A Home for All

A mortgage is a loan you use to purchase a home. You contribute a down payment, and your bank finances the rest of the purchase price. For example, if you buy a $400,000 home and put 10% down ($40,000), your mortgage would be $360,000.

You then repay the mortgage through monthly payments over a term or your choice, such as 15 or 30 years. Your payment includes principal (the amount you borrowed), interest (the cost of borrowing), and, depending on your loan, amounts for property taxes and homeowners insurance. As you make payments, your loan balance decreases and you build equity in your home.

There isn't one down payment amount that works for everyone, but putting 20% or more down can allow you to avoid private mortgage insurance (PMI) on conventional loans. Different loan programs, such as FHA or VA loans can allow for a lower down payment, depending on the loan program and your financial situation.

A lower down payment can help you buy a home sooner while keeping more cash available for closing costs, moving expenses, and other needs. A larger down payment generally means borrowing less and can lower your monthly payment.

With a fixed-rate mortgage, your interest rate stays the same for the entire loan term. That makes your principal and interest payment predictable and easier to budget for.

With an adjustable-rate mortgage (ARM), the interest rate can adjust periodically based on market conditions. An ARM may offer a lower initial rate, but your rate and payment could increase or decrease later.

Closing costs are the expenses you pay to finalize your home purchase and mortgage. They typically range from 2% to 5% of the home’s purchase price, though the amount can vary depending on your loan type, location, and other factors.

Common closing costs may include:

• Home appraisal — An assessment of the home’s value, typically required by the lender.
• Application or loan fees — Fees associated with processing your mortgage.
• Mortgage insurance — May be required depending on your loan type and down payment.
• Homeowners insurance — Coverage for your new home that may be required before closing.
• Escrow funds — Money collected upfront for expenses such as property taxes and insurance.

Your exact closing costs will depend on your specific loan. Our team can help you understand what to expect before closing.

We have a number of loan terms available to fit your needs. Generally, a shorter loan term means higher monthly payments but less interest paid over the life of the loan. A longer term typically means lower monthly payments but more total interest.

For example, a 15-year mortgage can help you pay off your home faster and build equity more quickly, while a 30-year mortgage can provide a lower monthly payment and more flexibility in your monthly budget.

An escrow account helps you spread certain homeownership expenses across your monthly payments. Instead of paying your property taxes and homeowners insurance separately when they're due, your mortgage servicer may collect a portion of those costs each month and hold the money in an escrow account.

When your tax or insurance bills come due, the servicer uses the funds in the account to pay them on your behalf. Your monthly payment can change over time if your property taxes or insurance costs change.

You build equity by paying your mortgage and as your home's value increases. Your equity is essentially the portion of your home that you own outright—your home's current value minus what you still owe on your mortgage.

You start building equity with your down payment, and each mortgage payment generally adds to your equity as you reduce your principal balance. In the early years of a traditional mortgage, however, a larger portion of your payment goes toward interest, so principal typically gets paid down more slowly at first.

Your mortgage payment is calculated based on your loan amount, interest rate, and term. At the beginning of the loan, you have your largest outstanding balance, which means more interest accrues each month.

As you make payments and reduce your principal balance, the amount of interest charged each month decreases. That means more of your payment goes toward principal over time, even though your scheduled principal-and-interest payment remains the same (if you have a fixed-rate mortgage.)

The amount you can afford depends on more than your income. Your monthly debts, down payment, interest rate, property taxes, homeowners insurance, and other expenses all play a role.

A good starting point is to think about what monthly payment fits comfortably within your budget. Use our home affordability calculator to explore what your monthly payment could look like.