General Mortgage Knowledge

Conventional loans are not insured or guaranteed by the government. One that meets the agency size and underwriting limits is conforming; for 2026 the baseline one-unit limit is $832,750 and the ceiling in high-cost counties is $1,249,125. A larger balance is a jumbo loan.

FHA loans are insured by the Federal Housing Administration and allow lower down payments and credit scores than most conventional programs. The borrower's own cash investment must be at least 3.5% of the appraised value, and FHA charges both an up-front and an annual mortgage insurance premium.

VA loans are guaranteed by the Department of Veterans Affairs for eligible veterans and service members, often with no down payment and no monthly mortgage insurance.

USDA Rural Development guaranteed loans help eligible buyers in designated rural areas purchase with no down payment. Household adjusted income may not exceed the applicable moderate-income limit, which the rule sets at the greater of 115% of the U.S. median family income or the local benchmarks it names.

The interest rate and principal-and-interest payment stay the same for the entire loan term, giving predictable payments.

An ARM's rate can change after an initial fixed period, limited by an initial adjustment cap, a periodic cap, and a lifetime cap. The initial rate-adjustment notice is due at least 210 days and no more than 240 days before the first payment at the adjusted level. A later notice that changes the payment is due at least 60 days and no more than 120 days before that payment.

During an interest-only period the borrower pays only interest, so the principal balance does not decline until amortization begins.

A reverse mortgage lets qualifying older homeowners convert equity into funds with no required monthly payment, repaid when the home is sold or the borrower leaves.

Loan-to-value compares the loan amount to the property value; combined loan-to-value adds all liens, and higher ratios generally mean higher risk and cost.

DTI compares the borrower's monthly debt obligations to gross monthly income; front-end DTI counts only housing, back-end counts all debts.

The housing payment used in qualifying typically includes principal, interest, property taxes, and insurance, plus mortgage insurance or HOA dues where applicable.

The note rate is the interest charged on the balance, while the APR reflects the rate plus certain finance charges, so the APR is usually higher.

One discount point is an amount equal to 1% of the loan amount, paid by the borrower to reduce the interest rate. A temporary buydown lowers the rate for the first years of the loan and then steps it back up to the note rate.

On a fully amortizing loan, early payments are mostly interest and later payments are mostly principal, reaching a zero balance at the end of the term.

An escrow or impound account collects part of the taxes and insurance with each payment so the servicer can pay those bills when due. The servicer may hold a cushion of no more than one-sixth of the estimated annual disbursements, which is 2 months of the borrower's escrow payments.

Private mortgage insurance (PMI) applies to conventional loans and can be canceled at set equity levels, while FHA's mortgage insurance premium (MIP) often lasts the life of the loan.

The servicer must give the borrower an initial escrow account statement at settlement or within 45 calendar days of settlement, and an annual statement within 30 calendar days of the end of each computation year. A surplus of $50 or more must be refunded within 30 days of the analysis; a smaller surplus may instead be credited against next year's payments.