Mortgage 101
Understand the basics of mortgage approval, financing options, and what to expect when securing your home loan.
Just like any loan, you'll need to apply for a mortgage. If you're "approved," you will be able to borrow a certain amount of money from a lender. Each month you'll pay a portion of the loan (plus interest) for a set period of time—typically 15 or 30 years.
The requirements to secure a mortgage may seem overwhelming—but by understanding basic lending terminology and requirements, you'll be able to avoid common roadblocks and move confidently through the process.
Use this guide to learn how to prepare before applying for a mortgage, and what to watch for during the process to keep your mortgage application as simple as possible.
The Mortgage Process
Five steps from application to closing day
Choose Your Lender
Shop around to find the best mortgage for your financial situation. Make sure to ask plenty of questions: What is your process for preapproval and closing? How do you communicate with homebuyers? What will be my down payment requirement? What are the fees?
Get Pre-Approved for a Mortgage
The lender will review your financial situation to determine how much they are willing to lend. Pre-approval helps you be taken seriously as a buyer, know how much you can afford, have negotiating power, and speed up loan processing time for a quicker, smoother closing.
House Hunting & Offer
Find your ideal home and present your offer. You may need to negotiate the price with the seller, and both parties will sign a purchase agreement once terms are accepted.
Loan Application & Processing
You'll fill out a loan application with the information about the home being purchased. The loan processor will create your file and request your documentation. Once your home inspection is complete, the lender will order an appraisal for your home.
Underwriting, Approval & Closing
The underwriter analyzes the loan file to determine if it can be approved. You may be asked for more information—but don't be frustrated, this is normal! The underwriter will issue an approval, and you're ready to attend the closing to finalize your home purchase.
We Connect You With Trusted Lenders
The Rush Home Team has relationships with local and national lenders who offer competitive rates and excellent service. We'll help you find the right lending partner for your situation.
Qualifying for a Mortgage
Three factors lenders evaluate
Credit Score
Find out your current credit history and score. Credit scores range between 200 and 860. A credit score above 620 is generally best for obtaining a conventional mortgage, though some loan programs accept lower scores.
You can improve your credit score by:
- Paying down credit card bills
- Not charging credit cards to the maximum limit
- Waiting 12 months after credit difficulties to apply
- Not opening any new credit card accounts while shopping for a mortgage
Once you're ready to shop for a mortgage, avoid opening new credit accounts or making large purchases. Any significant changes to your credit profile can affect your approval.
Income & Affordability
Determine the approximate amount of mortgage you may qualify for by taking your gross monthly income and multiplying by 35%. This is the maximum that many lenders would like to see for your monthly mortgage payment (including taxes and insurance).
Quick Affordability Example
If your gross monthly income is $6,000, your maximum monthly payment would be approximately $2,100 ($6,000 × 35%). This includes principal, interest, taxes, and insurance.
Employment Stability
Stable income and income verification are both necessary. Make sure to stick with your employer while going through the home buying process, as a job switch will force lenders to reevaluate your finances.
Important: Avoid Major Changes
Don't change jobs, make large purchases, or take on new debt during your home buying process. These changes can jeopardize your mortgage approval.
Types of Financing
Understanding your loan options
There are several mortgage programs available, each designed for different buyer situations. The right loan depends on your financial profile, military service, property location, and down payment capacity.
Conventional Loan
The "standard" mortgage most home buyers use. Not guaranteed or issued by the federal government.
- Minimum 3% down (first-time buyers)
- Best rates with 20% down
- PMI required if down payment <20%
- PMI drops at 78% loan-to-value
VA Loan
For active duty military, veterans, reservists, National Guard, and surviving spouses. Backed by the U.S. Department of Veterans Affairs.
- Zero down payment required
- No monthly mortgage insurance
- One-time VA funding fee (2.15%–3.3%)
- Disabled veterans: fee exempt
USDA Loan
For properties in USDA-eligible rural areas. Great for buyers in less densely populated parts of Delaware.
- Zero down payment required
- 1% upfront guarantee fee
- 0.35% annual fee (for life of loan)
- Income limits apply
FHA Loan
A government-backed loan sponsored by the Federal Housing Administration. Ideal for buyers with lower credit scores or limited down payment.
- Minimum 3.5% down payment
- Lower credit score requirements
- 1.75% upfront MIP + 0.85% annual
- MIP for life if down <10%
Your ideal loan type depends on your circumstances. Veterans should explore VA loans for their zero-down benefit. Rural property buyers may qualify for USDA. FHA is excellent for those building credit. We'll help you determine the best fit.
Costs to Consider
Understanding what you'll pay when buying
Upfront Costs
Earnest Money
Typically $1,000–$2,000. A deposit held by the escrow company as a good faith commitment. Applied to your purchase at closing.
Down Payment
Generally 5–20% of purchase price. The portion you pay in cash. 20% or more avoids PMI on conventional loans.
Closing Costs
Expect 1–5% of purchase price. Includes lender fees, title fees, taxes, insurance, and other transaction costs.
What's in a Mortgage Payment?
Your monthly mortgage payment consists of several components, often referred to as "PITI" (Principal, Interest, Taxes, Insurance):
Monthly Payment Components
Private Mortgage Insurance (PMI)
Usually required on conventional loans if your down payment is less than 20%. PMI protects the lender if you default. It's added to your monthly payment and typically drops off once you reach 78% loan-to-value ratio.
Key Terms to Know
Essential mortgage vocabulary
The interest rate remains the same for the life of the loan, allowing you to lock in your rate. This type of mortgage provides a stable and predictable monthly payment—ideal for buyers who plan to stay in their home long-term.
The interest rate is flexible and subject to adjustments, usually offering a lower initial rate that will rise as market rates increase. ARMs may be a good choice when fixed interest rates are high. Rates adjust on pre-determined dates (e.g., annually, or after 3, 5, or 7 years).
Your interest rate stated as a yearly rate. Your APR is typically higher than your interest rate because it includes fees, such as lender and mortgage broker fees. Use APR to compare the true cost between different loan offers.
Fees paid to the lender at closing in exchange for a reduced interest rate. One point costs 1% of your mortgage amount (or $1,000 for every $100,000). Paying points is often referred to as "buying down the rate."
Steps to Take Now
Prepare for a smooth mortgage process
Before you begin the mortgage process, it's important to have your financial plan for purchasing in place. Use these steps to prepare:
- Track Your Monthly BudgetUse a budget to save for a down payment (if needed), reduce debt, or increase your credit score.
- Shop for the Right LenderTake the extra time to search for the right lender and the right loan. Check references, shop around, and ask plenty of questions—including an estimate of fixed costs for the mortgage.
- Gather Your DocumentsBegin preparing standard documents: 1 month of recent pay stubs, most recent 2 years of tax filings, and 3 months of bank account statements.
- Respond Quickly to RequestsMake sure to respond quickly to the paperwork your lender requests to keep the mortgage process on schedule.
You're Ready to Get Started
Now that you have the basics down, you're off to a great start for a seamless mortgage approval. The Rush Home Team is here to guide you every step of the way.
Frequently Asked Questions
Common questions about mortgages and home financing
Ready to Get Pre-Approved?
Connect with our trusted lending partners and take the first step toward your new home.