How a home purchase loan works
The mortgage pays the seller. You repay the lender, with the house as collateral.
A purchase mortgage is the loan that covers the part of the price you do not pay in cash. The lender sends funds to closing, you sign a note promising to repay, and the home secures that promise.
MortgageDirectory.com describes how that loan is usually structured. We do not preapprove buyers or shop rates for you.
- Fixed-rate mortgages
- Adjustable-rate mortgages
- First-time buyers
- Preapproval
Pieces of a purchase loan
01
Price, down payment, and loan amount
The price in the contract minus your down payment is the starting loan amount, before costs you choose to finance. A larger down payment borrows less and can change mortgage insurance and the rate a lender offers.
02
Fixed or adjustable
A fixed rate keeps the same principal-and-interest payment for the term. An adjustable-rate mortgage can start lower and then change after an introductory period, within caps written into the note.
03
Preapproval is the lender’s step
A preapproval is a lender’s conditional review of your income, assets, and credit. It is not a commitment to fund a particular house, and it is not issued by this site. You apply with a lender you choose.
04
The house still has to qualify
The lender orders an appraisal and reviews title, insurance, and the contract. A buyer’s inspection is separate. It is how you learn the condition of the house before you are obligated to close, if the contract includes that contingency.
What to read before you apply
- Down payment and closing costs are different checks. One reduces the loan. The other pays fees, prepaids, and escrow deposits.
- Mortgage insurance is common when the down payment is under 20 percent on a conventional loan. FHA insurance works differently.
- After you apply, compare lenders with the Loan Estimate, not with a screenshot of an advertised rate.
- Taxes, insurance, and HOA dues sit on top of principal and interest. The calculator is a way to see that stack.
Related guides
Estimate a payment with the mortgage calculator.
MortgageDirectory.com explains how home loans work. It is not a lender, broker, or quote service, and nothing here is personal financial, tax, or lending advice. Rates, fees, and approvals come from lenders and depend on your situation.