Getting a mortgage doesn’t have to feel like decoding a secret language. At its core, a mortgage is simply the tool that helps you buy a home — without paying for it all upfront.
Whether you’re a first-time buyer or just need a refresher, this guide breaks down exactly how mortgages work, who qualifies, and how to start the process with confidence.
What Is a Mortgage?
A mortgage is a type of loan you use to buy a home. It’s secured by the property itself — meaning the home acts as collateral for the loan. You borrow money from a lender and agree to repay it over time, typically with interest.
Instead of paying the full price of a home upfront, a mortgage lets you spread payments across many years, making homeownership achievable for more people.
Key Mortgage Terms You’ll Hear Often
- Amortization: The process of gradually paying down your mortgage over time through monthly payments that include both principal and interest.
- Pre-Approval: A quick check (like Lexford’s 3-minute online pre-approval) showing how much home you can afford before you start shopping.
- Closing Costs: Fees you pay when finalizing your home purchase — including appraisal, title, taxes, and lender fees.
- Loan Term: The length of your mortgage, usually 15, 20, or 30 years.
- APR (Annual Percentage Rate): The total cost of borrowing, including interest and lender fees, expressed as a yearly rate.
- Mortgage Insurance: Required if your down payment is under 20%; it protects the lender, not you.
- Equity: The portion of the home you own outright. As you make payments or your home’s value increases, your equity grows.
- Escrow: A third-party account that holds money for property taxes and insurance.
Loan vs. Mortgage — The Difference Explained
A mortgage is a specific type of loan tied to real estate.
Unlike a personal loan, your property serves as collateral. If you stop making payments, the lender can legally take ownership of the home through foreclosure.
All mortgages are loans, but not all loans are mortgages.
Who Qualifies for a Mortgage?
Every lender has its own standards, but the basics include:
- Credit Score: Most conventional loans require a score of at least 620. FHA loans may accept as low as 500.
- Income: Lenders verify that your income can comfortably cover monthly payments.
- Debt-to-Income Ratio (DTI): Ideally 50% or lower — this measures how much of your income goes toward existing debts.
- Down Payment: Some loans need 3% down, while others (like VA or USDA) may need none.
- Assets and Reserves: Savings or investments that show financial stability and serve as a backup in case of emergencies.
If you’re unsure where you stand, Lexford’s quick online pre-approval can show your eligibility in minutes — without commitment.
The Key Players in a Mortgage
- Borrower: That’s you — the homebuyer applying for the loan.
- Lender: The financial institution that provides the mortgage funds.
- Underwriter: The expert who verifies your income, credit, and assets to confirm you meet the loan’s requirements.
Behind the scenes, appraisers, title agents, and closing coordinators help ensure everything goes smoothly.
How Does a Mortgage Work?
Once approved, your lender provides funds to purchase your home. You agree to repay that amount — plus interest — over the agreed term.
Each monthly payment includes:
- Principal: The portion that reduces your loan balance.
- Interest: The cost of borrowing.
- Taxes & Insurance: Often collected through your escrow account.
When your mortgage is fully paid off, you own your home outright.
Common Types of Mortgages
Fixed-Rate Mortgage (FRM):
Your rate and payment never change — ideal if you plan to stay long-term.
Adjustable-Rate Mortgage (ARM):
Starts with a lower fixed rate, then adjusts periodically. Works well for buyers planning to move or refinance before the rate changes.
FHA Loan:
Government-backed, great for first-time buyers or those with lower credit. Requires as little as 3.5% down.
VA Loan:
For eligible veterans, service members, and spouses — no down payment required.
Conventional Loan:
Not government-backed. Usually offers the best rates for borrowers with strong credit.
USDA Loan:
For rural or semi-rural homebuyers who meet specific income requirements.
The 8-Step Mortgage Process
- Get Pre-Approved:
Start online with Lexford — see your buying power in just minutes. - Choose Your Lender:
Compare rates from multiple lenders and choose the one that fits your goals. - Complete the Application:
Provide income, employment, and asset documentation. - Review Your Loan Estimate:
Understand interest rates, monthly payments, and closing costs upfront. - Appraisal:
A licensed appraiser confirms the property’s market value. - Processing & Underwriting:
The lender reviews all details and verifies your eligibility. - Closing Disclosure:
You’ll receive a detailed summary of final loan terms before signing. - Closing Day:
Sign your documents, transfer funds, and get your keys. You’re officially a homeowner 🎉
Common Mortgage Misconceptions
“I need perfect credit.”
Not true — many programs accept scores as low as 500.
“I must have 20% down.”
You can buy with as little as 3% down; you’ll just pay mortgage insurance until you reach 20% equity.
“Pre-approval guarantees a loan.”
It’s a strong indicator, but final approval depends on underwriting. Be honest and transparent to avoid surprises later.
Get Started with Lexford Financial
Buying a home doesn’t have to be stressful.
At Lexford Financial, we combine advanced technology with expert guidance to make your mortgage experience fast, transparent, and hassle-free.
✅ Get pre-approved in minutes
✅ Compare rates from 25+ lenders
✅ Close on time — guaranteed