Don’t Even Think About Buying a Home Until You Can Pass This Quiz

Private mortgage insurance is insurance you purchase to protect your lender, not you, in case you fall behind on your mortgage payments. It typically costs 0.5% to 1% of your mortgage amount and is paid monthly.

To avoid private mortgage insurance, you'll need to make a 20% down payment (or more) on a conventional mortgage. While many mortgage lenders will accept a lower down payment, putting down at least 20% of your home's purchase price helps you avoid this added expense.

Home equity represents the portion of your home you own outright. If your home's value is $300,000 and you owe $240,000 on your mortgage, you have $60,000 of equity, or 20% equity in your home. Home equity is something you're able to borrow against. For example, you could take out a home equity loan or line of credit (HELOC) based on the equity you've built.

Your lender will need to make sure your income is high enough to cover your ongoing mortgage payments. Your lender will also assess your credit score to see how much risk it might be taking on by lending you money, as well as your debt-to-income ratio to see if you can swing more debt based on the amount you already have. But your age should not be a factor in qualifying for a mortgage, since it doesn't speak to how you're doing financially.

If you're a mortgage applicant with great credit, your lender is taking on less risk than it would with an applicant with poor credit. Similarly, if you're paying off your home in a shorter period of time and are making a higher down payment, that minimizes the risk your lender takes on. As such, all of these factors could lead to a lower interest rate on a mortgage.

A mortgage pre-approval letter is not the same thing as an actual mortgage, nor does it guarantee that you'll get a mortgage. Rather, the purpose of mortgage pre-approval is to show sellers that you're a serious buyer whose finances have been reviewed by a lender. Also, mortgage pre-approval letters will tell you how much you're qualified to borrow based on the information you provide, and that could help you know what price range to stick to when buying a home.

There are a number of different things that need to happen for a mortgage to close. Your lender needs to review your finances thoroughly in a process called underwriting, and then do a title search on your home to make sure your seller is really its rightful owner. Your home will also need to go through an appraisal so your lender can make sure it's worth enough to cover your loan. As such, it commonly takes 30 to 60 days to finalize a mortgage.

Lenders impose a series of fees called closing costs to finalize mortgages. These include application fees, recording fees, appraisal fees, and title search fees. All told, you should expect your closing costs to amount to 2% to 5% of the sum you're borrowing. Most lenders, however, will let you roll your closing costs into your mortgage so you don't have to write out a check upfront.

It takes a minimum credit score of 620 to qualify for a conventional mortgage. However, some lenders might choose to require a higher score than that. There are also different types of mortgages that cater to borrowers with lower credit scores, like FHA loans.

Generally speaking, it's a good idea to limit your housing costs to 30% of your take-home pay or less. Doing so could lower your risk of falling behind on those costs or on other bills. That 30%, however, doesn't just apply to your mortgage payment. It should also include recurring expenses like property taxes and homeowners insurance.