Mortgage FAQs

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1. What is pre-approval and how does it work?

Pre-approval is a statement or letter from a lender that details how much money you can borrow to purchase a home and what your interest rate might be. To get pre-approved, you may have to provide bank statements, pay stubs, tax forms and employment verification, to name a few. Once you’re pre-approved, you’ll receive a mortgage pre-approval letter, which you can use to begin viewing homes and start making offers. It’s best to get pre-approved at the start of your home-buying journey before you start looking at homes.

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2. How do mortgages work?

A mortgage is a type of loan that you can use to purchase a home. It’s also an agreement between you and the lender that essentially says that you can purchase a home without paying for it in-full upfront — you’ll just put some of the money down upfront (usually between 3% and 20% of the home price) and pay smaller, fixed equal monthly payments for a certain number of years plus interest.

For example, you probably can’t pay $400,000 for a home upfront, however, maybe you can afford to pay $30,000 upfront; a mortgage would allow you to make that $30,000 payment while a lender gives you a loan for $370,000 (the remaining amount) and you agree to repay that amount plus interest to the lender over the course of 15 or 30 years.

Keep in mind that if you choose to put down less than 20%, you’ll be subject to private mortgage insurance (PMI) payments in addition to your monthly mortgage payments. However, you can usually have the PMI waived after you’ve made enough payments to build 20% equity in your home.

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3. What is a conventional loan?

A conventional loan is a loan that’s funded by private lenders and sold to government enterprises like Fannie Mae and Freddie Mac. It’s the most common type of loan and some lenders may require a down payment as low as 3% or 5% for this loan.

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4. What is an FHA loan?

A Federal Housing Administration loan (FHA loan) is a loan that typically allows you to purchase a home with looser requirements. For example, this type of loan may allow you to get approved with a lower credit score and applicants may be able to get away with a higher debt-to-income ratio. You typically only need a 3.5% down payment with an FHA loan.

5. What is a USDA loan?

A USDA loan is a loan offered through the United States Department of Agriculture and is aimed at individuals who want to purchase a home in a rural area. A USDA loan requires a minimum down payment of 0% — in other words, you can use this loan to buy a rural home without making a down payment.

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6. What is a VA loan?

A VA mortgage loan is provided through the U.S. Department of Veterans Affairs and is meant for service members, veterans and their spouses. They require a 0% down payment and no mortgage insurance.

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7. What is a jumbo loan?

A jumbo loan is meant for home buyers who need to borrow more than $647,200 to purchase a home. Jumbo loans are not sponsored by Fannie Mae or Freddie Mac and they typically have stricter credit score and debt-to-income ratio requirements.

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8. How is my mortgage rate decided?

Mortgage rates change almost daily and can depend on market forces such as inflation and the overall economy. While the Federal Reserve doesn’t set mortgage rates, mortgage rates tend to move in reaction to actions taken by the Federal Reserve on its interest rates.

Market forces may influence the general range of mortgage rates but your specific mortgage rate will depend on your location, credit report and credit score. The higher your credit score, the more likely you are to be qualified for a lower mortgage interest rate.

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9. What is the difference between a 15-year and a 30-year term?

A 15-year mortgage gives homeowners 15 years to pay off their mortgage in fixed, equal amounts plus interest. By contrast, a 30-year mortgage gives homeowners 30 years to pay off their mortgage. With a 30-year mortgage, your monthly payments will be lower since you’ll have a longer period of time to pay off the loan. However, you’ll wind up paying more in interest over the life of the loan since interest is charged monthly. A 15-year mortgage lets you save on interest but you will likely have a higher monthly payment.

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Methodology

To determine which mortgage lenders are the best specialists analyzed dozens of U.S. mortgages offered by both online and brick-and-mortar banks, including large credit unions, that come with fixed-rate APRs and flexible loan amounts and terms to suit an array of financing needs.

When narrowing down and ranking the best mortgages, we focused on the following features:

• Fixed-rate APR: Variable rates can go up and down over the lifetime of your loan. With a fixed rate APR, you lock in an interest rate for the duration of the loan’s term, which means your monthly payment won’t vary, making your budget easier to plan.

• Types of loans offered: The most common kinds of mortgage loans include conventional loans, FHA loans and VA loans. In addition to these loans, lenders may also offer USDA loans and jumbo loans. Having more options available means the lender is able to cater to a wider range of applicant needs. We have also considered loans that would suit the needs of borrowers who plan to purchase their second home or a rental property. 

• Closing timeline: The lenders on our list are able to offer closing timelines that vary from as promptly as two weeks after the home purchase agreement has been signed to as many as 45 days after the agreement has been signed. Specific closing timelines have been noted for each lender.

• Fees: Common fees associated with mortgage applications include origination fees, application fees, underwriting fees, processing fees and administrative fees. We evaluate these fees in addition to other features when determining the overall offer from each lender. Though some lenders on this list do not charge these fees, we have noted any instances where a lender does charge such fees. 

• Flexible minimum and maximum loan amounts/terms: Each mortgage lender provides a variety of financing options that you can customize based on your monthly budget and how long you need to pay back your loan.

• No early payoff penalties: The mortgage lenders on our list do not charge borrowers for paying off the loan early. 

• Streamlined application process: We considered whether lenders offered a convenient, fast online application process and/or an in-person procedure at local branches. 

• Customer support: Every mortgage lender on our list provides customer service available via telephone, email or secure online messaging. We also opted for lenders with an online resource hub or advice center to help you educate yourself about the personal loan process and your finances.

• Minimum down payment: Although minimum down payment amounts depend on the type of loan a borrower applies for, we noted lenders that offer additional specialty loans that come with a lower minimum down payment amount. 

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After reviewing the above features, we sorted our recommendations by best for overall financing needs, quick closing timeline, lower interest rates and flexible terms.

Note that the rates and fee structures advertised for mortgages are subject to fluctuate in accordance with the Fed rate. However, once you accept your mortgage agreement, a fixed-rate APR will guarantee interest rate and monthly payment will remain consistent throughout the entire term of the loan, unless you choose to refinance your mortgage at a later date for a potentially lower APR. Your APR, monthly payment and loan amount depend on your credit history, creditworthiness, debt-to-income ratio and the desired loan term. To take out a mortgage, lenders will conduct a hard credit inquiry and request a full application, which could require proof of income, identity verification, proof of address and more.