Understand Your Mortgage Before You Buy
Your mortgage affects much more than the price of your home. Learn about common loan programs, monthly payments, interest rates, closing costs, preapproval and the questions every Greater San Antonio homebuyer should ask.
What Is a Mortgage?
A mortgage is a loan used to purchase or refinance real estate. The property serves as collateral for the loan. Your mortgage documents establish the interest rate, repayment term, monthly payment requirements and other costs and responsibilities.
A lender determines whether you qualify based on factors that may include income, employment, credit history, debts, available funds, the property and the loan program. Approval requirements vary by lender and loan type.
Common Types of Home Loans
Conventional Loans
Conventional mortgages are not insured or guaranteed by a federal government agency. They may offer several down-payment and term options. Private mortgage insurance may be required when the borrower has less than the lender’s required amount of equity.
Conventional financing can work well for buyers with established credit, stable income and funds available for the down payment and closing costs. Exact requirements vary by lender and loan program.
FHA Loans
FHA loans are issued by approved lenders and insured by the Federal Housing Administration. They can offer more flexible qualifying standards and a down payment as low as 3.5% for borrowers who meet program and lender requirements.
FHA borrowers generally pay upfront and annual mortgage insurance. Property standards and maximum loan amounts also apply.
VA-Backed Loans
Eligible veterans, service members and certain surviving spouses may use a VA-backed purchase loan. The VA does not generally require a down payment, and VA-backed loans do not require private mortgage insurance. Lender approval and VA eligibility requirements still apply.
A VA funding fee may apply unless the borrower qualifies for an exemption. The home must also satisfy VA occupancy, appraisal and minimum property requirements.
USDA Loans
USDA Rural Development programs may offer no-down-payment financing to qualified buyers purchasing eligible properties. Household-income, property-location and lender requirements apply.
Some communities outside central San Antonio may qualify, but eligibility should always be verified for the specific property and household.
Fixed-Rate and Adjustable-Rate Mortgages
Fixed-Rate Mortgage
The interest rate remains the same for the loan term. Principal and interest payments remain predictable, although the total monthly payment may change when property taxes, homeowners insurance, mortgage insurance or association charges change.
Adjustable-Rate Mortgage
An adjustable-rate mortgage, or ARM, generally begins with a rate that is fixed for an initial period. After that period, the rate and payment may increase or decrease according to the loan’s index, margin and adjustment limits.
Ask the lender about the initial period, adjustment frequency and maximum possible payment before choosing an ARM.
What Makes Up a Monthly Housing Payment?
Principal and Interest
Principal reduces the loan balance. Interest is the amount charged by the lender for borrowing the money.
Taxes and Insurance
Property taxes and homeowners insurance are commonly collected through an escrow account, although arrangements vary.
Other Possible Costs
Mortgage insurance, flood insurance, homeowners association dues and other property-related charges may affect the true monthly cost.
Prequalification Versus Preapproval
Prequalification
A prequalification is usually an early estimate based on information supplied to the lender. It can help begin the conversation, but it may involve limited verification.
Preapproval
A preapproval generally involves a more detailed review of credit, income, assets and debts. Sellers often view it as stronger evidence that the buyer has discussed financing with a lender.
Ask what the lender has actually verified and whether additional documentation or underwriting remains.
The Mortgage Process
- Review your budget. Consider the down payment, closing costs, complete monthly payment, maintenance and emergency savings.
- Speak with licensed lenders. Discuss loan programs, documentation, estimated payments and possible qualification concerns.
- Obtain a strong preapproval. Submit requested financial documents and ask what information has been verified.
- Shop for a home. Work with your REALTOR® to evaluate properties that fit both your needs and approved financing.
- Compare Loan Estimates. Review the interest rate, APR, estimated payment, lender charges, points, credits and cash needed to close.
- Complete underwriting. Respond promptly to document requests and avoid financial changes that could affect approval.
- Review the Closing Disclosure. Compare the final terms and costs with the Loan Estimate and ask about unexpected differences.
- Complete the final walkthrough and closing. Verify the property’s condition, bring the required identification and follow the title company’s verified funds instructions.
Interest Rate, APR, Points and Credits
Interest Rate
The interest rate is the percentage used to calculate interest on the loan. It does not include every fee or cost associated with obtaining the mortgage.
Annual Percentage Rate
APR is a broader measure of borrowing cost. It includes the interest rate plus certain points, broker fees and other loan charges. APR can help compare similar loan offers.
Discount Points
Discount points are upfront charges paid in exchange for a lower interest rate. Whether points make financial sense depends partly on their cost, the rate reduction and how long you expect to keep the loan.
Lender Credits
Lender credits can reduce upfront closing costs in exchange for accepting a higher interest rate. Compare the short-term savings with the possible long-term borrowing cost.
What Is a Mortgage Rate Lock?
A rate lock generally protects an agreed interest rate for a specified period, provided the loan closes on time and important details of the application do not change. Lock periods, fees and extension policies vary.
Ask the lender whether the rate is locked, when the lock expires, what could cause the rate to change and who pays if an extension is required.
Read the CFPB rate-lock explanation
How to Compare Mortgage Offers
| Compare | Questions to Ask |
|---|---|
| Loan program | Why is this loan recommended, and what alternatives may fit? |
| Interest rate and APR | Is the rate locked, and are points included? |
| Monthly payment | Does the estimate include taxes, insurance and mortgage insurance? |
| Cash to close | How much is needed for the down payment, costs and prepaid expenses? |
| Lender charges | Which origination, underwriting or processing charges apply? |
| Loan timeline | Can the lender meet the contract’s financing and closing deadlines? |
| Service and communication | Who handles the file, and how are questions or urgent issues addressed? |
Compare written Loan Estimates using the same loan amount, term and general structure whenever possible. The lowest advertised rate is not automatically the lowest-cost or best-fitting loan.
Use the CFPB Loan Estimate comparison guide
Mortgage and Closing Costs to Discuss With Your Lender
Lender Charges
- Origination charges
- Underwriting or processing fees
- Discount points
- Credit-report charges
Property and Settlement Costs
- Appraisal
- Title and settlement services
- Survey, when required
- Recording and government charges
Prepaid and Escrow Funds
- Homeowners insurance
- Property-tax reserves
- Prepaid interest
- Initial escrow deposits
Your lender and title company should explain which charges apply to your transaction and how much money must be delivered at closing.
Financial Changes to Avoid Before Closing
- Do not open or co-sign new credit accounts without lender approval.
- Avoid financing furniture, appliances or vehicles before closing.
- Do not make unexplained large deposits or transfers.
- Do not change jobs or compensation arrangements without discussing it.
- Continue paying bills on time.
- Keep funds needed for closing documented and accessible.
- Respond promptly when the lender requests updated documents.
Frequently Asked Mortgage Questions
How much money do I need for a down payment?
It depends on the loan program, lender, borrower and property. Some qualified VA and USDA borrowers may purchase without a down payment. FHA and conventional options vary. You should also budget separately for closing costs, prepaid expenses, inspections and reserves.
Does a 20% down payment always make sense?
Not necessarily. A larger down payment may reduce the loan amount and mortgage-insurance expense, but buyers should also consider emergency savings, repairs and other financial goals. Ask a licensed lender and financial professional to explain the tradeoffs.
Does preapproval guarantee that I will receive the loan?
No. Final approval depends on underwriting, verified borrower information, an acceptable property, appraisal results and satisfaction of the lender’s conditions.
Should I compare more than one lender?
Comparing written Loan Estimates can help you evaluate rates, APR, fees, points, credits, service and estimated cash needed to close.
Can the seller help with closing costs?
A contract may provide for seller-paid buyer expenses, subject to the loan program, appraisal, lender guidelines and negotiations. Your REALTOR® and lender should structure any request correctly.
Does Keith & Sheila Realty Group provide mortgages?
No. Keith & Sheila are real estate professionals, not mortgage lenders. They can help you understand the home-buying process, prepare questions for lenders and coordinate the real estate transaction with your chosen lender.
Ready to Begin Your Home-Buying Plan?
Keith and Sheila help buyers understand the Greater San Antonio market, evaluate properties and coordinate the many moving parts between contract and closing. Their experience includes serving first-time buyers, military families, veterans and clients relocating to JBSA communities.