A mortgage is a secured loan. The lender advances you the money to buy a house, and you pledge the house itself as collateral. Miss enough payments, and the lender can foreclose. That is the whole deal in one sentence — everything else is plumbing.

Two legal documents run the transaction. The promissory note is your personal promise to repay. The mortgage (or deed of trust, depending on the state) gives the lender a security interest in the property. When you sign both, roughly $400,000 lands in escrow and keys change hands. The note is what the lender sells into the secondary market. The mortgage is what stays recorded on the property.

Every month your payment covers four things, bundled by escrow into what lenders call PITI: principal, interest, property taxes, and homeowner's insurance. Principal reduces what you owe. Interest is the rent you pay on the outstanding balance. Taxes and insurance are collected monthly and paid out once or twice a year by the servicer. On a $400,000 30-year loan at 6.30%, principal and interest alone run about $2,478/month. Add taxes and insurance and most buyers end up at $3,000–$3,300.

Amortization is front-loaded — and that matters

Interest is calculated on the outstanding balance, so the early years of any long mortgage are almost pure interest. On that same $400,000 loan at 6.30%, the first payment sends roughly $2,100 to interest and only $378 to principal. By year 25 the ratio has flipped. You will pay off more principal in year 30 than in your first seven years combined. This is why selling after three years feels like you have barely touched the loan — because you have barely touched the loan.

Fixed vs. adjustable

A fixed-rate mortgage locks your rate for the entire term. A 30-year fixed at 6.30% stays 6.30% even if prevailing rates spike to 9% next year. An adjustable-rate mortgage — most commonly a 5/6 or 7/6 ARM — holds the rate for an initial fixed period (5 or 7 years), then adjusts every six months based on a benchmark like SOFR plus a margin. ARMs cap how far the rate can move at each adjustment (typically 2%) and over the life of the loan (typically 5%). We cover the ARM trade-offs in depth in section 6, including the ARM Calculator for modeling payment shock.

Affordability is not what a lender will approve you for. It is what you can pay every month for the next 360 months without cannibalizing retirement, childcare, or sanity. Lenders underwrite to a maximum. You should budget to a ceiling that sits below it.

The bank's version of affordability is built on your debt-to-income ratio. Take every recurring monthly debt — the proposed housing payment, car loans, student loans, minimum credit card payments, alimony, child support — divide by your gross monthly income, and multiply by 100. That is your back-end DTI. Fannie Mae's standard ceiling for conventional loans is 45%, with an extension to 50% if you have compensating factors like strong reserves ([Fannie Mae Selling Guide](https://singlefamily.fanniemae.com/)). FHA will stretch as high as 57% with automated underwriting.

The "28/36 rule" is a starting point, not a law

Old-school lenders used a 28/36 rule: housing no more than 28% of gross income, total debt no more than 36%. It is still a reasonable upper bound for a household that wants to fund a 401(k), pay for kids, and take a vacation. On $100,000 of household income, 28% caps your monthly PITI at roughly $2,333. Back into a purchase price from there and — with 10% down at today's rate, 1.1% property tax, and $150/month insurance — you land somewhere around a $320,000–$340,000 house. That is well below what most lenders will approve you for on $100k of income, which is closer to $420,000–$450,000.

So who is right? We are. Loan officers earn when you take a bigger loan; they have no reason to cap your aspirations. Households that buy at the 45% DTI ceiling are twice as likely to refinance under stress or sell within five years. Run the numbers at 28% and then see what happens if you push.

What $100k of income actually buys in April 2026

At a 6.30% 30-year rate, 10% down, and the 28% housing rule, a $100,000 household pulls a mortgage of about $290,000. That implies a purchase price near $320,000. The same household at the 45% DTI ceiling could stretch to a $425,000 purchase — but would eat every spare dollar doing it. Plug both scenarios into our advanced mortgage calculator and the monthly difference is roughly $780 — real money you could be steering into retirement instead. Regional math matters enormously. In Austin, $320,000 buys a 3-bed starter. In San Jose it buys a parking space. Use our Cost of Living Comparison to pressure-test a relocation before you commit to a mortgage at the top of your range.

The affordability stress test we recommend

Model your payment at your rate + 1% inside our Home Affordability Analyzer. If the number still fits, buy. If it does not, you are buying too much house. Rates have moved 100+ basis points in a single calendar year three times since 2020 per FRED series MORTGAGE30US. A fixed mortgage protects you from future rates — it does not protect you from the rate you sign today. Our 2026 Mortgage Affordability Index tracks the gap between local incomes and required monthly payments in the 50 largest metros.

There are five mortgage types that matter for almost every US buyer: conventional, FHA, VA, USDA, and jumbo. Each has a different minimum down payment, credit floor, mortgage insurance structure, and target borrower. Picking the wrong one costs real money — sometimes five figures over the life of the loan.

Conventional — the default choice for most buyers

Conventional loans are not government-backed. They conform to guidelines set by Fannie Mae and Freddie Mac, which is why any loan at or below the $806,500 conforming limit is often called a "conforming" loan. Minimum down payment under programs like HomeReady and Home Possible is just 3%. Put less than 20% down and you pay PMI — typically 0.5–1.5% of the loan balance per year — which automatically cancels once your principal balance hits 78% of original value under the Homeowners Protection Act of 1998. Request removal earlier at 80% LTV based on current appraised value.

FHA — 3.5% down with a 580 score

The Federal Housing Administration insures loans with scores as low as 580 at 3.5% down, and scores 500–579 with 10% down. The cost is mortgage insurance premium (MIP): a 1.75% upfront charge (usually financed into the loan) plus an annual premium of 0.55–1.05%. For loans originated after June 2013 with less than 10% down, that MIP lasts the life of the loan — not just until you hit 20% equity. Many FHA borrowers refinance into a conventional loan once they cross 20% equity specifically to shed the MIP.

VA — the best deal in US mortgage finance, if you qualify

VA loans are available to eligible veterans, active-duty service members, and certain surviving spouses. They require no down payment, charge no monthly mortgage insurance, and have no loan limit for borrowers with full entitlement. In exchange, you pay a one-time VA funding fee of 1.25–3.3% of the loan amount. First-time use with less than 5% down is 2.15%; repeat use is 3.3%. Veterans rated 10% or more service-connected disabled are fully exempt from the funding fee. On a $400,000 loan, that exemption is worth $8,600 in cash — before counting the monthly MIP savings you can quantify in our VA loan calculator.

USDA — the overlooked zero-down option

The USDA Rural Development Single Family Housing Guaranteed program lends at 0% down in eligible rural and some suburban areas. Income must be below 115% of the area median. Fees are 1% upfront and 0.35% annually — meaningfully cheaper than FHA. The surprise: many exurbs of cities like Nashville, Charlotte, and Phoenix still qualify as "rural" under USDA's maps. Check property and income eligibility at the USDA Eligibility Site before ruling it out.

Jumbo — above the conforming line

Any loan above $806,500 (or $1,209,750 in high-cost areas) is a jumbo. Because jumbos can't be sold to Fannie or Freddie, lenders hold the risk and price accordingly: 700+ FICO, 10–20% down, 12+ months of reserves, full income documentation. In parts of 2023–2024, jumbo rates actually ran below conforming rates as big banks competed for relationship customers — one of the few cases where borrowing more got you a better rate.

"The cheapest mortgage is not always the one with the lowest rate. It is the one whose rules fit your life five years from now."

— We Are Calculator Editorial

Underwriters look at four things, often called the "Four Cs": capacity, credit, capital, and collateral. Capacity is your DTI. Credit is your FICO score and history. Capital is your down payment and cash reserves. Collateral is the appraised value of the property. Miss the bar on any one and the loan does not close.

What credit score you actually need in 2026

Technical minimums are not the same as rate-tier minimums. You can get an FHA loan at 580 — but you will pay roughly 0.75% more than the same loan at 760. Conventional pricing tiers, published in Fannie Mae's Loan-Level Price Adjustment matrix, step at 620, 640, 660, 680, 700, 720, 740, and 760. Every tier you clear shaves basis points off your rate. On a $400,000 30-year loan, the difference between a 680 score and a 760 score is roughly $240/month, or $86,000 over the life of the loan.

The Experian 2025 consumer credit review put the average US FICO at 715. That is comfortably above the 620 conventional floor, but well below the 760 cliff where the best pricing lives. Two cheap moves before you apply: pay revolving balances below 30% of the limit (this alone can lift a score 20–40 points within one statement cycle), and do not open any new credit for 6 months before application.

DTI — the number lenders actually underwrite to

Front-end DTI is proposed housing ÷ gross income; back-end DTI is all monthly debts ÷ gross income. Conventional back-end ceiling is 45% (50% with reserves). FHA back-end can stretch to 57% with automated underwriting approval. Student loan debt is now calculated at 0.5% of the balance if you are on an income-driven repayment plan, per the May 2023 Fannie Mae update — a meaningful easing for recent graduates. If your DTI is the binding constraint, run an avalanche plan through our Debt Payoff Optimizer first and our deep guide on how to pay off debt fast second.

Income documentation

W-2 employees need two years of W-2s, 30 days of paystubs, and two months of bank statements. Self-employed borrowers need two years of personal and business returns plus a year-to-date profit and loss. Underwriters average the two years, and use the lower year if income is trending down. Rental income counts at 75% to account for vacancy. Bonus and commission income must have a two-year track record to be usable.

Reserves — the quiet qualifier

After you pay your down payment and closing costs, how many months of PITI do you have left in liquid savings? Conventional lenders want 2–6 months; jumbos want 12–24. Retirement accounts count at about 60–70% of current value because of early-withdrawal penalties. Strong reserves act as a compensating factor — they can offset a high DTI or a mid-tier credit score, which matters most when you are trying to stretch into a higher price range.

The down payment gets all the attention. The closing costs are what blow up first-time buyers at the finish line. Plan for both as a single cash number — typically your down payment plus 2–5% of the loan amount — and you will not get ambushed at the settlement table.

The 20% down payment rule is often wrong

The "put 20% down or you're wasting money on PMI" line is an artifact of 1990s lending. In 2026 it is usually backwards for first-time buyers. PMI on a $400,000 loan at 0.8% runs about $267/month — and drops off automatically once you hit 20% equity, typically within 5–9 years at current appreciation rates. Draining your emergency fund to clear 20% exposes you to a single bad month of unplanned repairs, and the opportunity cost against a diversified portfolio is brutal once you run the numbers in our FIRE roadmap. NAR's 2025 Profile of Home Buyers and Sellers reports the median first-time buyer puts down just 9%. They are not all wrong.

When 20% actually pays

Put 20% down when (a) you still have 3–6 months of emergency fund untouched after closing, (b) you plan to stay 10+ years, and (c) the rate markup for less than 20% down on your specific loan is meaningful — LLPAs for low down payments on conventional loans can add 0.25–0.75% to the rate before PMI even enters the math. Otherwise, put 5–10% down, keep the reserves, and refinance or request PMI removal when you hit 80% LTV.

Closing costs — what you will actually pay

Closing costs typically run 2–5% of the loan amount. On a $400,000 mortgage that is $8,000–$20,000, on top of the down payment — a number worth sanity-checking against our closing costs estimator for your state. The CFPB Loan Estimate standardizes these into five categories:

• Origination charges — lender fees, points, processing. Negotiable.
• Services you cannot shop for — appraisal, credit report, flood determination. Set by the lender.
• Services you can shop for — title insurance, settlement agent, survey. Shopping here saves $300–$700.
• Taxes and government fees — recording fees, transfer taxes. Set by local government.
• Prepaids and escrow reserves — first year of insurance, prorated taxes, 2–3 months of escrow. Not really a fee — you would owe these anyway.

Seller concessions and lender credits

In a soft market — which most non-coastal metros were in Q1 2026 — sellers will often contribute 2–6% of the purchase price toward your closing costs. Write it into the offer. Conventional caps seller concessions at 3% if you are under 10% down, 6% at 10–25% down, and 9% above that. FHA allows 6%, VA allows 4%, USDA allows 6%.

Lender credits work in reverse. Accept a rate roughly 0.125–0.25% higher, and the lender throws cash at your closing costs. Useful if you plan to refinance within 3 years anyway, or are cash-tight. Do not use them if you plan to stay a decade.

Two questions dominate mortgage forums in April 2026: should I lock, and should I take an ARM? Both are timing questions. Neither has a universal answer. Both have a disciplined way to think about them.

How rates are actually set

Mortgage rates are not set by the Federal Reserve. They are set by the secondary market for mortgage-backed securities, which tracks the 10-year US Treasury yield plus a spread. That spread (commonly called the "primary-secondary spread") covers prepayment risk and lender margin. It has averaged roughly 1.7 percentage points historically, but widened to 2.6–3.0 points in 2022–2023 and has compressed back toward 2.0 in 2026. When people say "mortgage rates follow the Fed," what they really mean is: the Fed moves short rates, which moves the whole yield curve, which drags the 10-year and mortgages with it — on a lag, imperfectly.

When to lock

Lock as soon as your purchase contract is fully executed and your closing date is firm — not before. Standard locks run 30, 45, or 60 days. Longer locks cost more (roughly 0.125% per additional 15 days). Extensions mid-process run another 0.125–0.25%. Let a lock expire and you are thrown back to current market pricing; in the 2023 rate spike, some borrowers lost 0.75% on a single missed extension. Some lenders offer a float-down: if rates drop more than 0.25% before closing, you can reprice once, usually for a 0.125% fee. Ask about it upfront — it is often free with a competing offer in hand.

ARM vs. fixed in 2026

An ARM saves money when its fixed-period rate is meaningfully lower than the 30-year fixed, and you are confident you will sell or refinance before adjustment. In April 2026, 5/6 ARMs are pricing roughly 0.5% below the 30-year fixed — smaller than the historical average. That is a thinner cushion than in the mid-2000s when ARMs ran 1.0–1.5% cheaper. Before you sign anything, stress-test the worst-case ARM payment at the lifetime rate cap and see whether your household budget still breathes. If rates fall further in 2027–2028, refinancing a fixed is cheap; if rates rise, a fixed protects you and an ARM does not.

Our default recommendation: take the fixed rate unless you have a clear professional reason to expect a move within 5 years — medical residents, active-duty military, academics on a defined track. The payment predictability is worth more than the 0.5% savings for most households.

Should you buy now or wait for lower rates?

The honest answer: it depends on what the price does while you wait. A 0.5% rate drop on a $400,000 loan saves about $130/month. If home prices rise 3% while you wait — historically routine — you lose $12,000 of purchase price and gain nothing. The broad data: buyers who waited for "better rates" in 2021–2023 got neither lower rates nor lower prices. Marry the house, date the rate.

From the first preapproval to handing over keys, a typical purchase mortgage in 2026 runs 30 to 45 days. A refinance runs 30 to 60. Most delays are documentation delays, and almost all of them are avoidable if you front-load paperwork before you even find a house.

Phase 1: Preapproval (days 0–3)

Submit a mortgage application to one or more lenders with: two years of W-2s (or tax returns if self-employed), 30 days of paystubs, two months of bank and investment statements, and ID. The lender pulls your credit, runs automated underwriting through Fannie Mae's Desktop Underwriter or Freddie Mac's Loan Product Advisor, and issues a preapproval letter. This is not the same as prequalification — prequalification is informal and self-reported, and carries no weight with a seller. Preapproval involves a hard credit pull and document verification.

The strongest version is a fully underwritten preapproval (sometimes called "credit approval"), where a human underwriter has reviewed the full file and only the property address is missing. This converts to a closing faster than a standard preapproval and is meaningfully more credible to sellers in competitive markets.

Phase 2: Shop and offer (days 3–30)

Work with an agent, tour houses, make offers. Your preapproval letter accompanies every offer. In hot markets, sellers regularly reject offers without preapproval, and sellers routinely prefer conventional offers over FHA or VA due to appraisal sensitivity. If you are competing against cash buyers, a fully underwritten preapproval plus a short (14-day) close commitment narrows the gap.

Phase 3: Contract to closing (days 30–75)

Once under contract:

1. Day 1–3: Deliver earnest money. Formally apply for the loan with the lender you picked.
2. Day 3–10: Lender orders appraisal, title search, and any remaining documentation.
3. Day 7–14: Home inspection and any negotiations on repairs.
4. Day 14–25: Appraisal comes back. Underwriter reviews file, issues conditional approval with a "conditions list" you must clear.
5. Day 25–30: Clear conditions (explanation letters, updated bank statements, etc.). Underwriter issues final approval, a.k.a. "clear to close."
6. Day 30–33: Lender delivers the Closing Disclosure. Federal law requires you to receive it at least 3 business days before closing.
7. Day 34–45: Final walk-through. Closing. Funds wire. Deed records. Keys.

What slows things down

Documentation gaps (missing deposits on bank statements), self-employed income that needs CPA letters, low appraisals that require renegotiation, and title issues (undischarged liens, probate chains) are the usual culprits. Buying in a title-insurance-friendly state like Texas or California is faster than buying in an attorney state like New York or Georgia by roughly 5–10 days on average.

Most five-figure mortgage mistakes are self-inflicted. The CFPB and the CFPB's 2015 mortgage-shopping study found nearly half of consumers get only a single rate quote. That one habit alone costs the average borrower $9,000–$42,000 over the life of the loan.

1. Skipping the shop

Get three quotes, minimum. One big bank, one credit union, one independent mortgage broker. FICO bunches all mortgage inquiries within a 45-day window into a single hard pull, so rate-shopping does not hurt your score. Use the CFPB Loan Estimate format, which is standardized across lenders — you can compare line for line.

2. Opening credit after preapproval

Financing a new car or furniture between preapproval and closing is the most common killed-at-the-altar mistake. Lenders re-pull credit within 10 days of closing. A single new tradeline can push DTI over the ceiling and terminate the approval.

3. Emptying savings for 20% down

See section 5. PMI is a $267/month problem that goes away. A depleted emergency fund is a $15,000 HVAC bill on a credit card.

4. Anchoring to monthly payment, not total cost

Two loans can have the same $2,478 monthly payment and $100,000 of difference in lifetime interest. Shorter terms always cost less in total. A 15-year at 5.65% costs $86,000 in interest on a $300,000 loan; a 30-year at 6.30% costs $195,000. Run the total-cost number, then decide if the lower monthly is worth it.

5. Ignoring the full cost of ownership

Budget 1–2% of home value annually for maintenance. On a $400,000 house, that is $4,000–$8,000 per year for routine upkeep — before a roof, HVAC, or water heater. NAR data shows first-year repair and improvement spending by new buyers is even higher, typically $5,000–$10,000. Your monthly mortgage payment is not your housing budget — a point worth confirming when you run the rent-vs-buy break-even before signing.

6. Confusing prequalification with preapproval

Prequalification: informal, self-reported, no credit check. Worth nothing to a seller. Preapproval: hard credit pull, verified documents, conditional lender commitment. Know which letter you have before making offers.

7. Refinancing into a new 30-year clock late in the loan

At year 20 of a 30-year loan, most of your payment is principal. Refinancing into a new 30-year at a lower rate drops the monthly payment but restarts the amortization clock. You may save on rate and still pay more total interest. If you refinance late in the loan, match the remaining term — a 10-year or 15-year refi is almost always the right answer.

8. Forgetting that a house is a concentrated, illiquid asset

Most US households hold more equity in their home than in all other investments combined. That is not automatically a strategy — it is a concentrated, leveraged, illiquid position. Some households will actually build net worth faster by renting and investing the difference. That is why we tell some readers why house hacking works as an investment only when the rent-vs-buy math also works. Track the whole picture with the Net Worth Calculator.

Refinancing replaces your existing mortgage with a new one. Recasting keeps the existing mortgage but re-amortizes it around a lump-sum principal reduction. Both can save meaningful money in 2026 for the right borrower. Most borrowers only hear about the first.

When refinancing pays

Three conditions have to line up: (1) your new rate is at least 0.75–1.0% lower than your current rate, (2) your break-even on closing costs is shorter than your remaining ownership horizon, and (3) you are not near the end of the original amortization. The break-even math is simple:

Freddie Mac PMMS data shows the 30-year fixed fell from 6.83% (April 2025) to 6.30% (April 2026). Borrowers who locked at 7.25–7.75% in Q3 2023 are squarely in refinance territory as of April 2026 — the largest refinance-eligible cohort since 2020. Before you pay a single appraisal fee, model a refinance against your current rate to confirm the break-even actually lands inside your expected hold period.

Streamline refinances — the low-friction option

FHA and VA both have streamlined programs that skip the appraisal and most documentation. The FHA Streamline requires a demonstrated "net tangible benefit" — typically a 0.5%+ rate reduction or a change from ARM to fixed. The VA Interest Rate Reduction Refinance Loan (IRRRL) charges a 0.5% funding fee (vs. 2.15–3.3% on a new purchase) and usually closes in 2–3 weeks with minimal income re-verification. If you already have one of these loans, a streamline is almost always cheaper than a conventional refinance.

Recasting — the underused option

Most conventional loans (not FHA or VA) allow recasting: you make a large lump-sum principal payment — typically $10,000 minimum — and the servicer re-amortizes the remaining balance over the original term at your original rate. Monthly payment drops proportionally. Recasting does not change your rate or term, so it is not a substitute for refinancing when rates have dropped. It is the right answer when you have received a windfall (inheritance, bonus, home sale proceeds) and want lower monthly payments without paying 2–3% in new closing costs. Most servicers charge $150–$500 to recast. Call your servicer — this is not widely advertised.

Cash-out refinance — proceed carefully

A cash-out refinance replaces your existing loan with a larger one and gives you the difference. Conventional caps at 80% LTV; FHA caps at 80%; VA goes to 90% (and up to 100% for specific programs). Rates run 0.125–0.375% higher than rate-and-term refinances. Useful for home improvements that actually add value, or for paying off credit card debt at 22% with a new mortgage at 6.5% — but you are converting unsecured debt into debt secured by your home. The upgrade in interest rate has to be worth the downgrade in bankruptcy protection.