The plain-English guide I wish every borrower got on day one.
The vocabulary that actually matters
- Principal & interest: the core of your payment — principal pays down what you borrowed; interest is the cost of borrowing it.
- APR vs. rate: your interest rate prices the loan itself; the APR folds in most lender fees to estimate the loan’s total yearly cost. Compare loans by APR and itemized fees, not either alone.
- Points: prepaid interest — one point equals 1% of the loan amount and buys a lower rate. Worth it only if you’ll keep the loan past the break-even point I’ll calculate for you.
- PMI / MIP / guarantee fees: insurance-type costs on low-down-payment loans (conventional, FHA, USDA respectively). VA loans have a funding fee instead — and no monthly insurance.
- DTI (debt-to-income ratio): your monthly debts divided by your gross monthly income. Most programs look hardest at the housing ratio and total DTI; the DTI calculator shows yours.
- LTV (loan-to-value): loan amount divided by home value. Lower LTV generally means better pricing and no mortgage insurance at 80% or below on conventional loans.
- Escrow: the account your lender uses to pay property taxes and insurance from your monthly payment — convenient, and why your “payment” is more than principal and interest.
Documents you’ll typically need
Government ID · two years of tax returns and W-2s/1099s (or bank statements for bank-statement loans) · recent pay stubs · two months of bank/asset statements · current mortgage statement (refinance) · DD-214 and COE for VA borrowers. Your exact list varies by program — I’ll give you a personal checklist, not a generic pile.
Three numbers to know before you shop
Your credit score range, your comfortable total monthly payment (including taxes and insurance), and your cash available for down payment plus closing costs (typically 2–5% of the price). Bring those to our first call and I can give you real answers immediately.
Related links: Calculators · FAQ · Loan Programs