CONSUMER GUIDE: MORTGAGES AND FINANCING
Buying a home is one of the largest personal and financial decisions you can make. For many buyers,
the process includes finding a loan that will help you pay for your new home over time. An agent who is
a REALTOR® can help you learn about your options. Here’s what else you need to know:
What is a mortgage, and how do I get one? A mortgage is a loan offered by a bank or lender that lets
you borrow money to purchase a home and repay over time with interest. Mortgages can take many
forms, but one of the most popular options is a 30-year fixed rate mortgage. Many factors can affect the
mortgage options available to you, including your down payment, personal finances (e.g., credit score,
income, existing debt, employment history), and other factors like government policies, current interest
rates, and what lender you are working with. Certain buyers, like first-time homebuyers and veterans,
might be eligible for special financial assistance programs.
What types of loans are there? Factors like where you are searching for a home and how long you plan
to stay in your new home will help determine which loan type best suits you. Some options include:
• Fixed-rate mortgage: Sets an interest rate and monthly payment for the life of the loan, which
is typically 15 or 30 years.
• Adjustable-rate mortgage (ARM): ARMs may offer interest rates that are lower than you could
get with a fixed-rate mortgage for a chunk of the life of the loan, such as five or 10 years.
However, after that point your interest rates are subject to change approximately once per year
based on market conditions.
What is a down payment, and how much will it be? Some lenders require buyers to pay a percentage
of the home’s purchase price up front, which is known as a “down payment.” Your down payment can
vary substantially depending on your mortgage agreement. Typically, if you pay more money up front,
your monthly mortgage payment will be lower. Many local governments and non-profit organizations
offer down payment assistance grants and loans if you meet certain requirements. Ask your agent or
reach out to your local REALTOR® association for recommendations and guidance on what’s available.
What is the difference between conventional and federal home loans? Conventional loans are
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inanced by private lenders, such as banks, credit unions, and mortgage companies. They require
stronger credit and higher down payments but may offer better rates. Federal loans are government
backed, meaning lenders carry less risk and can pass savings onto eligible borrowers who may not have
pristine credit. Some federal loans include:
• Federal Housing Administration (FHA) Loan: FHA loans cater to first-time buyers and have
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lexible requirements and down payment options as low as 3.5%, depending on your credit
score or debt-to-income ratio.
• Department of Veterans Affairs (VA) Loan: If you served in the U.S. military, you are eligible for
a VA loan with no down payment and no mortgage insurance requirements.
• U.S. Department of Agriculture (USDA) Loan: The USDA Rural Development loan is designed
for families purchasing a home in rural areas, requires zero down payment, and offers
discounted mortgage interest rates.
Are there other ways I can lower my out-of-pocket costs? Some sellers may offer to pay certain costs
associated with purchasing a home for you, which are called concessions. Certain limits apply to
concessions—please consult our guide to seller concessions for more information. You can also ask the
seller to pay for your agent’s compensation, which does not count towards concession limits, as part of
your purchase offer. Both are options that may reduce out-of-pocket and upfront expenses, helping you
stretch your budget. However, keep in mind that the current banking system does not allow for agent
compensation to be financed through a mortgage. Talk to your agent about building a home purchase
plan that works with your budget.
Practices may vary based on state and local law. Consult your real estate professional and / or an
attorney for details about state law where you are purchasing a home. Please visit facts.realtor
for more information and resources.
REALTORS® are members of the National Association of REALTORS®
