Frequently asked questions

A point is 1% of your loan amount — one point on a $100,000 loan is $1,000. Points are fees paid to a lender to obtain mortgage financing under specified terms. Discount points are a specific kind of point used to lower the interest rate on the loan by paying some of that interest up front. You may also hear lenders quote costs in basis points, which are hundredths of a percent — 100 basis points equals one point.

Paying discount points usually makes sense if you plan to stay in the home for at least a few years. Buying down the rate lowers your monthly payment and can increase the loan amount you're able to afford. If you expect to move or refinance within a year or two, though, the monthly savings may not be enough to recoup the up-front cost of the points, so a lower- or no-point option may be the better fit.

An escrow account is a holding account your loan servicer manages to pay your property taxes and homeowners insurance for you. A portion of each monthly payment goes into it, and the servicer pays those bills when they come due — so you're never hit with one giant tax bill. Escrow is standard on most loans with smaller down payments and common everywhere property taxes are significant, including Texas. Your servicer reviews the account yearly and adjusts the monthly amount if taxes or insurance change.

The annual percentage rate (APR) expresses the cost of a mortgage as a yearly rate that includes points and certain lender fees, so it's usually higher than the note rate you see advertised. It exists to help you compare loans on a level playing field and keep lenders from advertising a low rate while hiding fees. The APR doesn't set your monthly payment — that comes from the interest rate and loan term. Because lenders charge different fees, a lower APR isn't automatically the better deal; the most reliable comparison is to get loan estimates from each lender for the same program and rate, then compare the total lender fees side by side.

Usually less than people expect. Conventional loans start at 3% down for qualified buyers, FHA loans at 3.5%, and VA and USDA loans can require no down payment at all for eligible borrowers. The traditional 20% figure isn't a requirement — it's the threshold where private mortgage insurance typically drops off a conventional loan. The right amount depends on your program, the property, and how you want to balance your monthly payment against cash kept in reserve, so it's worth running the numbers both ways with a loan officer.

80-10-10 financing is a way to buy a home without private mortgage insurance when you don't have a full 20% down payment: a lender provides a traditional 80% first mortgage, you take a 10% second mortgage, and you make a 10% cash down payment. Because the first mortgage stays at 80% of the purchase price, PMI isn't required. A similar 80-15-5 structure exists for buyers with 5% down, though the smaller down payment means the lender takes on more risk, so expect higher fees or a higher rate on that version.

Closing costs are the fees due when your loan finalizes — typically 2% to 5% of the loan amount. They include lender charges, the appraisal, title insurance and escrow fees, government recording charges, and prepaid items like the first year of homeowners insurance and a property-tax cushion. You'll see them itemized on your Loan Estimate shortly after applying and again on the Closing Disclosure before you sign, so there's no mystery at the table. In some cases sellers or lenders can cover a portion through credits — ask what's possible for your scenario.

Yes — most loan programs allow gift funds from family members (and in some cases close relations or employers) toward your down payment and closing costs. The key is documentation: the donor signs a short gift letter confirming the money isn't a loan, and the transfer needs a clear paper trail. Rules on who can give and how much of the down payment can be gifted vary by program, so tell your loan officer early if a gift is part of your plan — it's routine, but it goes smoothest when it's documented from the start.

Refinancing tends to make sense when the math clears a simple bar: the monthly savings (or other benefit) outweighs the closing costs within the time you expect to keep the loan. Common good reasons include a meaningfully lower rate, dropping mortgage insurance, shortening the term to pay the home off faster, or consolidating higher-cost debt against a clear payoff plan. It's not automatic — if you're near the end of your loan or moving soon, restarting the clock can cost more than it saves. Ask for the break-even number up front; when the math works, it should be obvious.

Both turn home equity into cash, but they work differently. A cash-out refinance replaces your current mortgage with a new, larger one and hands you the difference — one loan, one fixed payment. A HELOC is a separate credit line on top of your existing mortgage that you draw from as needed, usually at a variable rate. The deciding factor is often your current mortgage rate: if it's lower than today's rates, a HELOC lets you keep it; if it's higher, a cash-out refinance may improve the whole picture at once.

There's no single cutoff — it varies by loan program. Conventional loans generally look for a score of 620 or higher, while FHA loans can work with lower scores, sometimes into the 500s with a larger down payment. A higher score typically earns a better rate, but a lower score doesn't automatically mean no. Lenders weigh your whole file — income, debts, savings, and payment history — so if your score is borderline, talk to a loan officer before ruling yourself out.

PMI is insurance that protects the lender if a borrower stops making payments. It's typically required on conventional loans when the down payment is less than 20%, and it can be cancelled once you reach 20% equity in the home. Premiums are usually added to your monthly payment, though some of the cost may be due at closing. Ways to avoid PMI include making a 20% down payment or asking about loan program options structured without it.

On a conventional loan, you can request PMI cancellation once your balance reaches 80% of the home's original value, and your servicer must remove it automatically at 78% if your payments are current. If your home has appreciated, you may get there faster than the amortization schedule suggests — a new appraisal can document the higher value, or a refinance can restructure the loan without PMI entirely. FHA mortgage insurance follows different rules and often stays for the life of the loan, which is one reason FHA borrowers commonly refinance into conventional later.

Your debt-to-income ratio is your total monthly debt payments — including the new mortgage — divided by your gross monthly income. It's one of the main numbers lenders use to judge how comfortably you can carry the loan. Many programs look for a DTI around 43% or lower, though some allow more with strong compensating factors like savings or excellent credit. If your DTI is tight, paying down a credit card or car loan before applying can meaningfully change what you qualify for.

Lenders use credit scoring, which compares information from your application and credit report — payment history, outstanding balances, account types, and account age — against the credit performance of consumers with similar profiles to predict how likely you are to repay. The most widely used scores are FICO scores, which range from 300 (higher risk) to 850 (lower risk). Because your report drives your score, check it for accuracy before applying: you're entitled to a free report from each of the three bureaus — Equifax, Experian, and TransUnion — through annualcreditreport.com.

Scoring models vary, but most weigh the same core factors: whether you pay your bills on time, how much you owe relative to your credit limits, how long you've had credit, how recently you've applied for new accounts, and the mix of account types you hold. To improve your score under most models, focus on paying every bill on time, paying down outstanding balances, and avoiding new debt while you prepare to apply. Meaningful improvement takes time, so start well before you plan to buy or refinance.

Most purchase loans close in about 30 to 45 days from a signed contract, and refinances often run similar or slightly faster. The biggest variables are how quickly you return requested documents, the appraisal timeline in your market, and any surprises in title work. You can shorten your side of it by gathering pay stubs, tax returns, and bank statements before you apply, and by responding to document requests the same day when possible.

A rate lock freezes your quoted interest rate for a set window — commonly 30 to 60 days — so market movement between application and closing doesn't change your payment. Locks are typically set once you have a property under contract and your timeline is clear. Locking early protects you if rates rise; waiting can help if rates are falling, but it's a risk. Your loan officer will walk you through the lock windows available and what happens if your closing runs past the lock's expiration.

Most applications need documents in four areas: the property (signed sales contract and deposit verification), income (recent pay stubs, two years of W-2s, and full tax returns if you're self-employed or use commission, rental, or benefit income), assets (bank and investment statements covering your down payment and closing funds, plus a gift letter if any funds are gifted), and debts (account details for your current loans, credit cards, and housing payments). Every situation is unique, so you may be asked for additional documentation — responding quickly keeps your application moving.

An appraisal is a professional estimate of a property's fair market value, prepared by a state-licensed appraiser trained to evaluate a home's location, condition, and amenities. Lenders generally require one (depending on the loan program) before final loan approval to confirm that the mortgage amount doesn't exceed what the property is worth.

Plan on two years of personal and business tax returns (all schedules), a year-to-date profit-and-loss statement, and recent business and personal bank statements. Lenders qualify self-employed borrowers on the income your returns actually show, so write-offs that lower your taxable income can also lower what you qualify for. If your business is growing or your returns don't tell the whole story, ask about programs designed for self-employed borrowers — the earlier a loan officer sees your numbers, the more options stay open.

Closing (also called funding or settlement) is when ownership of the property officially transfers from the seller to you. A title or escrow company typically coordinates the paperwork and disbursements, and the meeting can involve the agents, attorneys, and lender representatives on both sides; if you can't attend in person, an attorney can represent you. Before closing, do a final walk-through to confirm any requested repairs were completed and that items included in the sale are still in place. Once documents are signed and funds are disbursed, the seller is paid and you get the keys.