How does a mortgage work?
A mortgage is a loan to buy a home. You repay it monthly with interest over a number of years (often 15, 20 or 30). If you can’t repay, the lender may take the home through a process known as foreclosure. Who offers mortgages? Banks, credit unions and lenders.
How do you apply? Fill out an application and share your financial details.
What do lenders check? Your income, debt, and credit score determine if you qualify and the terms offered.
Types of mortgages
There are different types of mortgages. Here is a simple breakdown of your options.
Fixed vs. adjustable rates
✅ Fixed-rate mortgage: the interest rate stays the same for the entire loan.
✅ Adjustable-rate mortgage (ARM): the interest rate stays the same for a certain period (up to 10 years), then adjusts at a specific interval (usually every six months). 15-, 20- and 30-year mortgages
30-year mortgages are the most common.
✅ 15- and 20-year loans are also available.
✅ Payments are spread over the loan term. Once fully paid, you own the home free and clear.
Government-backed mortgages
These loans are insured by the federal government:
🏠 FHA loans: Backed by the Federal Housing Administration 3.5% down payment required
Lower credit score requirement than other loans
Mortgage insurance required
🏠 USDA loans: Backed by the U.S. Department of Agriculture 🏠 VA loans: Backed by the Department of Veterans Affairs Conventional loans
Conventional loans are mortgages that are not backed by the federal government. Some require as little as 3% down, but private mortgage insurance (PMI) is needed if the down payment is under 20%. There are two types of conventional loans:
🏠 Conforming loans: Must stay within loan limits set by the Federal Housing Finance Agency (FHFA). They follow rules from Fannie Mae and Freddie Mac, which buy these loans.
🏠 Nonconforming loans: Do not follow these limits or guidelines.
What’s the credit score needed for a home loan?
The credit score needed to buy a home depends on the type of loan and the lender. Most borrowers have scores in the high 600s to 700s. FHA loans generally have the most lenient credit score requirements. How to compare mortgage rates
Get online quotes from lenders based on:
Your location
Loan term
Purchase price
Down payment
Other factors
To get a more personalized quote, apply for preapproval. During preapproval, the lender will check your credit score and verify your financial information, such as income, assets and debts.
How to shop for a mortgage lender
The best time to shop for a mortgage lender is before you start house hunting.
Get preapproved: This shows real estate agents and sellers that you’re a serious buyer.
Review key details: Look at loan terms, monthly payments, and estimated closing costs.
By comparing lenders, you can find the best deal and save money over time.
Home equity loans and lines of credit
Homeowners can access their home equity without refinancing or selling by taking out a second mortgage. Provides a lump sum based on home value
Best for home upgrades or repairs that add value
Repaid over a fixed time period
🏠 HELOC (Home Equity Line of Credit)
Works like a credit card with a borrowing limit
Allows multiple withdrawals over a set period
Payments are made over time
Important: Both options use your home as collateral. If you miss payments, you could lose your home.
Refinancing a mortgage
Getting a mortgage doesn't have to be a one-time decision. Refinancing lets you replace your current home loan with a new one, often to lower your interest rate, change your loan term or access home equity. The new loan pays off the old one, and you make payments on the refinance instead.
Why homeowners refinance
✅ Lower the interest rate to reduce monthly payments
✅ Change the loan term (for example, from 30 years to 15)
✅ Switch from an adjustable-rate mortgage to a fixed rate
✅ Tap home equity with a cash-out refinance
Types of refinances
Lets you borrow more than you owe and take the difference in cash
Often used for home improvements, debt consolidation or major expenses
🏠 Streamline refinance
Available for FHA, VA and USDA loans
Fewer documentation requirements
May not require a home appraisal
What lenders look at
✅ Lenders review many of the same factors as with a purchase loan:
✅ Income and employment
✅ Credit score
✅ Debt -to-income ratio
✅ Home value and equity
Costs to consider
Refinancing usually comes with closing costs, often 2% to 5% of the loan amount. A refinance makes sense when the long-term savings outweigh these upfront costs.
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