Mortgage vs. Buying a House
These two things happen together, but they are not the same process.
Lisa Helps With the Real Estate Side
Lisa helps you:
- Find the property
- Evaluate comparable homes
- Structure the offer
- Negotiate
- Navigate inspections
- Work through property issues
- Negotiate where appropriate
- Coordinate the real estate transaction
Your lender handles the mortgage qualification and loan.
Those two sides need to stay coordinated.
How Much Money Does the Lender Actually Give You?
Suppose a home costs $500,000.
For illustration only, imagine you make a $50,000 down payment.
That leaves approximately $450,000 of the purchase price to be financed before considering other transaction details.
The lender does not normally hand you $450,000 and send you shopping.
At closing, the financing is incorporated into the settlement process so the purchase can be funded and ownership transferred.
What Is the Down Payment?
The down payment is the portion of the purchase price you contribute rather than finance through the primary mortgage.
A common myth is: "You need 20% down to buy a house."
That is not universally true.
Depending on the borrower and property, financing possibilities can include:
- Conventional financing
- FHA-insured financing
- VA-guaranteed financing
- USDA financing for eligible properties/borrowers
- Jumbo financing
- Down-payment-assistance programs
- Other specialized products
Some qualified borrowers can purchase with significantly less than 20% down.
The correct question is not: "How much does everybody have to put down?"
It is: "What financing options do I qualify for, and which structure makes the most sense for this purchase?" See more in our guide to whether you really need 20% down.
What Are Principal and Interest?
Principal
Principal is the amount of the loan balance itself.
When principal is repaid, the outstanding loan balance decreases.
Interest
Interest is the cost charged by the lender for borrowing money.
A mortgage payment is generally structured so that portions of the scheduled principal-and-interest payment are applied to both over the loan term.
Why Doesn't My Loan Balance Drop by the Full Amount of My Payment?
Because your entire housing payment is not necessarily reducing principal.
A payment might involve:
- Principal
- Interest
- Property-tax escrow
- Homeowners-insurance escrow
- Mortgage insurance where applicable
HOA assessments are another ownership cost but are often paid separately rather than through the mortgage servicer.
What Is Mortgage Escrow?
The word escrow gets used in two different ways during a home purchase.
Transaction Escrow
This is part of the closing process. The escrow/settlement provider helps coordinate documents, funds and transaction requirements. See what escrow is in a real estate transaction.
Mortgage Escrow Account
After closing, a mortgage servicer may collect money with your monthly payment to pay certain property taxes and insurance bills when due.
They are related concepts but not the same thing.
What Does the Lender Look at Before Approving You?
Mortgage qualification can involve factors such as:
- Income
- Employment
- Assets
- Credit
- Existing debts
- Debt-to-income ratio
- Down payment
- Cash reserves where applicable
- Property type
- Occupancy
- Appraisal
- Loan program requirements
A lender may approve the borrower financially and still need to approve the property as acceptable collateral.
What Happens After My Offer Is Accepted?
Once you have a contract, the financing process becomes property-specific.
Typical steps can include:
- Finalize the loan application
- Provide updated financial documentation
- Lender orders or processes the appraisal when required
- Title work proceeds
- Insurance is arranged
- Underwriting reviews borrower and property information
- Conditions are requested and cleared
- Final loan and closing requirements are satisfied
- Closing documents are signed
- Funds are delivered through the closing process
- The transaction records/closes according to applicable procedures
Not sure what comes next after an accepted offer? See what happens after your offer is accepted.
What Is Mortgage Underwriting?
Underwriting is the lender's risk-review process.
The underwriter is essentially asking: "Does this borrower and this property satisfy the requirements for this loan?"
The underwriter may request additional documentation even after you were preapproved.
That does not automatically mean something is wrong. It can be part of verifying the information required to approve the loan.
Why Shouldn't I Make Big Financial Changes During Escrow?
Because the lender may verify financial information again before closing.
Actions that can create problems include:
- Financing a vehicle
- Opening a new credit card
- Increasing credit balances
- Changing employment without discussing it
- Moving large unexplained amounts of money
- Co-signing for someone else's debt
- Missing payments
A buyer should ask the lender before making a significant financial move during the mortgage process.
Does the Mortgage Company Own My House?
You own the property subject to the lender's security interest and other applicable liens or restrictions.
The loan is secured by the real estate.
If the borrower fails to satisfy the mortgage obligation, the lender may have foreclosure rights according to the loan documents and applicable law.
Is the Interest Rate the Most Important Part of a Mortgage?
It is important, but it is not the only thing.
Compare:
- Interest rate
- APR
- Loan term
- Loan type
- Points
- Lender fees
- Mortgage insurance
- Required cash to close
- Prepayment provisions where applicable
- Adjustable-rate terms if applicable
- Total monthly housing expense
A loan advertised with a lower rate can potentially require more money upfront.
Compare the complete structure. Our guide to the lowest rate versus the best loan walks through this comparison.
How Lisa Helps
Lisa does not choose or approve your mortgage.
Her job is to help make sure the financing strategy and real estate strategy work together.
For example, the financing can affect:
- Which properties fit your budget
- How an offer is structured
- Seller concessions
- Closing timeline
- Appraisal considerations
- New-construction incentives
- Condo eligibility
- Assumable mortgage opportunities
That is why Lisa prefers buyers to understand financing early rather than finding the perfect home first and figuring out the money afterward.
