What Is a Home Mortgage?

What Is a Home Mortgage?

Let me explain what a home mortgage really is. It's a loan from a bank, mortgage company, or another financial institution that you use to buy a residence—whether that's your primary home, a secondary one, or even an investment property. This isn't for commercial or industrial real estate. When you take out this loan, you as the borrower transfer the title of the property to the lender, but you'll get it back once you've made the final payment and met all the terms.

You should know that home mortgages are one of the most common types of debt out there, and they're often recommended. Since they're secured by the residence itself, they come with lower interest rates than most other loans you might get as an individual.

How a Home Mortgage Works

Home mortgages open up homeownership to more people because you don't need the full purchase price upfront. The lender holds the title while the mortgage is active, and if you can't make payments, they can foreclose—meaning they seize and sell the property.

Your mortgage will have either a fixed or adjustable interest rate, paid monthly along with part of the principal. In a fixed-rate mortgage, the rate and payment stay consistent. With an adjustable-rate one, they can change, often starting lower because you take on the risk of rate increases.

No matter the type, as you pay down the principal, interest is calculated on a smaller amount, so more of your future payments go toward reducing the principal rather than just covering interest.

Fast Fact

In mortgage terms, the lender is the mortgagee, and you, the borrower, are the mortgagor.

Types of Mortgages

You have options when it comes to mortgage types, generally falling into conventional, FHA, or specialty categories.

Conventional Loans

Conventional loans aren't tied to government programs. They can be conforming, following rules from Fannie Mae and Freddie Mac, or nonconforming. If your down payment is under 20%, you might need private mortgage insurance.

Be aware that upfront fees for Fannie Mae and Freddie Mac loans changed in May 2023. Fees went up for those with high credit scores like 740 or above, and down for lower scores below 640. Your down payment affects the fee too—the bigger it is, the lower the fee, but credit score still plays a role. Check Fannie Mae's website for Loan-Level Price Adjustments.

FHA Loans

FHA loans come from private lenders but are backed by the government. They require lower credit scores and down payments—you could qualify with a 580 score and 3.5% down, or 500 score and 10% down.

Specialty Loans

Specialty loans don't fit conventional or FHA molds, like VA loans for veterans and families, or USDA loans for rural areas with no down payment required.

Fast Fact

VA and USDA programs don't set minimum credit scores, but lenders typically want 620 or higher.

What's Included in a Mortgage Payment?

Your monthly mortgage payment usually covers four things: principal (the borrowed amount you repay), interest (the cost of borrowing), mortgage insurance (to protect the lender if you default, depending on loan type and down payment), and property taxes plus homeowners insurance (often escrowed into the payment).

These are on top of upfront costs like earnest money, down payment, appraisals, inspections, prepaid fees, and closing costs. If you have HOA or condo fees, those might be escrowed too.

How to Get a Home Mortgage

To get a mortgage, submit an application with your financial details to a lender to show you can repay it. You might use a mortgage broker for help.

Start with pre-qualification: Share your debt, income, and assets for an estimate of what you can borrow—it's quick, often free, and done online or by phone.

Next, get pre-approved by submitting a full application and documents for a deep financial check. You'll get a conditional loan amount in writing to shop for homes within that budget.

Use an online calculator to estimate costs. Once you find a home, the lender issues a commitment after approving you and appraising the property at or above the price.

When terms are set, the lender places a lien on the home, allowing them to take it if you default.

Example of Mortgage Terms

Mortgage terms are how you agree to repay, typically 30 years but ranging from 10 to 40. For instance, a home equity loan might be 10 years.

Terms include the interest rate. Say you borrow $300,000 for 30 years at 3.5%, with $60,000 down, $200 monthly taxes, and $100 insurance. Your payment would be $1,377.71 monthly, totaling $147,974.61 in interest, $72,000 taxes, $36,000 insurance—$495,974.61 overall, excluding down payment.

What Is a Mortgage for a House?

It's a loan to buy a house, secured by the house. Defaulting allows the lender to foreclose.

Is a Mortgage the Same as a Home Loan?

People use the terms interchangeably, but a mortgage is any property-secured loan, while a home loan specifically buys a house.

What Credit Score Do You Need to Buy a House?

It varies by loan and lender—for FHA, as low as 500; for conventional, often 620 or higher.

The Bottom Line

A home mortgage might be your biggest loan, essential for buying a house or rental. Knowing types, payment breakdowns, terms, and application steps makes the process straightforward.