Mortgage Basics

A 20% down payment is the common benchmark because it usually takes the loan-to-value ratio to 80% and avoids private mortgage insurance. It is not a requirement — many loan programs allow far less. The trade-off is that a smaller down payment means a larger loan, higher monthly payments, more total interest, and usually PMI. Weigh that against keeping enough cash for closing costs, moving, repairs, and an emergency fund.

The interest rate is what the lender charges on the balance you borrow. The APR expresses the broader annual cost of the loan by folding in certain fees and closing costs alongside the interest rate. Because lenders package fees differently, comparing APRs is usually a fairer way to compare two offers than comparing headline interest rates.

PMI is generally required while the down payment is under 20% of the home value. You can usually request removal once the loan reaches 80% of the original value of the home, and it commonly terminates automatically at 78% LTV, depending on the loan type and whether payments are current. Rules vary by loan program, so confirm the specific terms with your servicer.

A fixed rate keeps the same interest rate for the whole term, so payments are predictable and budgeting is simpler. An adjustable rate usually starts lower for an introductory period, then moves with market conditions. An ARM can suit a shorter expected holding period, but it carries the risk that payments rise later. The right choice depends on how long you plan to keep the loan and how much payment variability you can absorb.

Yes, when they are applied to the principal. Interest is charged on the outstanding balance, so reducing that balance earlier removes interest from every remaining period. This is why extra payments made early in the loan have far more effect than the same amount paid near the end. Confirm with your servicer that additional payments are applied to principal rather than held toward the next scheduled payment.

Debt-to-income compares your total monthly debt payments to your gross monthly income. Lenders use it to judge whether you can absorb a new payment. Thresholds differ by loan program and by lender, and other factors such as credit history, reserves, and down payment size are weighed alongside it. Lowering existing debt or increasing your down payment are the two most direct ways to improve the ratio.

Pre-approval tells you the price range a lender is likely to support, which stops you from viewing homes you cannot finance. It also signals to sellers that your offer is credible. It is not a guarantee of final approval, since that depends on the property, the appraisal, and a full underwriting review.