Mortgage basics

Who's involved: the team

A home purchase pulls in more people than most buyers expect. Here's who does what: your agent, the lender's own team, the independent third parties every purchase needs, and the specialists who only show up in certain situations.

Your real estate agent

• Realtor or real estate agent — represents you (as your buyer's agent) or the seller (as the listing agent). Guides your search, drafts and negotiates your offer, and coordinates timelines with everyone else on this list through closing.

Your mortgage team — the lender's staff

These people work for your lender. Together they take your loan from application to funding. You will mostly deal with the loan officer and processor; the rest work behind the scenes, but each one handles a step your loan cannot skip.

• Loan officer — your primary point of contact for financing. Takes your application, discusses your loan options, and guides you through document collection from pre-approval through closing. A loan officer may work for a bank, a mortgage lender or a mortgage broker; see how the three differ.
• Loan officer assistant — supports the loan officer with administrative tasks like document collection and scheduling. Not every loan officer has one; exact responsibilities vary by lender.
• Loan processor — once your application is submitted, the processor organizes and verifies your file — ordering items like verification of employment and compiling documentation — before it moves to underwriting.
• Underwriter — reviews your complete file against loan guidelines and makes the actual lending decision: approve, deny, or approve with conditions. You typically won't interact with them directly; they work behind the scenes.
• Disclosure team — issues your legally required loan disclosures, including your Loan Estimate and Closing Disclosure. At some lenders this is a dedicated team; at others, your processor or loan officer handles it directly.
• Closer — steps in once your loan is clear to close. The closer prepares the lender's closing package (the promissory note, the mortgage or deed of trust, and the lender's instructions) and sends it to the title company or closing attorney. They also work with the closing agent to make sure the final figures on your Closing Disclosure match on both sides. You rarely speak with the closer, but their work is why the documents are ready and correct when you sit down to sign.
• Funder — releases the loan money. After you sign, the funder reviews the signed documents and confirms that any last requirements are met, such as a final check that you are still employed, proof of homeowners insurance, and no new debt. Then they authorize the wire that sends your loan funds to the title company or closing attorney. Your purchase is not complete until the loan has funded. In most states that happens the same day you sign; in some states it can be a day or two later, so ask your loan officer when to expect funding and keys.

Independent third parties — not part of your lender

These professionals are separate businesses. Your lender relies on their work, but they do not work for the lender. You pick your own insurance agent, and in many areas you can choose the title company or closing attorney too.

• Appraiser — an independent, licensed professional who determines the home's value for lending purposes. Your lender orders the appraisal, but no one with a stake in the sale picks the appraiser: not you, the seller, either agent or your loan officer. That separation is what keeps the value free of any conflict of interest. Who assigns the appraiser and what they check differs for conventional, FHA, VA and USDA loans; see who orders the appraisal. Present on most purchase loans, though some conventional loans qualify for an appraisal waiver, where the lender accepts the value without a full appraisal.
• Homeowners insurance agent — provides the insurance coverage your lender requires before closing. You choose your own agent and carrier — shop around, since it affects your monthly payment.
• Title agent or closing attorney — handles the title search, issues title insurance, and conducts your actual closing. Whether this is a title company or an attorney depends on your state — some states require a licensed attorney to conduct every residential closing, while others allow a title company to handle it. Confirm which applies where you're buying.

Specialty roles — situational

These only enter the picture depending on your property type or loan product.

• Surveyor — needed in certain situations: some states or lenders require a new property survey, especially if there isn't a recent one on file or a boundary question comes up. Not universal.
• Engineer — required specifically for manufactured homes (foundation certification) or unconventional/unique builds, where standard appraisal methods don't fully apply.
• Home inspector (resale purchase) — evaluates the home's condition during your inspection period. Their findings often drive negotiations over repairs, credits, or price — and can be grounds to exit the contract if issues are serious enough. Not required by your lender, but strongly recommended.
• Home inspector (new construction) — a distinct role from the resale inspector above. Even though a new build passes municipal inspections, many buyers hire their own independent inspector before closing, since municipal inspections check code compliance, not workmanship quality.
• 203(k) consultant — required specifically for FHA Standard (Full) 203(k) renovation loans, to oversee and approve the scope of repair work.
• General contractor — required on most construction and renovation loans — a licensed professional has to actually perform, and be accountable for, the work. A few programs allow limited do-it-yourself work with lender approval.
• Co-op board — specific to co-op purchases. Conducts its own separate approval process — background check, interview, financial review — beyond your lender's approval.
• Septic inspector — for properties with a private septic system, confirms it's functioning properly, adequately sized, and meets local health department standards. No major loan program automatically requires a separate septic inspection on every home: the appraiser looks for signs of trouble, and a dedicated inspection is required when a problem is flagged or when the state or county requires one. Many buyers order one anyway. Cost is negotiable between buyer and seller — commonly $300-$600, though many buyers order and pay for it themselves to keep the result independent and control the timing.
• Well / water inspector — for properties on a private well, tests water quality (a lab test for bacteria, nitrates, and other contaminants) and, on some loan programs, the well's flow rate. Must be a neutral third party — not the buyer, seller, or real estate agent — typically a certified lab or local health department. VA and USDA loans require a water quality test on a private well. FHA and conventional loans generally require one when state or local rules call for it, or when the appraiser or another party flags a possible problem. Like the septic inspection, cost and who pays for it are negotiable in the purchase contract.

Where to get your loan: bank, mortgage lender or broker

There are three kinds of company you can get a mortgage through. They can all offer the same loan programs, and all of them must give you the same Loan Estimate form, but they work differently behind the scenes. Knowing the difference helps you decide who to call and what to ask.

A bank or credit union

A bank or credit union takes deposits and offers checking, savings, credit cards and other products. Mortgages are one line of business among many. It lends its own money and decides for itself whether to approve you.

• Benefits: you may already bank there, and some offer a rate or fee discount to existing customers. Banks and credit unions sometimes keep loans on their own books, called portfolio loans, which gives them room to approve situations that don't fit standard rules, such as a large jumbo loan or unusual income. Some also keep collecting your payments after closing, so you deal with one company for the life of the loan.
• Disadvantages: you can only get that one institution's products and prices. Banks often add their own stricter requirements on top of the standard guidelines, such as a higher minimum credit score, and may not offer every program. A mortgage is not their only focus, so the process can be slower and less flexible on timing.

A mortgage lender

A mortgage lender, also called a mortgage company, mortgage banker or direct lender, does one thing: home loans. It takes no deposits. It approves your loan with its own underwriters and funds it with its own money or credit lines. After closing, it usually sells the loan to an investor such as Fannie Mae or Freddie Mac.

• Benefits: mortgages are the whole business, so the staff and systems are built for them. Processing, underwriting, closing and funding are all in-house, which gives the lender control over the timeline and makes it easier to solve a problem quickly. Mortgage lenders usually offer the full range of programs, including FHA, VA, USDA and down payment assistance.
• Disadvantages: you still get only that one company's prices and rules. Because the loan is usually sold, the company you make payments to may change after closing. The terms of your loan do not change when that happens, but your point of contact does. There is no wider banking relationship to draw on for a discount.

A mortgage broker

A mortgage broker does not lend money. A broker is a licensed go-between who takes your application and places it with one of several wholesale lenders it works with. That lender, not the broker, approves the loan and provides the money.

• Benefits: one application can be priced with several lenders, so the broker does some of the comparison shopping for you. Brokers often have access to lenders and loan types you can't reach directly, which helps with situations such as self-employment or a past credit event. If one lender turns the loan down, the broker can take the same file to another without you starting over.
• Disadvantages: the broker does not control the approval or the timeline. The wholesale lender does, and you usually can't speak to that lender yourself. A broker only works with the lenders it has signed up with, so "shopping the market" means shopping that list, not every lender. The broker is paid a commission, either by the lender or by you, but never both on the same loan. Either way the amount is shown on your Loan Estimate, so look for it.

Side by side

How to choose

• The type of company matters less than the offer and the person. A good loan officer at any of the three can close your loan well, and a poor one at any of the three can cost you time and money.
• Compare Loan Estimates, not advertisements. Ask at least two companies, ideally of different types, for a Loan Estimate on the same day. Compare the rate, the points, the lender fees and the cash to close. See how to read and compare Loan Estimates.
• Ask who approves the loan and who will collect your payments. The answers tell you how much control your loan officer has if something goes wrong, and whether to expect a new company after closing.
• Look up the loan officer. Every loan officer, at a bank, lender or broker, has an NMLS number. Search it for free at NMLS Consumer Access (nmlsconsumeraccess.org) to confirm they are authorized and to see their history.

Pre-qualification, pre-approval & commitment

The vocabulary at the start of the process is used loosely, even by lenders. Here's what the terms actually mean.

Pre-qualification, pre-approval and commitment

The CFPB notes that lenders use "prequalification" and "preapproval" differently, and that the label alone doesn't tell you much about what a lender actually checked. In general:

• Pre-qualification: an estimate based on what you tell the lender. Little or nothing is verified.
• Pre-approval: the lender has pulled your credit and reviewed your income and asset documents. Sellers take this far more seriously.
• Loan commitment: the lender's written approval after underwriting, usually with conditions listed.

None of the three is a guarantee. Each depends on the property, the appraisal, and nothing changing in your finances before closing. Ask any lender exactly what they verified before issuing a letter.

Rates & loan terms

Three choices shape your payment more than anything else: whether the rate can change, how long the loan runs, and whether you pay up front to lower the rate.

Fixed vs. adjustable rates

• Fixed rate: the interest rate, and your principal and interest payment, never change.
• Adjustable rate (ARM): the rate is fixed for an initial period, then adjusts. A "7/6 ARM" is fixed for seven years and then adjusts every six months, based on a published index plus a set margin.
• Caps limit each adjustment. On standard conventional ARMs, the first adjustment can be up to 2 percentage points on a 5-year ARM and up to 5 points on a 7- or 10-year ARM; later adjustments are limited to 1 point each; and the rate can never rise more than 5 points above where it started.

An ARM usually starts with a lower rate than a fixed loan. It can make sense if you're confident you'll sell or refinance before the fixed period ends. Ask your lender to show you the highest payment the loan could ever reach.

15 years vs. 30 years

A 15-year loan usually has a lower rate and costs far less in total interest, but the monthly payment is much higher, which also means you qualify for a smaller loan. A 30-year loan with no prepayment penalty lets you pay extra when you can without being locked into the higher payment.

Rate, points and APR

• Interest rate: the yearly cost of borrowing the money. It doesn't include fees.
• Discount points: an optional up-front fee to lower your rate. One point equals 1% of the loan amount.
• Lender credits: the reverse. You accept a higher rate and the lender pays some of your closing costs.
• APR: a broader measure that folds the rate, points and most lender fees into one yearly figure, so you can compare offers.

To judge points, divide their cost by the monthly savings. That's how many months it takes to break even. If you expect to sell or refinance before then, points cost you money. Compare offers on the same day, with the same points, using the Loan Estimate from each lender. See Rate locks & floating for buydowns and locks.

Rate locks & floating

One of the most common misunderstandings in this whole process: your rate is not locked when you get pre-approved. Pre-approval only tells you what you qualify for — it doesn't hold a rate for you.

When the lock conversation actually happens

Once you're under contract and your lender receives your fully executed purchase agreement, your file moves forward and your loan disclosures go out. This is the point where you and your loan officer sit down and discuss current rates — and decide together whether to lock in now or continue floating.

How rate locks work

A rate lock is your lender's written commitment to hold your rate steady for a set number of days, no matter what happens in the market. Standard lock periods are 15, 30, 45, 60, or 90 days — 30-45 days is most common for a typical purchase and is usually free or already built into your rate. Longer locks (60-90 days) often carry a small added cost, since the lender is taking on more risk over a longer window.

Buying down your rate

Beyond locking or floating, you also have the option to buy down your rate — paying money upfront to reduce it. There are two very different ways to do this.

Permanent buydown (discount points): you pay "points" at closing to permanently lower your rate for the entire loan term. One point typically costs 1% of your loan amount and reduces your rate by roughly 0.25%, though the exact relationship varies by lender and market conditions. Since the reduction is permanent, you qualify for the loan at the bought-down rate. This tends to make the most sense if you plan to stay in the home long enough for the monthly savings to outweigh what you paid upfront — often somewhere in the 5-7 year range, though it's worth running the actual numbers for your situation.

Temporary buydown (2-1 or 3-2-1): your rate is reduced for just the first year or two, then reverts to the full note rate. A 2-1 buydown means your rate is 2% below the note rate in year one, 1% below in year two, then the full rate from year three on. A 3-2-1 buydown extends that relief an extra year. The cost — essentially the payment difference being subsidized — is paid upfront into an escrow account and released to cover your payment gap each month. One important underwriting detail: you still have to qualify at the full note rate, not the temporarily reduced one, since lenders want to confirm you can afford the payment once it steps back up.

Seller-paid buydowns and leftover concession funds

Buydowns are commonly paid for by the seller or builder as a negotiating tool, rather than the buyer paying out of pocket. This typically comes out of the same seller concession allowance covered earlier in this guide — and since concessions can only reimburse actual costs (not exceed them), any room left over after your closing costs are fully covered doesn't have to go to waste. Within your loan program's concession cap, that leftover amount can often be redirected toward a rate buydown instead — either points or a temporary buydown — rather than being forfeited.

If you need more time than your lock allows

If your closing gets delayed past your lock period, most lenders will let you extend it for a fee — commonly a fraction of a percent of your loan amount for each additional 15-30 day block. Some lenders offer one short extension for free if the delay wasn't caused by you. If a lock fully expires with no extension in place, you're exposed to whatever rates happen to be at that moment — which could be higher or lower than what you had.

Floating your rate

Floating simply means choosing not to lock yet — your rate moves with the market until you decide to lock it in. This can make sense when your closing date is far off or still uncertain, since locking too early on a long timeline often means paying for extensions you didn't need to.

New construction: a different strategy

Because a build can take many months, it often makes more sense to float your rate through most of construction, then lock in once you're roughly 30-45 days out from your estimated completion date — matching your lock to a much more predictable closing window, rather than locking at the very start of a build and paying for a long lock (or repeated extensions) you may not need.

Foreclosures & short sales

These transactions often come with longer, less predictable closing timelines — bank approval processes and extra title work can add real delay. The same principle applies: match your lock length to your realistic closing date, which usually means asking for something longer than the standard 30-45 days.

For how these purchases work, including new construction and custom builds, see Foreclosures, short sales & new construction.