

For example, Lender A might offer 6.50% with no discount points while Lender B offers 6.25% but charges two points. The lower advertised rate does not automatically mean Lender B is the better deal.

Discount points are upfront charges paid in exchange for a lower interest rate. A point is generally equal to 1% of the loan amount, but the rate reduction obtained for a point is not fixed and can vary by lender, market conditions, and loan program.

For example, one lender might charge $6,000 in points on a $300,000 loan while another might offer a different rate with no points. You need to determine whether the upfront cost is worthwhile based on how long you expect to keep the mortgage.

A simple way to understand the concept is:

If $6,000 in points saves you $100 per month, the simple break-even period is about 60 months, or five years.

That does not mean five years is automatically the correct decision. Your actual comparison should also consider taxes, refinancing, selling the property, changes in rates, and the opportunity cost of using $6,000 of cash.

A lender credit works in the opposite direction. You may accept a somewhat higher interest rate in exchange for the lender providing a credit toward certain closing costs, subject to applicable rules.

Also understand seller credits. Seller-paid closing costs can be useful, but they are subject to the loan program, transaction structure, closing costs, and applicable underwriting rules. For example, Fannie Mae’s current guidelines have different maximum financing-concession percentages depending on the loan’s loan-to-value ratio and occupancy. They also distinguish financing concessions from sales concessions.

Therefore, never assume that a seller can simply give you any amount of money you negotiate.

Ask your lender:

“Exactly how much seller credit can I use with my loan?”

“What costs can the credit pay?”

“What happens if the seller agrees to more than my loan permits?”

“Can the credit be used for prepaid expenses, discount points, or other allowable costs?”

Rate locks are another important subject.

A rate lock generally protects you against an increase in the locked interest rate for the period specified by the lender. Ask:

“How long is my rate lock?”

“What does it cost?”

“What happens if my closing is delayed?”

“Can the rate lock be extended?”

“What happens if rates fall?”

“Do you offer a float-down option, and what are the conditions?”

A float-down is not a universal mortgage feature, so don’t assume that every lender offers it.

Finally, remember that the company that originates your mortgage may not be the company that services it for the entire life of the loan. Your loan may be sold or servicing may be transferred. If that happens, your core contractual loan terms do not simply change because the servicing company changes, but you must pay attention to official transfer notices and make sure your payments go to the correct servicer.

Do not ignore letters or notices saying that your mortgage servicing has changed.

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3. Understand the Difference Between a 15-Year and 30-Year Mortgage

A 15-year mortgage is not automatically “better” than a 30-year mortgage, and a 30-year mortgage is not automatically “better” either.

They serve different financial purposes.

A 15-year mortgage generally has a higher required monthly principal-and-interest payment but, depending on the rate and other terms, can result in substantially less total interest over the life of the loan.

A 30-year mortgage generally has a lower required monthly payment, which gives you more monthly cash-flow flexibility, although paying the scheduled minimum for 30 years generally results in considerably more interest.

Consider a simplified example.

Suppose you borrow $300,000.

A 15-year mortgage might require a significantly higher monthly principal-and-interest payment than a 30-year mortgage. The 15-year loan will normally build equity faster because you are paying down principal much more quickly.

The 30-year loan gives you more flexibility. You may use the difference to build an emergency fund, pay off higher-interest debt, contribute to retirement accounts, or invest.

But don’t assume that investing the difference will automatically make you wealthier. Investment returns are uncertain, while the interest savings from paying down a mortgage are much more predictable.

Also consider your stage of life.

Someone approaching retirement may value rapid mortgage repayment.

Someone with unstable or commission-based income may value the lower required payment of a longer-term mortgage.

Someone with substantial high-interest credit-card debt may be better served by maintaining a lower required mortgage payment while eliminating that expensive debt.

Also remember that making additional principal payments on a 30-year mortgage can shorten the time required to pay it off and reduce total interest.

However, simply making an extra payment does not normally reduce the required payment for the following month.

A mortgage recast is different. In situations where the lender and loan permit it, a borrower who makes a substantial principal payment may be able to have the remaining balance re-amortized, reducing the required monthly payment without refinancing. Recasting is not available on every mortgage, so ask your servicer.

Do not assume that every mortgage has the same prepayment rules.

Most mainstream mortgages do not have the kinds of prepayment penalties that were common decades ago, but always check your actual loan documents.

Mortgage insurance also deserves attention.

Private mortgage insurance on many conventional loans may eventually be removable under applicable federal and investor rules, but the exact procedure depends on the circumstances.

FHA mortgage insurance works differently. FHA loans generally involve an upfront mortgage insurance premium and an annual mortgage insurance premium collected monthly. The duration of the annual premium depends on the loan’s terms and initial loan-to-value ratio and other rules. Do not assume that FHA mortgage insurance automatically disappears when you reach 20% equity.

If you are comparing a conventional loan with an FHA loan, ask the lender to show you the total expected cost of each.

Also learn about assumable mortgages.

Certain government-backed loans, including many FHA and VA loans, may be assumable subject to program and lender/servicer requirements. If a seller has a very low-rate assumable mortgage, assuming it can potentially be valuable, but you generally have to qualify and provide funds to cover the difference between the seller’s remaining loan balance and the purchase price.

Example:

The home sells for $350,000.

The seller’s assumable mortgage balance is $250,000 at a very attractive interest rate.

You would need to obtain or provide approximately $100,000, subject to the actual transaction and allowable financing, to cover the seller’s equity.

That can be a major advantage when interest rates are substantially higher than the seller’s existing rate.

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4. Understand How Student Loans Affect Mortgage Qualification

Student loans can affect your ability to qualify for a mortgage because lenders generally have to consider required debt obligations when calculating your debt-to-income (DTI) ratio.

However, this is an area where it is especially important not to rely on a simple rule found online.

The treatment of student loans can vary according to the mortgage program and underwriting system.

For example, current Fannie Mae guidance provides circumstances in which a documented $0 payment under an income-driven repayment plan can be used as the qualifying payment. Other situations, such as deferred or forbearance loans, can require different calculations.

This means the statement “my credit report says $0, so the lender will count $0” is not always correct—but neither is the statement “the lender must always invent a percentage of my balance.”

Ask your lender specifically:

“How will my student loans be counted in my DTI?”

“Are you using the actual documented payment?”

“Does my loan program treat income-driven repayment differently?”

“What documentation do you need?”

Here’s why this matters.

Suppose you owe $80,000 in student loans.

If your actual required payment is $250 per month, that may have one effect on your qualification.

If your loan is deferred, the lender may have to calculate a qualifying payment differently.

If you are on an income-driven plan with a documented $0 payment, a particular underwriting system may treat that differently.

Those differences can materially change how much house you qualify for.

Do not make assumptions. Ask the lender to show you the calculation.

Also remember that DTI is only one part of mortgage underwriting.

Your income, credit history, assets, employment, property, loan program, reserves, and other factors can matter.

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5. Understand Closing Costs and the Difference Between “Down Payment” and “Cash to Close”

One of the most common mistakes first-time buyers make is assuming that the down payment is the only large amount of cash they need.

It is not.

Your total cash needed to purchase a home can include:

Down payment.

Lender charges.

Origination charges.

Appraisal.

Credit report fees.

Title-related charges.

Recording charges.

Government taxes or transfer charges where applicable.

Attorney fees where applicable.

Inspection fees.

Prepaid interest.

Initial escrow deposits.

Property taxes.

Homeowners insurance.

Flood insurance where applicable.

Other prepaid or transaction-specific expenses.

The exact amount varies considerably by location, lender, loan program, property, and transaction.

Therefore, do not rely on a blanket statement such as “closing costs are always 2% to 5%.”

That can be a useful rough budgeting exercise, but your actual costs may be lower or higher.

Ask your lender for an estimate of the total cash required and ask your real estate professional or closing professional about other transaction expenses that may not appear in the mortgage estimate.

Understand the difference between:

“Down payment”

And

“Cash to close.”

For example:

Purchase price: $300,000.

Down payment: $15,000.

Closing costs and prepaid expenses: $10,000.

Earnest money already deposited: $5,000.

Your final cash-to-close calculation could be approximately $20,000, depending on credits, adjustments, deposits, and the actual transaction.

The $5,000 earnest-money deposit is not necessarily an additional $5,000 expense. It may already be credited toward the amount you owe at closing.

This is why you should carefully review the final Closing Disclosure and settlement figures.

Escrow is another important subject.

If your mortgage includes an escrow account, the servicer may collect money each month for property taxes and insurance and later use those funds to pay the bills.

Your mortgage interest rate can remain fixed while your total monthly payment changes.

Why?

Because property taxes and insurance can change.

For example, suppose your principal and interest remain $2,000 per month. If your property taxes and insurance increase, the amount being deposited into escrow can increase as well.

You may also experience an escrow shortage if the servicer did not collect enough money to cover the actual bills.

Therefore, the portion of your monthly payment above the $2000 principal and interest that is used to pay for insurance and property taxes can increase as necessary in order to have enough money in the escrow account to pay for these items. So “fixed-rate mortgage” does not necessarily mean “the total monthly housing payment can never change.”

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6. Protect Your Credit and Finances From the Time You Apply Until After Closing

Once you begin the mortgage process, treat your financial situation as though it is being monitored—because important aspects of it may be reviewed again before closing.

Avoid unnecessary financial changes.

Do not casually:

Buy a new car.

Open several credit cards.

Finance expensive furniture.

Take out personal loans.

Move large sums of money without documentation.

Quit your job without discussing the consequences with your lender.

Change the way you receive income.

Make unexplained large deposits.

Run up credit-card balances.

Co-sign for someone else’s debt.

Move money between accounts without keeping good records.

This does not mean you are prohibited from doing anything with your money.

It means you should ask your lender before making significant financial changes.

For example, if your old car breaks down and you absolutely need a replacement, don’t simply finance a $50,000 vehicle without telling your lender. The new monthly debt could affect your qualification.

Similarly, if a parent gives you $20,000 toward the down payment, don’t simply deposit the money and hope nobody asks about it. Depending on the loan program, a gift may be acceptable, but the lender will generally need appropriate documentation showing the source and nature of the funds.

Credit freezes deserve special clarification.

A credit freeze is an important identity-theft protection tool, but a lender generally needs access to your credit report when evaluating your mortgage. A freeze does not permanently damage your credit score, but it can prevent a creditor from accessing the file unless you temporarily lift or otherwise manage the freeze. The site at CFPB.gov explains that consumers can freeze and unfreeze their reports with the nationwide credit reporting companies.

Therefore, if you have a credit freeze, tell your lender and follow the lender’s instructions rather than assuming you must permanently remove the freeze.

Also understand that lenders can obtain credit information at more than one point in the mortgage process. The CFPB notes that lenders may check credit when you apply and again shortly before closing.

Mortgage shopping itself should not discourage you from comparing lenders. The CFPB notes that multiple mortgage inquiries made within a specified shopping period are generally treated as a single inquiry for scoring purposes.

The safest approach is simple:

Before making a significant financial move while your mortgage is pending, ask your lender.

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7. Your Credit Score Is Important, But It Is Not the Whole Story

Do not assume that your credit score alone determines whether you can get a mortgage.

Mortgage underwriting can consider many factors, including:

Credit history.

Payment history.

Outstanding debts.

Income.

Employment.

Assets.

Down payment.

Debt-to-income ratio.

Property type.

Loan program.

Reserves.

And other factors.

A person with a high credit score but excessive debt may have problems qualifying.

A person with a lower score but strong compensating factors may have options depending on the loan program.

This is why you should not automatically conclude:

“My credit score isn’t perfect, so I can’t buy a home.”

Ask a lender to review your actual situation.

If your credit file is thin, ask whether the particular loan program permits alternative or nontraditional credit documentation.

If you are self-employed, receive commissions, or have variable income, ask how your income will be calculated.

If you recently changed jobs, ask how that affects qualification.

If you have gaps in employment, ask how they will be evaluated.

If you have made late payments in the past, ask whether the age and severity of those late payments affect your eligibility.

Get your credit reports early enough to correct errors.

Do not wait until you have found your dream house.

For example, imagine that your credit report incorrectly shows a $4,000 collection account that you actually paid years ago. Discovering that six months before you buy gives you time to investigate the error. Discovering it two days before you are supposed to close is much more stressful.

You can obtain information about credit reports and credit scores through CFPB.gov and USA.gov .

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8. Protect Yourself From Wire Fraud

This deserves special emphasis because a successful wire-fraud scam can potentially cost a homebuyer their entire down payment.

Criminals have targeted real estate transactions because large amounts of money are routinely transferred immediately before closing.

A scammer may impersonate:

Your real estate agent.

The title company.

The closing attorney.

The lender.

The seller.

A settlement agent.

Or another person involved in the transaction.

You might receive an email that looks legitimate saying:

“Important: our wiring instructions have changed.”

Do not assume the email is legitimate.

Never rely solely on an email, text message, or attachment for wire instructions.

Before sending a large wire:

Find the independently verified telephone number for the title company, escrow company, settlement agent, or closing attorney.

Call them.

Ask them to verbally verify the wiring instructions.

If possible, independently verify the recipient’s information through another trusted source.

Do not call a phone number contained only in the suspicious email.

Also be suspicious of last-minute changes.

If you receive wiring instructions on Monday and a message on Tuesday saying:

“Do not use those instructions. Here are our new instructions.”

Stop and verify the change independently.

Do not allow someone to pressure you by saying:

“We need the money in the next ten minutes.”

Your money is at stake.

The CFPB currently warns that mortgage-closing scams target homebuyers and recommends taking precautions to protect funds.

Also remember that real estate professionals, lenders, title companies, and attorneys are not immune to being impersonated.

The safest rule is:

Never send a large amount of money based solely on an electronic message. Independently verify the instructions.

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9. Decide Carefully Between Buying an Existing Home and Building a New One

Buying an existing home and building a new home are very different experiences.

An existing home can often be financed with a conventional purchase mortgage, FHA loan, VA loan, USDA loan, or another applicable program.

The home already exists, so you can inspect the actual property, evaluate its condition, examine the neighborhood, and estimate many of the immediate repair needs before buying.

Building a home can give you greater control over:

Floor plan.

Materials.

Appliances.

Energy efficiency.

Design.

Location within a development.

But construction introduces additional variables.

You may need:

Construction financing.

Architectural plans.

Engineering.

Permits.

Builder contracts.

Inspections.

Construction draws.

Builder qualification.

Land acquisition.

Site preparation.

Utilities.

Unexpected construction costs.

Depending on the financing structure, you may use a construction-to-permanent loan that combines construction financing with permanent mortgage financing.

However, construction financing requirements vary considerably.

Do not assume that buying a lot and building a house is always cheaper than buying an existing home.

For example, a seemingly inexpensive $75,000 lot might require:

$25,000 in site preparation.

$15,000 for utility connections.

$20,000 for drainage or grading.

Additional engineering or permitting costs.

Suddenly the “cheap lot” is much more expensive than it appeared.

Before purchasing land, investigate zoning, setbacks, access, utilities, septic requirements, water availability, flood risk, drainage, environmental conditions, easements, and building restrictions.

If you are considering construction financing, talk to the lender before buying the land.

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10. Establish a Comfortable Homebuying Budget

A mortgage approval is not necessarily a recommendation to spend the maximum amount the lender will approve.

Lenders generally evaluate your income and qualifying debts using underwriting rules. They are not necessarily evaluating whether you personally want to spend $4,000 per month on housing while also saving for retirement, paying childcare, supporting family members, traveling, or maintaining an expensive hobby.

Do not rely on a single universal percentage such as “28% is always safe.”

Housing affordability is more complicated.

Your lender will calculate a debt-to-income ratio, but lenders and loan programs can have different underwriting standards, and automated underwriting can consider numerous factors.

Your personal budget should go further.

Suppose your gross income is $100,000 per year.

A lender may determine that you can qualify for a certain monthly housing expense.

But you might also have:

$800 in childcare.

$700 in student loans.

$600 in car payments.

$500 in health and other insurance.

$500 in regular credit-card and personal expenses.

Significant retirement contributions.

Large medical expenses.

A lender may still approve a mortgage that you personally would find uncomfortable.

The question is not simply:

“Can the lender approve it?”

The question is:

“Can I live comfortably with this payment?”

Build a budget using the actual property you are considering.

Include:

Principal.

Interest.

Property taxes.

Homeowners insurance.

Mortgage insurance, if applicable.

HOA dues.

Utilities.

Maintenance.

And a reserve for unexpected repairs.

Then see what is left.

If buying the house leaves you with almost no emergency savings every month, reconsider the price.

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11. Investigate First-Time-Buyer Programs, Mortgage Credit Certificates, Grants and Assistance

Do not assume that you need a large down payment saved entirely from your own paycheck.

There are numerous mortgage programs and assistance programs that may help qualified buyers.

Potential sources include:

State housing finance agencies.

County programs.

City programs.

Federal programs.

Employer assistance.

Nonprofit organizations.

Certain lender programs.

Veterans programs.

USDA programs.

FHA programs.

Conventional first-time-buyer programs.

Down-payment assistance programs.

Closing-cost assistance programs.

Mortgage Credit Certificates in jurisdictions that offer them.

Some assistance is structured as a grant.

Some is a forgivable loan.

Some is a deferred loan.

Some must be repaid when you sell or refinance.

Some programs have income limits.

Some have purchase-price limits.

Some require homebuyer education.

Some require the property to be located in a particular area.

Some require the buyer to occupy the property as a principal residence.

Therefore, never assume that “down-payment assistance” means free money.

Ask:

“Is this a grant or a loan?”

“When does it have to be repaid?”

“Is it forgiven?”

“What happens if I sell?”

“What happens if I refinance?”

“Is there an interest rate associated with it?”

“Are there income or purchase-price limits?”

“Do I have to use a particular lender?”

“Do I have to take a homebuyer education course?”

Mortgage Credit Certificates are another example where current information matters. A qualified MCC can provide a federal mortgage interest credit to an eligible borrower, and the IRS currently identifies Form 8396 as the form used to calculate the credit and any carryforward. Eligibility and program availability are determined through qualifying state or local programs.

Mortgage.us lists a number of national and governmental resources, but you should also search for your specific State, County, and City programs.

Ask your mortgage lender or broker:

“What first-time-buyer and down-payment-assistance programs might I qualify for?”

Also check your state’s housing finance agency.

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12. Understand Your Purchase Contract, Contingencies and Appraisal Risk

The purchase contract is one of the most important documents you will sign.

Do not treat it as merely paperwork required after you find a house.

It establishes your obligations and your rights.

Depending on your location and contract, it may address:

Purchase price.

Earnest money.

Financing.

Inspection.

Appraisal.

Title.

Property disclosures.

Closing date.

Possession.

Repairs.

Seller concessions.

Personal property.

Home-sale contingencies.

Other conditions.

The precise wording and legal effect vary by state.

This is an excellent reason to consider having a real estate attorney review your contract.

Common contingencies can protect buyers if certain conditions are not satisfied.

For example, an inspection contingency may provide an opportunity to negotiate repairs or terminate the contract under specified circumstances.

A financing contingency can provide contractual protection if you cannot obtain the required financing, depending on its wording.

An appraisal contingency may address what happens if the property appraises below the purchase price.

Suppose you agree to pay $300,000 for a house.

The appraisal comes back at $285,000.

That does not automatically mean the lender will simply lend you the full $300,000.

Depending on your loan-to-value requirements, the lender may base its financing on the lower appraised value.

You may then have several possible choices depending on the contract:

Ask the seller to reduce the price.

Negotiate a compromise.

Bring additional cash.

Challenge the appraisal if appropriate.

Use contractual rights to terminate if the contract allows it.

Proceed anyway if you believe the property is worth the price and you can afford the additional cash.

An appraisal-gap provision can sometimes specify how much additional money you are willing to contribute.

For example:

“I will cover up to $5,000 of an appraisal shortage, but not more."

Whether that is appropriate depends on the market and your negotiating position.

Do not sign a contract with contingencies you do not understand.

And do not assume a contingency automatically gives you the right to walk away without consequences. The exact wording matters and you want to make sure that the contingencies that protect you are included in the contract beforehand.

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13. Calculate the REAL Monthly Cost of the Property

When comparing homes, don’t compare only the advertised mortgage payment.

Your actual housing expense can include:

Principal.

Interest.

Property taxes.

Homeowners insurance.

Mortgage insurance.

Flood insurance.

HOA or condominium fees.

Special assessments.

Utilities.

Maintenance.

For example, consider two homes that both cost $300,000.

Home A has:

$2,000 mortgage principal and interest.

$400 taxes.

$200 insurance.

No HOA.

Home B has:

$2,000 principal and interest.

$250 taxes.

$175 insurance.

$350 HOA.

The second house may look cheaper because its property taxes and insurance are lower, but the total monthly expense is actually higher.

Also investigate property taxes carefully.

Do not assume the seller’s current tax bill will necessarily be your future tax bill.

Tax assessment systems differ substantially among states and local governments.

Some jurisdictions reassess after a sale.

Some have exemptions.

Some have different assessment formulas.

Some have homestead exemptions.

Some have caps on annual increases.

Some have special rules for certain properties.

Therefore, ask:

“What is the current tax bill?”

“How is the property assessed?”

“Will the property be reassessed after purchase?”

“Will I qualify for a homestead exemption?”

“When must I apply?”

“How much could the taxes reasonably change?”

Check the appropriate county or local taxing authority.

Also investigate HOA dues and potential special assessments.

A $200 monthly HOA fee today does not guarantee that the fee will remain $200.

Ask for HOA financial statements, meeting minutes, budgets, reserve information, pending assessments, rules, insurance information, and other applicable documents.

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14. Carefully Review HOA and Condominium Documents

If you are buying a property subject to a homeowners association or condominium association, investigate the association almost as carefully as you investigate the house.

The association may have rules concerning:

Pets.

Rentals.

Parking.

Exterior colors.

Fences.

Landscaping.

Solar panels.

Satellite dishes.

Short-term rentals.

Home businesses.

Architectural changes.

Pools.

Garages.

Leasing.

Maintenance responsibilities.

The association may also have financial problems.

Ask for:

Recent budgets.

Financial statements.

Reserve information.

Meeting minutes.

Current assessments.

Pending special assessments.

Insurance information.

Litigation information where available.

Rules and regulations.

Bylaws.

Declarations and covenants.

A $250 monthly HOA fee may not seem significant compared with a $2,500 mortgage payment.

But a $20,000 special assessment can be a major financial problem.

For example, if the association needs a new roof for a condominium building and has inadequate reserves, each owner might be assessed thousands of dollars.

Ask your real estate agent, lender, attorney, and the association’s management company about the documents and procedures applicable to the property.

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15. Get a Professional Home Inspection and Perform Your Own Due Diligence

A home inspection is not the same thing as a guarantee that the house is free from defects.

A home inspector generally examines accessible components of the property within the scope of the inspection agreement and applicable standards.

Inspectors can identify conditions that deserve further investigation.

Examples include:

Roof problems.

Foundation cracks.

Drainage issues.

Electrical concerns.

Plumbing problems.

HVAC problems.

Water intrusion.

Mold-like conditions.

Wood-destroying insects.

Structural concerns.

Unsafe stairs or railings.

Improper modifications.

The inspection can also help you understand the age and remaining useful life of major components.

For example, a roof may appear acceptable from the ground but be near the end of its expected service life.

An inspector might recommend evaluation by a roofing specialist.

Likewise, an inspector may identify an electrical panel that should be examined by a licensed electrician.

Do not automatically assume that the seller’s willingness to give you a repair credit means you should skip an inspection.

A seller credit can be helpful, but it does not tell you what is wrong with the property.

If your contract permits an inspection, understand the deadline and your rights.

Attend the inspection if possible.

Ask questions.

Look at the systems.

Learn where the main water shutoff is.

Find the electrical panel.

Ask about the HVAC system.

Ask about the roof.

Ask about drainage.

Ask about signs of water intrusion.

Also conduct your own due diligence.

Visit the neighborhood.

Check flood information.

Research crime and public-safety information from reliable sources.

Check schools if they matter to you.

Investigate noise.

Research planned development.

Look at traffic patterns.

Ask about utility service.

Check insurance availability and cost.

The home inspection is only one part of your investigation. You need to do your own due diligence in order to make sure that the overall situation with the house is okay especially for things that the inspector doesn't look at or address.

Keep in mind that when dealing with very old homes a lot of the different systems in the house such as the electrical wires or plumbing might already be worn out and most probably don’t meet the modern codes and standards. Especially be watchful for leaking gas pipes which could become very dangerous and also problems with wiring such as when the Neutral wires are not functioning properly which can make your electric appliances become too hot and your light bulbs burn out faster. Also there could be hazardous materials and conditions in the house such as lead, asbestos, mold, termite, structural cracks or defects, water leaks, and certain harmful gases like Radon (especially in the basement) that need to be dealt with professionally.

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16. Investigate the Property, Title, Neighborhood and Environmental Risks

Do not assume that everything important about a property will be revealed during a home showing.

There can be issues involving:

Title.

Liens.

Easements.

Rights-of-way.

Boundary disputes.

Mineral rights.

Shared driveways.

Utility easements.

Flooding.

Drainage.

Soil conditions.

Environmental contamination.

Former industrial uses.

Underground tanks.

Lead.

Asbestos.

Mold.

Radon.

Termites.

Wildfire.

Hurricanes.

Tornadoes.

Earthquakes.

Landslides.

Noise.

Industrial Zones.

Airports.

Railroads.

Power lines.

Depending on the property and the region it’s probably a good idea to also keep an eye out for certain risks such as sinkholes, shifting ground, mudslides, avalanches, falling rocks, severe hailstorms, extreme temperature variations, and wildlife intrusions. Best to also evaluate your proximity to high power electric or radio towers, and be mindful of industrial facilities that might be producing hazardous materials and fumes nearby especially if you are going to be downwind from them. Keep in mind that some of these issues may be much more important than others.

For example, a house near a river may have a very different flood-risk profile from one several miles away.

A home near the coast may have insurance issues that a buyer in an inland area would never encounter.

A rural property may have septic and well issues that don’t arise in an urban subdivision.

A property on acreage may have access or easement questions.

A house in an older neighborhood may have older plumbing, electrical systems, or environmental concerns.

A real estate attorney can be particularly valuable for legal issues involving title, easements, contracts, and property rights.

The title company or closing attorney will also perform important title-related work, depending on the state and transaction.

Do not confuse a title search with a complete investigation of every possible physical or environmental condition.

Research the property yourself and ask professionals appropriate questions.

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17. Plan Repairs and Remodeling Carefully

Many first-time buyers underestimate the cost and disruption of remodeling.

Painting a bedroom is very different from replacing a roof.

Replacing a light fixture is very different from rewiring an entire house.

Cosmetic improvements can often wait.

Structural, water, electrical, plumbing, HVAC, roofing, and safety issues generally deserve priority.

If you are buying a fixer-upper, establish a realistic renovation budget before purchasing.

Suppose you buy a $250,000 house and expect to spend $30,000 renovating it.

Do not assume your total cost will be exactly $280,000.

You may discover:

$5,000 of electrical work.

$7,000 of plumbing.

$3,000 of hidden water damage.

$10,000 of structural repairs.

Now your $30,000 renovation has become much larger.

This is why experienced buyers often maintain a contingency reserve.

If you are financing renovations, investigate specialized renovation loans before signing the purchase contract.

FHA’s 203(k) program, for example, can finance an eligible purchase and rehabilitation through an FHA-insured mortgage structure, subject to program requirements. Fannie Mae also offers renovation financing through applicable products. (HUD.gov and FannieMae.com)

But renovation financing has rules concerning eligible work, contractors, inspections, appraisals, draws, and the property’s value.

Do not assume that every dollar you spend on renovations automatically adds an equal dollar of value to the house.

Example:

You spend $50,000 on an elaborate kitchen.

If comparable homes in your neighborhood do not support that additional value, you may not recover the full $50,000 when you sell.

Also remember that many renovations require permits.

Electrical, plumbing, structural, gas, roofing, additions, fences, and other projects can be regulated by state or local authorities.

Check your local building department before starting major work.

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18. Understand What a Home Warranty Does — and Does Not — Cover

A home warranty is not the same thing as homeowners insurance.

Homeowners insurance generally addresses specified risks to the home and personal property according to the policy.

A home warranty is a service contract that may cover certain appliances or home systems subject to the contract’s terms, exclusions, service fees, limits, and conditions.

Do not assume that a home warranty will pay for everything that breaks.

For example, a warranty might cover an air-conditioning system but exclude:

Pre-existing conditions.

Improper maintenance.

Certain components.

Code upgrades.

Cosmetic damage.

Improper installation.

Certain replacement costs.

Read the actual contract.

Ask:

“What is covered?”

“What is excluded?”

“What is the service-call fee?"

“What is the maximum payout?”

“Who chooses the contractor?”

“What happens if the item cannot be repaired?”

“Does the company pay for replacement?”

“Are code upgrades included?"

“Are pre-existing conditions excluded?”

Also remember that an old house may contain problems that neither homeowners insurance nor a home warranty will automatically solve.

Examples include:

Old wiring.

Lead paint.

Asbestos.

Mold.

Termites.

Structural defects.

Gas leaks.

Drainage problems.

Foundation issues.

These conditions should be evaluated by appropriate professionals.

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19. Investigate Utilities and the Property’s Infrastructure

The cost of owning a home includes more than the mortgage.

Ask about:

Electricity.

Natural gas.

Propane.

Water.

Sewer.

Septic systems.

Trash collection.

Internet.

Cable.

Stormwater fees.

Irrigation.

Well systems.

Solar systems.

Generator systems.

Ask the seller whether recent utility bills are available.

A seller’s utility bills can provide a useful indication of normal operating costs, although your costs can differ depending on your habits.

For example, a house with poor insulation and an old air-conditioning system may cost substantially more to cool than a newer, efficient house of similar size.

If you work from home, ask about internet availability and reliability.

If you plan to own an electric vehicle, ask whether the home’s electrical panel can support the charger you want.

A Level 2 EV charger can require a substantial electrical circuit, and the actual requirements depend on the charger and vehicle.

If you plan to install one, have a qualified electrician evaluate the home’s electrical system and to make sure that the neighborhood transformer can handle the more modern high amperage chargers.

Rural properties deserve additional attention.

Ask:

“Is the water supplied by a well?”

“Is there a septic system?”

“When was the septic system inspected?”

“Has the well been tested?”

“Who maintains the private road?"

“Are there shared maintenance agreements?”

“Are there easements?”

“How reliable is internet service?”

These questions can save you from major surprises.

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20. Pay Attention to Trees, Storms, Flooding and Other Local Hazards

A beautiful tree can be an asset.

A large dead tree hanging over your house or the yard being overtaken by dried up underbrush and vegetation can be a liability.

During your inspection and property visits, look at:

Dead branches.

Large limbs over the roof.

Trees leaning toward structures.

Tree roots affecting foundations or plumbing.

Signs of disease.

Storm damage.

Drainage.

Standing water.

Erosion.

Low areas.

Retaining walls.

Fences.

Roof condition.

Gutters.

Downspouts.

If you live in a hurricane, tornado, wildfire, earthquake, hail, flood, or severe-wind area, investigate the risks specific to that location.

Do not assume that because a house looks safe today it is adequately protected against every future event.

However, don't rush to modify your house without considering local conditions, building codes, cost, and professional recommendations.

Instead, ask:

“What hazards are common in this area?”

“What insurance coverage is available?”

“What deductibles apply?”

“Is flood insurance required?”

“What mitigation measures are recommended?"

“What building codes apply?”

“Are there grants or programs for mitigation?”

For flood information, consult FEMA and the applicable local authorities. (FEMA.gov)

Flood maps can change, and being outside a high-risk flood zone does not necessarily mean flooding is impossible.

Insurance availability is also an increasingly important part of the homebuying decision.

Do not wait until the day before closing to discover that obtaining affordable insurance is difficult or that is not available at all because of the home being in an extremely high risk area.

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21. Visit the Neighborhood at Different Times

A home can look completely different at 10:00 a.m. on a Tuesday than it does at 10:00 p.m. on a Friday.

Visit the neighborhood at different times.

Check:

Morning traffic.

Afternoon traffic.

Evening traffic.

Weekend activity.

Noise.

Parking.

Street lighting.

Pedestrian traffic.

Nearby businesses.

Airports.

Railroads.

Schools.

Parks.

Restaurants.

Bars.

Industrial facilities.

Construction.

Ask yourself:

“Would I be comfortable walking here at night?”

“How difficult will commuting be?”

“Where will guests park?”

“Is there excessive weekend noise?”

“Is the neighborhood quiet because it is genuinely quiet—or because everyone is at work?”

Also investigate future development.

A vacant field behind the house might look attractive today.

If it is already approved for a large apartment complex, shopping center, highway expansion, or industrial project, the property’s future environment could be very different.

Ask your real estate agent what they know and check the appropriate city or county planning department.

Do not rely entirely on an online real estate listing.

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22. Shop Carefully for Homeowners Insurance

Homeowners insurance can be one of the most overlooked parts of the homebuying budget.

Do not wait until you are under contract to discover that insurance costs far more than expected.

Before buying, obtain actual insurance quotes.

Insurance can depend on:

Location.

Age of the house.

Roof age.

Roof type.

Construction materials.

Electrical system.

Plumbing.

Heating system.

Prior claims.

Flood exposure.

Wind exposure.

Wildfire exposure.

Crime.

Replacement cost.

Deductible.

Coverage limits.

Insurance-company underwriting rules.

The insurance amount should not simply be based on the home’s purchase price.

The dwelling coverage is generally intended to address the cost of rebuilding the insured structure according to the policy—not the market value of the land and house combined.

Ask your insurance agent about:

Dwelling coverage.

Personal-property coverage.

Replacement-cost versus actual-cash-value coverage.

Liability coverage.

Additional living expenses.

Water backup.

Flood insurance.

Wind coverage.

Hail coverage.

Earthquake coverage where applicable.

Roof coverage.

Deductibles.

Special limits on valuables.

A percentage-based deductible can be particularly important.

Example:

Suppose a policy has a 2% wind deductible and the applicable insured dwelling amount is $400,000.

Two percent would be $8,000.

That means you could potentially be responsible for $8,000 before covered damage begins to be paid, depending on the policy and claim.

A buyer should understand that before purchasing the house.

Ask the insurance agent:

“What is my deductible for hurricane, wind, hail, wildfire, or other major hazards?”

“Is the deductible a flat dollar amount or a percentage?”

“Is flood covered?”

“Is wind covered?”

“How old can the roof be before you will not insure it?”

“Will the policy pay replacement cost on the roof?”

“Are there exclusions I should understand?”

Insurance availability varies substantially by location and can change over time.

Check your state’s insurance department as well as speaking with insurance agents.

It's worth mentioning that you can substantially lower your home insurance premiums by fortifying your house against natural disasters and structural failures through specific upgrades. Key measures include installing wind-resistant features (impact-resistant windows, hurricane straps), implementing fire-resistant materials and smart detection systems, retrofitting for seismic activity with foundation bracing where applicable, and protecting against floods by elevating the house and utilities, installing engineered openings, or filling in basements. Additionally, installing monitored security systems and upgrading aging plumbing, heating, or electrical infrastructure to modern standards can secure significant premium discounts.

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23. Hire Contractors Carefully and Understand Permits and Liens

If you plan to remodel, do not choose a contractor solely because the estimate is the lowest.

Get multiple written estimates when practical.

Compare the actual scope of work.

One contractor may quote $25,000 while another quotes $35,000 because the second quote includes permits, better materials, cleanup, warranty coverage, and electrical upgrades.

Ask for an itemized proposal.

Verify:

License requirements.

Insurance.

Workers’ compensation coverage where applicable.

General liability insurance.

References.

Past work.

Permit requirements.

Warranty.

Payment schedule.

Start date.

Expected completion.

Change-order procedures.

Who purchases materials.

Who obtains permits.

Who cleans the property and is responsible for proper disposal of hazardous materials.

Never assume that a contractor’s statement “we don’t need a permit” is correct.

Check with your local building department.

Also understand mechanics’ or construction liens.

In many states, contractors, subcontractors, and suppliers may have legal rights relating to unpaid work or materials, but the exact rules, deadlines, notices, waivers, and protections vary by state.

Do not rely on a universal statement such as “holding back 10% for 30 days always protects you.”

That is not a nationwide rule.

Instead, ask your attorney or local construction professional what lien protections apply in your jurisdiction and what liabilities you might have if your contractor doesn't carry adequate insurance to cover the people that are working at your property or that doesn't pay them or the suppliers that have provided the materials.

When making progress payments, use written documentation and keep receipts.

Avoid paying the entire project price upfront.

For example:

$40,000 project.

$5,000 deposit.

Remaining payments tied to defined milestones.

Final payment after agreed work is completed and required inspections are satisfied.

The exact payment structure should be appropriate for the contract and local law.

If you are doing the work yourself, remember that you may still need permits and must comply with local building codes. And keep in mind that certain things such as updating an old wiring system or handling hazardous materials like lead or asbestos is best left to the professionals as once a repair or remodeling job is started all things have to be made to comply with the current rules and codes.

Before digging, contact the appropriate utility-locating service.

In the United States, 811 is the national call-before-you-dig service, although procedures can vary by state.

For major legal, structural, electrical, plumbing, gas, or environmental work, use appropriately qualified professionals.

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24. Understand Your Relationship With Your Real Estate Agent and Consider Using a Real Estate Attorney

One of the most important things a first-time buyer should understand is:

Who is representing me?

A real estate professional can provide enormous value by helping you:

Find properties.

Understand market conditions.

Arrange showings.

Prepare offers.

Negotiate.

Coordinate inspections.

Communicate with other parties.

Help manage deadlines.

But the precise legal relationship between you and the agent varies according to state law and the agreement you sign.

Recent industry practice changes have also made written buyer agreements much more important.

For many realtors and MLS participants, a written buyer agreement is required before touring a home with the buyer, and the agreement explains the services the professional will provide and how the professional will be compensated. The agreement and compensation are negotiable, and the precise legal relationship varies by state. (NAR.realtor)

Do not sign a buyer agreement without reading it.

Ask:

“How long does the agreement last?”

“Can I terminate it?”

“Exactly what services will you provide?"

“How are you compensated?”

“Who is responsible for paying that compensation?”

“What happens if the seller does not offer compensation?”

“Can the agreement be limited to a particular property, area, or period?”

“Are there circumstances in which I could owe compensation even if I purchase a different property?”

The compensation arrangement should be understood before you sign.

It is not automatically true that the seller always pays the buyer’s agent.

It is also not automatically true that the buyer must always pay the entire amount personally.

Compensation is negotiable and can be addressed in the purchase transaction subject to the agreement, applicable law, lender requirements, and the seller’s willingness to negotiate.

Also understand agency relationships.

Depending on your state, you may encounter:

Buyer agency.

Seller agency.

Dual agency.

Designated agency.

Transaction brokerage.

Non-agency relationships.

The terminology and legal rules vary.

Do not assume that an agent working for the same brokerage as the seller automatically represents you.

Ask the agent:

“Whom do you represent?”

“What duties do you owe me?”

“Are you allowed to represent both sides?”

“What happens if another client of your brokerage wants the same property?”

“How will confidential information be handled?"

This is also an excellent place to emphasize something that first-time buyers sometimes overlook:

You can hire a real estate attorney.

An attorney is not required for every residential transaction in every state, but you can generally choose to retain one where permitted.

You do not have to wait until closing.

You can ask an attorney to review your purchase agreement before you sign it, advise you throughout the transaction, explain legal risks, review amendments and disclosures, examine title-related matters, and help you understand your legal rights.

At a minimum, many first-time buyers should consider having a real estate attorney review important contracts and closing documents before signing them, particularly when the transaction is complicated or they do not understand what they are signing.

You can also ask your attorney whether the attorney can accompany you to the closing.

Ask about this well before closing so there is enough time for the attorney to review the documents and coordinate with the closing professional.

Remember:

Your real estate agent is not your attorney.

Your mortgage lender is not your attorney.

The title company is not necessarily your personal legal representative.

If you want independent legal advice, hire an attorney who represents your interests.

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25. Understand Agency Relationships, Seller Credits, Occupancy and Your Final Closing Responsibilities

The final tip brings together several subjects that can have significant consequences.

First, understand that agency relationships vary by state.

Do not assume that dual agency, designated agency, transaction brokerage, or other arrangements work the same way everywhere.

In some states, certain agency arrangements are restricted or prohibited. In others, they are permitted with particular disclosures and consent.

The best practice is to ask your real estate professional to explain the agency relationship in your state and to have an attorney review it if you are uncertain.

Second, understand that the listing agent’s role is not necessarily the same as that of your buyer’s representative.

If you are interested in a house represented by a particular agent, you are allowed to ask questions about the property and attend an open house without necessarily becoming that agent’s client.

If you want that agent to represent you, however, make sure you understand the relationship and compensation arrangement before proceeding.

Third, understand seller concessions.

Seller-paid costs can be negotiated, but they are not unlimited.

The amount that can be credited and the costs that can be paid depend on the loan program and underwriting requirements.

For example, current Fannie Mae rules use different maximum financing-concession percentages depending on the loan-to-value ratio.

Therefore, if you negotiate a $15,000 seller credit, do not assume that you automatically get $15,000 in cash.

The credit generally must be used for allowable purposes under the applicable loan and transaction rules, and amounts beyond allowable limits or actual eligible costs may not provide the benefit you expected.

Ask your lender before negotiating a large seller credit.

Fourth, understand occupancy requirements.

If you obtain a mortgage for a principal residence, you are making representations about how you intend to use the property.

Do not tell the lender that a property will be your primary residence if you actually intend to use it as an investment property.

That can create serious legal and financial problems.

Ask your lender what occupancy requirements apply to your specific loan.

Do not rely on an Internet statement that says every borrower must occupy a home within exactly the same number of days. The requirements can depend on the loan program and circumstances.

Fifth, review your final documents carefully.

The Closing Disclosure provides final details about the mortgage, including loan terms, projected payments, and closing costs, and generally must be provided at least three business days before closing for covered transactions.

Do not wait until you are sitting at the closing table to look at it for the first time.

Compare it with your Loan Estimate.

Check:

Purchase price.

Loan amount.

Interest rate.

Loan term.

Monthly payment.

Points.

Lender credits.

Seller credits.

Taxes.

Insurance.

Mortgage insurance.

Closing costs.

Prepaid expenses.

Cash to close.

If something is different, ask why.

A difference does not necessarily mean someone made a mistake. Some costs can legitimately change during the transaction. But you should understand every significant difference.

Also review the other closing documents.

Depending on the transaction, these may include:

Promissory note.

Mortgage or deed of trust.

Deed.

Title documents.

Settlement documents.

Insurance documents.

Government disclosures.

HOA documents.

Other state- or transaction-specific documents.

The CFPB specifically advises consumers to review closing documents and notes that a buyer may want a real estate attorney to review them. (CFPB.gov)

This is another reason why it is wise to have an attorney involved before closing if you want legal advice.

You can ask your attorney:

“Will you review my closing documents before I sign them?”

“Will you explain anything I don’t understand?"

“Can you attend the closing with me?”

“What will your fee be?”

“Will you review the purchase contract and amendments as well?”

Finally, do not assume that signing the documents means you can stop paying attention.

After closing:

Keep your mortgage documents.

Keep your Closing Disclosure.

Keep your promissory note.

Keep your deed and title documents.

Keep your homeowners insurance policy.

Keep records of major repairs.

Keep receipts for improvements.

Watch your mortgage-servicing information.

Watch your property-tax bills.

Maintain insurance coverage.

Pay attention to HOA notices.

Keep sufficient emergency savings.

And remember that homeownership does not end at the closing table.

It begins there.

A FINAL MESSAGE TO EVERY FIRST-TIME HOMEBUYER

The most important lesson from these 25 tips is not that you should memorize every mortgage rule.

It is that you should learn enough to ask good questions and recognize when an answer needs to be verified.

Mortgage and real estate transactions involve many different professionals, and each one has a particular area of expertise.

Your mortgage lender or mortgage broker can explain your financing, qualification, loan programs, rates, costs, underwriting requirements, and mortgage documents.

Your realtor or real estate agent can help with property searches, market information, showings, offers, negotiations, and the transaction process, according to the services and representation arrangement you have agreed upon.

A real estate attorney can provide independent legal advice, review contracts and documents, advise you throughout the transaction, and, where appropriate, accompany you to the closing.

Your title or closing professional can explain title and settlement procedures.

Your insurance professional can explain insurance coverage, exclusions, deductibles, and availability.

Your home inspector can help you understand the physical condition of the property.

Your tax professional can advise you about tax matters.

Your local government offices can provide authoritative information about property taxes, permits, zoning, assessments, exemptions, and other local requirements.

And official government and industry websites can provide current information about federal programs, regulations, forms, loan limits, and other requirements.

But do not rely on any one person or website for every answer.

If something is important, verify it.

If something sounds too good to be true, investigate it.

If two people give you different answers, do not simply choose the answer you prefer. Find out why they disagree.

If a rule involves your particular state or county, verify the local rule.

If a rule involves a particular mortgage program, verify the current program requirements.

If a document creates a legal obligation, consider having an attorney review it.

If a number could materially affect your budget, verify the number.

If someone gives you wiring instructions, independently verify them.

Keep all your home and mortgage documents in a safe place for future references and make sure all payments and correspondence are handed in a timely manner. Be aware that your mortgage servicer's address and information can change if your mortgage is sold to another company, so make sure to read all notices promptly.

And remember that rules and procedures change.

A mortgage limit that is correct this year may change next year.

A form that is currently required may be revised.

A government assistance program may run out of funding or change its eligibility requirements.

A state may change its disclosure requirements.

A county may change its property-tax rules.

An insurance company may change its underwriting requirements.

A mortgage program may change its guidelines.

Therefore, the information in these 25 tips should be viewed as a starting point for education and research, not as a permanent substitute for checking the current rules.

Use the official resources listed throughout Mortgage.us, including:

CFPB.gov

HUD.gov

FHFA.gov

USDA.gov

USA.gov

FDIC.gov

IRS.gov

FEMA.gov

NAR.realtor

Benefits.va.gov

FannieMae.com

FreddieMac.com

ConsumerFinance.gov

Also look for the appropriate official State, County, and local government websites for the property you are considering.

And finally, ask questions.

There is no such thing as a stupid question when you are committing hundreds of thousands of dollars to a home.

A good first-time homebuyer is not someone who knows everything.

A good first-time homebuyer is someone who knows what they don’t know, asks questions, verifies important information, understands the major financial commitments, and does not sign something they do not understand.

The more you educate yourself before buying, the better prepared you will be to make one of the most important financial decisions of your life.

Some useful info:

Please note that the same disclaimers and instructions for the 25 tips and the website apply here too:

The Truth in Lending Act (TILA):

The Truth in Lending Act is a landmark 1968 federal law designed to protect consumers by requiring lenders to disclose the true costs and terms of credit in clear, standardized language. TILA was created to help consumers understand and compare the cost of borrowing and to protect them from unfair or misleading credit practices. For mortgage borrowers, TILA works together with other federal laws and regulations, including Regulation Z and the TILA-RESPA Integrated Disclosure (TRID) rules, to provide standardized information about the cost and terms of a mortgage.

Under TILA and the applicable mortgage disclosure rules, lenders must provide standardized disclosures that break down important borrowing costs and loan terms into understandable terms:

The Annual Percentage Rate (APR): Lenders cannot simply show you an interest rate and leave you to figure out the rest of the borrowing cost. The APR is a standardized measure of the cost of credit expressed as a yearly rate. It incorporates the interest rate and certain finance charges, allowing borrowers to compare the cost of different credit offers. However, APR does not include every cost associated with purchasing or closing on a home, so it should not be interpreted as the complete cost of buying a house.

The Finance Charge: This is the total amount of interest and certain loan charges that you would pay over the life of the loan, assuming you make all scheduled payments and keep the mortgage until maturity. It is an important measure of the cost of borrowing, but it does not represent every expense associated with purchasing or owning the home.

The Amount Financed: This represents the amount of credit being provided to you after subtracting certain prepaid finance charges. Because of the way this figure is calculated under TILA, the Amount Financed can be lower than the face amount of your mortgage loan. It should therefore not automatically be interpreted as the same thing as the amount shown on your mortgage note.

The Total of Payments: This is the total amount you would pay over the full scheduled term of the loan, assuming all scheduled payments are made and the loan remains outstanding until maturity. It can include principal, interest, mortgage insurance, and certain other amounts required by the disclosure rules. It is important to understand that this figure assumes the loan is kept for its full scheduled term; many homeowners sell or refinance before then.

The 3-7-3 Mortgage Disclosure Timeline: A commonly used shorthand for the federal mortgage disclosure timeline is the “3-7-3” rule. For most mortgage transactions covered by the TILA-RESPA Integrated Disclosure (TRID) requirements, the lender generally must provide a Loan Estimate within 3 business days after receiving a completed application. The consumer generally must receive the Loan Estimate at least 7 business days before consummation, providing time to review the estimated loan terms before closing. The lender must also provide the final Closing Disclosure at least 3 business days before consummation. These are separate timing requirements rather than one single federal rule formally named the “3-7-3 rule.”

A new three-business-day waiting period can be required when certain significant changes occur after the Closing Disclosure has been provided. In particular, a new waiting period is generally required if the APR becomes inaccurate beyond the applicable tolerance, the loan product changes, or a prepayment penalty is added. The applicable APR tolerance is generally 1/8 of one percentage point (0.125%) for regular transactions and ¼ of one percentage point (0.25%) for irregular transactions; this distinction is not simply based on whether a mortgage has a fixed or adjustable interest rate. Other changes may require a corrected disclosure without necessarily restarting the three-day waiting period.

The three-business-day Closing Disclosure waiting period generally cannot simply be waived because a borrower wants to close sooner. Federal law permits a consumer to modify or waive the applicable waiting period only in a bona fide personal financial emergency, and specific written requirements must be satisfied. An imminent foreclosure is an example of the type of emergency that may qualify. A borrower should not assume that an ordinary desire to close quickly qualifies as an emergency.

The 3-Day Right of Rescission:

The federal right of rescission under TILA generally applies to certain consumer credit transactions secured by the borrower’s principal dwelling, including many refinances, home-equity loans, and HELOC transactions. It generally does not apply to a mortgage used to purchase or build the borrower’s principal home. There are also specific exceptions, including certain same-creditor refinances. When the right applies, the borrower generally has until midnight of the third business day after the transaction is consummated and the required disclosures and rescission notices have been provided to cancel the transaction without penalty. The lender generally cannot disburse the loan proceeds until the rescission period has expired. For purposes of rescission, Saturday generally counts as a business day, while Sundays and specified legal public holidays do not.

The 45-Day Mortgage Credit-Shopping Window:

When you shop around for a mortgage, you can generally apply with multiple lenders without having every mortgage inquiry counted separately for credit-scoring purposes. Under the Fair Credit Reporting Act and the credit-scoring systems commonly used by lenders, multiple mortgage-related inquiries made within a 45-day period are generally treated as a single inquiry for comparison-shopping purposes. This allows borrowers to compare mortgage rates and terms from multiple lenders without each inquiry being treated as a separate inquiry, although borrowers should still submit applications within a reasonably concentrated shopping period.

Why Your First Mortgage Payment Usually Isn’t Due Immediately:

There is no federal “60-Day First Payment Rule,” but mortgage payments are generally structured so that interest is paid in arrears. As a result, your first regular mortgage payment usually is not due immediately after closing and may be approximately 30 to 60 days after the closing date, depending on when you close and the payment schedule established for your loan. The exact first payment date should always be confirmed in your closing documents and with your loan servicer. The fact that your first payment may be several weeks after closing should not be confused with receiving free interest; prepaid interest collected at closing may cover the interest accrued between closing and the beginning of the regular payment period.

The 43% Debt-to-Income (DTI) Rule:

There is not currently a universal federal 43% DTI limit that applies to every Qualified Mortgage or every mortgage borrower. The 43% threshold was part of the former General Qualified Mortgage definition, but federal Qualified Mortgage standards have since changed. Today, DTI requirements can vary depending on the type of mortgage, applicable federal or agency guidelines, the lender’s underwriting standards, and the borrower’s overall financial circumstances. Some borrowers may qualify with a DTI above 43%, while other loan programs may impose their own specific limits. Therefore, a borrower should never assume that 43% is an absolute federal maximum or that being below 43% automatically guarantees approval.

Strict Mortgage Advertising Rules: TILA’s advertising rules prohibit lenders from advertising certain mortgage terms without providing additional required information. Certain terms are considered “triggering terms.” For example, when an advertisement states a specific payment amount, down payment, number or period of payments, or finance charge, additional disclosures may be required so consumers can understand the actual terms of the credit being advertised. A low advertised rate or payment should therefore never be evaluated by itself. Consumers should examine the complete terms, including the APR, loan amount, repayment period, applicable fees, points, and other conditions.

When reviewing your official 3-page Loan Estimate: The Loan Estimate is a standardized three-page disclosure provided under the TILA-RESPA Integrated Disclosure (TRID) rules. It is important to understand that receiving a Loan Estimate does not mean your mortgage has been approved, nor does it obligate you to accept the loan. It is an estimate of the terms and costs the lender expects to offer based on the information available at that time.

Page 1: Verify that the loan terms match what you discussed with the lender, including the loan amount, interest rate, projected monthly principal and interest payment, and loan term. Pay particular attention to the ”Can this amount increase after closing?” information. Also check whether the loan has a prepayment penalty or a balloon payment. These features can have a major financial impact and should never be overlooked. If the loan has an adjustable interest rate or another feature that can cause the payment to change, make sure you understand exactly when and how those changes can occur.

Page 2: Carefully review the estimated closing costs. Section A is “Origination Charges” and contains lender-controlled charges such as certain origination fees and points. Section D is “Total Loan Costs,” which combines Sections A, B, and C. Section J is “Total Closing Costs.” Compare these figures with the estimates you were previously given and question significant or unexpected changes. Remember that different charges are subject to different federal tolerance and disclosure rules, so not every estimated cost is permitted to increase by the same amount.

Page 3: Review the ”Comparisons” section carefully. It provides the projected amount paid in the first five years, including the amount of principal you are expected to have paid off, as well as the loan’s APR and Total Interest Percentage (TIP). TIP is particularly useful because it shows the total scheduled interest over the life of the loan as a percentage of the original loan amount. APR and TIP measure different things and should not be confused with one another. The Finance Charge is disclosed elsewhere in the applicable mortgage disclosures and should not be confused with the Page 3 Comparisons section.

Compare Your Loan Estimates: One of the most powerful protections available to a mortgage shopper is the ability to request Loan Estimates from multiple lenders and compare them. Whenever possible, compare offers using the same loan amount, down payment, loan term, property type, occupancy, and other assumptions. Do not look only at the interest rate or APR. Compare the points, lender credits, origination charges, other lender-controlled costs, projected monthly payment, five-year cost, and important loan features. A slightly lower interest rate does not necessarily mean a lower-cost mortgage if it requires substantially higher upfront charges.

Compare the Closing Disclosure With Your Loan Estimate: Before closing, carefully compare your five-page Closing Disclosure with your most recent Loan Estimate. Look for changes in the interest rate, loan amount, monthly payment, closing costs, lender credits, cash to close, and other important terms. Some changes are permitted under the disclosure rules, while other charges are subject to restrictions on how much they may increase. If you see a significant or unexpected change, ask the lender or settlement agent to explain it before signing. Do not assume that an unexpected increase is simply a normal part of closing.

Remember What TILA Does and Does Not Do: TILA is primarily a disclosure and consumer-protection law. It helps borrowers understand and compare the cost and terms of credit, but it does not guarantee that a borrower will receive a particular interest rate, qualify for a mortgage, or obtain the lowest-cost loan available. A Loan Estimate is not a guarantee that every final cost will remain identical, and an APR is not a complete measure of every expense associated with buying or owning a home. The best protection for a homebuyer is to understand the documents, compare competing offers, ask questions about anything that changes, and never sign a mortgage document that contains a term or cost you do not understand.

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The True Cost of PMI:

When you make a down payment of less than 20% on a conventional mortgage, the lender will often require Private Mortgage Insurance (PMI), although the exact requirement depends on the loan program, lender, loan-to-value ratio, and other factors. PMI protects the lender—not the borrower—against losses if the borrower stops making payments and the mortgage goes into default. PMI does not reduce your mortgage principal or provide you with an ownership benefit. However, it can make homeownership possible with a smaller down payment because the lender is taking on less risk.

With a 20% Down Payment ($80,000): On a $400,000 home, a 20% down payment would be $80,000, leaving a mortgage of $320,000. With a conventional mortgage that does not require PMI, you would generally have no monthly PMI payment. Your regular housing payment would still include principal and interest, and may also include property taxes, homeowners insurance, and other applicable costs. It is important to remember that avoiding PMI does not necessarily make a 20% down payment the least expensive option in every situation, because putting more money into the down payment also means having less cash available for closing costs, emergency savings, repairs, or other investments.

With a 5% Down Payment ($20,000): On the same $400,000 home, a 5% down payment would be $20,000, leaving a mortgage of $380,000. Because the loan-to-value ratio would be 95%, a conventional lender will often require PMI. The actual PMI cost can vary substantially depending on factors such as the borrower’s credit score, loan amount, loan-to-value ratio, loan type, occupancy, and the particular insurer and lender. For illustration only, if the PMI rate were 0.75% of the original loan balance per year, the estimated PMI would be approximately $2,850 per year, or $237.50 per month ($380,000 × 0.75% ÷ 12). This $237.50 figure is an example—not a universal or “average” PMI rate—and actual PMI could be considerably higher or lower.

The Multi-Year Cost: PMI can represent a significant additional expense while it is required. However, it is not necessarily a permanent cost on a conventional mortgage. For many borrowers, PMI can eventually be canceled when they reach the required equity level, subject to federal law, the terms of the mortgage, and the applicable lender requirements. Borrowers may be able to request cancellation when the mortgage balance reaches 80% of the home’s original value, assuming the applicable conditions are met. PMI generally must automatically terminate when the scheduled principal balance is expected to reach 78% of the original value, provided the borrower is current on the mortgage and other applicable requirements are satisfied. A borrower may also be able to eliminate PMI earlier by making additional principal payments or, depending on the circumstances and applicable requirements, through appreciation in the home’s value.

How Long Will You Pay PMI? There is no universal 5-to-7-year rule for PMI. The amount of time you pay it depends on your original loan-to-value ratio, the mortgage payment schedule, whether you make additional principal payments, changes in the home’s value, and the specific requirements governing cancellation. Home appreciation can sometimes help a borrower eliminate PMI earlier, but borrowers should not assume that appreciation will automatically cause PMI to disappear. In addition, some lenders may have specific procedures or requirements for using a new valuation to establish sufficient equity.

The Cost of Waiting to Reach 20% Equity: Using the $380,000 mortgage and the illustrative PMI cost of $237.50 per month, paying PMI for six years would cost $17,100 ($237.50 × 72 months). That money generally does not reduce your mortgage balance or build equity in your home. However, calling the entire amount “non-refundable” can be misleading because PMI is not a refundable deposit; it is an insurance premium paid for the lender’s protection during the period in which PMI is required. The actual amount and duration of PMI will depend on the borrower’s circumstances and the loan’s terms.

The Bigger Picture: A smaller down payment can have both advantages and disadvantages. It allows a buyer to purchase a home sooner and retain more cash for emergencies, repairs, moving expenses, or other financial needs, but it generally results in a larger mortgage balance, potentially higher monthly payments, and possibly PMI. A larger down payment can reduce the loan amount, monthly payment, and interest expense and may eliminate PMI, but it also ties more of the buyer’s available cash to the home. First-time buyers should therefore compare the total cost and financial flexibility of different down-payment options, rather than assuming that avoiding PMI at all costs is automatically the best financial decision.

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How to Legally Negotiate Seller Concessions:

Seller concessions, also called seller-paid closing costs or seller contributions, occur when the seller agrees to pay certain costs that would otherwise be the buyer’s responsibility, subject to the rules of the buyer’s loan program and the requirements of the lender. The seller does not normally hand the buyer cash; instead, the agreed amount is generally shown on the purchase and settlement documents and is paid from the seller’s proceeds at closing. Eligible costs can include certain closing costs, prepaid expenses, discount points, and other permitted charges. Seller concessions generally cannot be used to give the buyer cash back beyond the amounts permitted by the applicable loan rules or to satisfy the buyer’s required down payment.

How Much Can the Seller Contribute? The maximum allowable seller contribution is not a universal percentage and should never be assumed to be 3% simply because the buyer is putting 5% down. For conventional mortgages, the permitted amount depends on factors including the type of property, whether it is the buyer’s primary residence or second home, the loan-to-value ratio, and the applicable Fannie Mae or Freddie Mac guidelines. For example, under common conventional-loan rules for a primary residence or second home with a loan-to-value ratio greater than 90%, the maximum financing concession is generally 3% of the lower of the purchase price or appraised value. Different LTV ranges and occupancy situations can have different limits, while investment properties generally have different rules. Other loan programs, including FHA, VA, and USDA loans, have their own separate rules and limits. Buyers should therefore determine the applicable limit for their specific loan before negotiating the concession.

Example: If a buyer purchases a $400,000 home using a conventional mortgage with a loan-to-value ratio above 90%, and the applicable concession limit is 3%, the maximum permitted seller contribution would generally be $12,000 ($400,000 × 3%), assuming the purchase price and appraised value support that calculation and the buyer has enough eligible closing and prepaid costs to use the full amount. The buyer cannot necessarily receive the unused portion as cash. If the buyer’s eligible costs total only $8,000, for example, the remaining $4,000 generally cannot simply be handed to the buyer as additional cash at closing.

Negotiating the Concession: A buyer can negotiate for the seller to pay some or all of the buyer’s allowable closing costs as part of the purchase agreement. One approach is to offer the asking price while requesting a specific seller contribution. In a competitive market, a buyer may instead offer a higher purchase price while requesting a seller contribution, but this strategy should be approached carefully. The higher purchase price must be supported by the property’s market value and the buyer’s loan program, and the seller contribution must remain within the applicable limits. Buyers should also remember that increasing the purchase price increases the amount they may ultimately pay for the property and can increase the mortgage payment and interest expense.

The Appraisal Issue: If a buyer offers more than the asking price in exchange for a seller concession, the property generally must appraise at a value sufficient to support the purchase price under the lender’s underwriting requirements. For example, if a buyer agrees to purchase a home for $410,000 when it was listed for $400,000 and requests a $10,000 seller contribution, a low appraisal could create a financing problem. Depending on the loan program and the circumstances, the buyer may need to bring additional money to closing, renegotiate the purchase price or seller contribution, challenge the appraisal, or potentially reconsider the transaction if the parties cannot reach an acceptable solution. The buyer should never assume that the lender will simply finance the difference between the purchase price and the appraised value.

The “Offer Up” Strategy: Increasing the purchase price in order to obtain a seller contribution can sometimes be a legitimate negotiating strategy, but it is not free money and should not be presented as a way to simply roll closing costs into a mortgage. The purchase price must be genuine and supported by the transaction and appraisal, the seller contribution must comply with the applicable loan-program limits, and the buyer must qualify for the resulting loan. A higher purchase price also means the buyer may pay more interest over the life of the mortgage and could have a higher monthly payment. The strategy therefore makes the most sense only when the overall economics work for the buyer and the property supports the negotiated price.

Important Protection for Buyers: Seller concessions should be disclosed honestly and completely to the lender, appraiser, and settlement agent. Buyers and sellers should never agree to an undisclosed side payment, artificially inflate the purchase price, or structure a transaction to conceal the true amount of the seller’s contribution. Such arrangements can violate mortgage underwriting requirements and potentially constitute mortgage fraud. Every concession should be included in the purchase contract and properly reflected in the applicable loan and closing disclosures.

The Bottom Line: Seller concessions can be a valuable negotiating tool, particularly for buyers who have enough money for their down payment but need additional cash for closing costs, prepaid expenses, or discount points. However, the maximum amount, eligible expenses, and effect on the transaction depend on the specific loan program and circumstances. Before making an offer, buyers should ask their lender to determine the maximum permissible seller contribution, which costs are eligible, and how a proposed concession would affect the loan. A buyer should then compare the benefit of receiving seller-paid costs against the potential cost of paying a higher purchase price, taking on a larger mortgage, or paying more interest over time.

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How to Calculate Your Debt-to-Income (DTI) Ratio:

Debt-to-Income (DTI) ratio is calculated by dividing your total required monthly debt obligations by your gross monthly income, then multiplying by 100. Depending on the loan program and lender’s underwriting rules, qualifying debts can include the proposed monthly housing payment and required payments on installment and revolving debts such as car loans, student loans, credit cards, and other qualifying obligations. The housing payment used for mortgage qualification generally includes principal and interest, property taxes, homeowners insurance, and, when applicable, mortgage insurance, homeowners association dues, and other required housing-related obligations. Ordinary living expenses such as groceries, electricity, telephone service, internet, and other utilities generally are not included in the standard DTI calculation.

Practical Example: Suppose a borrower earns $90,000 per year. Dividing the gross annual income by 12 produces a gross monthly income of $7,500. If the borrower’s proposed monthly housing payment is $2,500, the required car payment is $350, the qualifying student-loan payment is $150, and the required credit-card payment is $100, the borrower’s total qualifying monthly debt would be $3,100. Dividing $3,100 by $7,500 produces a DTI ratio of approximately 41.3% ($3,100 ÷ $7,500 × 100).

What Does a 41.3% DTI Mean? A 41.3% DTI means that approximately 41.3% of the borrower’s gross monthly income would be committed to the qualifying monthly debt obligations used in the lender’s calculation. However, a 41.3% DTI does not automatically mean that the borrower qualifies for the mortgage. There is no universal federal rule stating that every mortgage borrower must have a DTI of 43% or less. The maximum acceptable DTI can vary according to the loan program, lender, automated underwriting system, credit profile, reserves, loan-to-value ratio, and other factors. Some borrowers may qualify with a DTI above 43%, while some lenders or loan programs may require a lower ratio.

Why DTI Matters: DTI is one of the tools lenders use to evaluate whether a borrower has sufficient income to manage the proposed mortgage and other recurring debts. A lower DTI generally means that less of the borrower’s gross income is committed to debt payments, which can provide greater financial flexibility. However, DTI does not measure every expense a household faces. A borrower can have a relatively low DTI and still struggle financially if the household has unusually high childcare costs, medical expenses, transportation costs, taxes, utilities, or other living expenses that are not included in the standard DTI calculation.

A Better Way to Think About the 43% Number: The often-quoted 43% DTI figure should be treated as a historical mortgage-underwriting benchmark rather than a universal federal qualification limit. It was previously associated with the General Qualified Mortgage definition, but federal Qualified Mortgage standards have changed. Today, buyers should ask their lender which DTI requirements apply to their specific loan program rather than assuming that 43% is either an absolute maximum or an automatic approval threshold.

Important: DTI is a lender-underwriting measurement, not a personal budgeting recommendation. Just because a borrower qualifies for a mortgage at a particular DTI does not mean that the resulting payment is financially comfortable. A responsible homebuyer should also consider taxes, insurance, maintenance and repairs, utilities, transportation, childcare, emergency savings, retirement contributions, and other household expenses when determining how much home they can realistically afford.

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Base Interest Rate vs. Actual APR:

First-time buyers often confuse the interest rate with the Annual Percentage Rate (APR). The interest rate is the rate used to calculate the interest charged on the outstanding principal balance of the mortgage and, together with the loan amount and term, determines the scheduled principal-and-interest payment. The APR is a standardized measure of the cost of credit expressed as a yearly rate. It incorporates the interest rate and certain finance charges associated with obtaining the loan, making it useful for comparing the cost of different mortgage offers. However, APR does not include every fee or expense associated with obtaining or owning a home.

The Base Interest Rate: Imagine a $400,000 mortgage with a fixed interest rate of 6.50% and a 30-year repayment term. Assuming there are no other amounts included in the principal-and-interest calculation, the scheduled monthly principal-and-interest payment would be approximately $2,528.27. This payment does not include property taxes, homeowners insurance, mortgage insurance, HOA dues, or other applicable housing costs. The interest rate itself does not tell you how much cash you will need to bring to closing or the total amount you will pay over the life of the mortgage.

The Added Fees: Suppose the lender charges $8,000 in upfront costs. It is important not to assume that the entire $8,000 will be included in the APR calculation. Some charges are considered finance charges under TILA and are reflected in APR, while other charges are excluded. For example, certain lender charges may be included while amounts such as some taxes, government fees, title-related charges, and other permitted costs may not be treated as finance charges. The precise treatment depends on the nature of each charge and the applicable federal disclosure rules.

The APR: If some or all of the $8,000 consists of finance charges that must be included in the APR calculation, the APR will generally be higher than the 6.50% interest rate. However, it would be incorrect to state that an $8,000 fee automatically produces a 6.70% APR. The actual APR depends on the amount and type of finance charges, the loan amount, interest rate, repayment term, payment schedule, and other characteristics of the transaction. The APR is calculated using the applicable federal methodology rather than by simply adding the fees to the interest rate.

Why the Difference Matters: Comparing the interest rate and APR can help a borrower identify the effect of certain loan costs. If two lenders offer substantially similar mortgages but one has a noticeably higher APR, that difference may indicate that the loan carries higher finance charges, discount points, or other costs that affect the APR. However, the size of the difference should not automatically be interpreted as evidence that a lender is hiding fees. Different loan structures, discount points, lender credits, loan terms, and other factors can legitimately produce different relationships between the interest rate and APR.

The Better Rule of Thumb: Never evaluate a mortgage by looking at the advertised interest rate alone. Compare the interest rate, APR, points, lender credits, origination charges, other closing costs, monthly payment, five-year cost, Total Interest Percentage (TIP), and important loan features. A very low interest rate may require substantial upfront points, while another loan with a slightly higher rate may require considerably less money at closing. The best mortgage is not necessarily the one with the lowest advertised rate or the lowest APR; it is the loan whose overall cost and terms best fit the borrower’s circumstances, expected time in the home, available cash, and financial goals.

A Simple Example of Why APR Should Be Used Carefully: Suppose Lender A offers a 6.50% interest rate with substantial upfront points, while Lender B offers a 6.625% interest rate with fewer upfront charges. Lender A may have a lower monthly principal-and-interest payment but require substantially more cash at closing. Lender B may have a slightly higher monthly payment but a lower upfront cost. A borrower who expects to sell or refinance after a few years may reach a different conclusion than a borrower who expects to keep the mortgage for 30 years. This is why comparing the complete Loan Estimates—not just the interest rate or APR—is one of the most important steps a homebuyer can take.

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