What’s a mortgage? A beginner’s guide

The simple answer to the question, “What’s a mortgage?” is that it’s a loan used to buy a home. When you finance property with a mortgage, you’ll make payments over time that typically include the borrowing expenses for the loan, and the taxes and insurance for your property. However, a mortgage provides much more than home financing. When tailored to your specific needs, a mortgage can enable a whole new life. That’s why we offer a wide array of loan products to fit individual borrower situations.

Consider these factors when looking for a mortgage to suit your needs and financial circumstances. But don’t worry, you don’t have to figure this out alone. Your local loan officer will use their experience and expertise to help you find the right loan and guide you throughout the homebuying process.

1. Credit score requirements: Credit scores range from 300 to 850 and provide one way of measuring your likelihood to repay debt. Taking steps to improve your credit score can open the door to better loan terms, including lower interest rates. The minimum credit score required can vary depending on the type of mortgage. In addition, some programs, such as the Guild Mortgage Complete Rate program, offer alternative ways to get a lower rate with no credit scores.
2. Customer service and reputation: Before applying for a mortgage, it can be helpful to research your lender’s reputation for customer service and reliability. At Guild Mortgage, we lend and service home loans. That means that we’re your partner throughout the life of your loan. Guild Mortgage has become one of the nation’s leading independent mortgage providers by following a simple rule—doing what’s right for our customers. We’re proud to be an award-winning lender in business since 1960, making us one of the longest-operating mortgage companies in the nation.
3. Down payment requirements: A down payment is a portion of your total home purchase price that’s paid upfront, typically on closing day. A larger down payment can result in a smaller monthly payment and a lower principal balance; however, not every loan requires one. Fortunately, many home loans and mortgage programs are designed to help put homeownership within reach. There are both low- and no-down-payment mortgages as well as assistance programs that provide cash toward your closing costs or down payment.
4. Loan size: When you’re pre-approved for a mortgage, you’ll receive a conditional written commitment with the maximum loan amount you’re pre-approved to borrow. Keep in mind that doesn’t mean you should borrow the maximum. To determine how much home you can afford, it’s essential to look at your family’s income and your overall financial goals, then factor in all expenses related to owning a home as well as your savings priorities to see what fits comfortably within your budget.
5. Loan limits: Some mortgages have limits on the amount you can borrow. Make sure the loan amount aligns with your homebuying budget.
6. Loan limits: This is the amount of time you have to repay the loan. Longer loan terms, such as the popular 30-year mortgage, usually result in lower monthly payments compared to shorter terms. If lower monthly payments are a priority for your budget, a longer loan term might be more manageable. A 15-year mortgage may include a higher monthly mortgage payment, but you can save thousands of dollars in interest because you’re paying it off in half the time.
7. Mortgage insurance: Private mortgage insurance (PMI) is typically required as part of the mortgage if your down payment is less than twenty percent of your home’s value.
8. Mortgage rate: Your mortgage rate reflects the cost you’ll pay to take out a home loan. As a percentage of the overall loan amount, it represents the annual interest you’ll owe.
9. Type of interest rate: A fixed-rate mortgage is a loan where the interest rate remains the same for the entire term of the loan. Interest rates on fixed-rate mortgages are locked up-front and don’t change. If you’re looking for the predictability of a fixed payment and you’re planning to keep your home for more than ten years, you might choose this option. An adjustable-rate mortgage (ARM) is a home loan with an interest rate that can change periodically. Meaning your monthly payments can go up or down. The initial interest rate on an ARM loan is typically lower than a fixed-rate mortgage.

Your regular monthly mortgage payment is broken down into these costs:

Principal and interest: Principal is the amount you borrowed to buy your home, and interest is what you’re charged for borrowing money. Your monthly interest payment is calculated based on your interest rate and outstanding loan balance.

Private mortgage insurance (PMI): An extra layer of protection that’s required if your down payment is less than twenty percent of your home’s value with some loans. Check out our mortgage payment calculator to estimate what the PMI on your mortgage will be.

Hazard insurance: Many types of mortgages require you to have hazard insurance to qualify. This is the part of your homeowner’s insurance policy that offers protection against the costs of damage from fire, vandalism, smoke and other causes.

Property taxes: When you buy a home, your monthly mortgage payment may include property taxes. The county generally imposes these taxes and often includes local taxes for school districts, utilities or city governments. Property tax rates and rules vary depending on your location. You can find your estimated total monthly payment on your Loan Estimate (LE), in the “Projected Payments” section. Whether your loan is on a fixed rate or an adjustable rate, it is common for your mortgage payment to change due to adjustments in property taxes and insurance premiums.

Reaching out to a local loan officer is an excellent first step to getting a mortgage. Loan officers will help you find the best home loan option to match your needs and budget and assist with your mortgage application. During the mortgage loan process, the property you’re buying is appraised to ensure it’s worth what you’re paying. After an underwriter does an in-depth review of your loan package, finalizing all of the figures and determining if your loan has final approval, you’ll get the clear to close. Once you officially become a homeowner, you’ll make regular monthly mortgage payments.