Mortgage Basics: How Home Loans Work?
July 30, 2025
9 minutes
Let’s be honest: The mortgage process can feel like a maze of confusing terms, credit checks, paperwork, and surprise fees. And if it’s your first time? Multiply that confusion by ten.
But here's the thing: buying a home doesn't have to feel overwhelming. Once you break it down into simple steps, everything becomes way more manageable. Whether you're a first-time buyer, a military family exploring VA loans, or just trying to make sense of what lenders are looking for - this guide is your shortcut to mortgage confidence.
Key Takeaways:
- Understand the full mortgage journey: from application to closing.
- Learn what affects your rate, approval, and monthly payment.
- Discover how to compare lenders and avoid common home loan mistakes.
- Get expert-backed tips and real-world advice to make smarter choices.
Mortgages are simply loans that help you buy homes. They come with terms, interest rates, and monthly payments that depend on your credit profile, income, and the lender you choose. We'll walk you through every part of the process.
What Is a Mortgage?
A mortgage is a loan you get from a lender (bank, credit union, or mortgage company) to help buy a home. Instead of paying the full cost upfront, you borrow money and repay it over time - with interest.
Key Mortgage Terms to Know:
- Principal: The amount you borrow.
- Interest Rate: The cost of borrowing, expressed as a percentage.
- APR (Annual Percentage Rate): Includes your interest rate plus fees and costs.
- Term: How long you’ll repay the loan - usually 15 or 30 years.
- Escrow: An account used to pay your taxes and insurance.
Pro Tip: Always compare APRs - not just rates - to understand true costs.
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Step-by-Step: How the Mortgage Process Works
1. Get Pre-Approved
This is where you find out how much house you can afford. A lender will check your income, debts, and credit.
“Pre-approval shows sellers you’re serious - and helps you shop smart.”
2. Shop for Homes
With your budget in mind, explore homes that fit. Try using reAlpha to explore properties and connect with vetted real estate and mortgage experts
3. Apply for a Mortgage
Once you find your home, you submit a full mortgage application - W-2s, bank statements, ID, and more.
4. Loan Processing & Underwriting
This is the behind-the-scenes magic. Lenders verify everything and determine if you meet guidelines.
5. Get Approved (or Conditional Approval)
Your loan gets the green light - or you’ll need to submit more documents. Don’t worry - this is normal.
6. Close on Your Home
Sign the paperwork, pay closing costs, and get your keys!
What Impacts Your Loan Approval?
Lenders Look At:
- Credit Score: Most want 620+, but VA and FHA loans may go lower.
- DTI (Debt-to-Income Ratio): Lower is better. VA usually wants <41%.
- Job History: Steady employment shows reliability.
- Assets: Helps cover down payment or reserves.
“Even if one lender says no, another might say yes. Don’t give up.”
Types of Mortgage Loans
Conventional
Backed by Fannie Mae or Freddie Mac. Requires 3–5% down.
FHA
Government-backed. As low as 3.5% down. Great for credit-challenged buyers.
VA Loans
Zero down. No PMI. Exclusive to veterans, service members, and eligible spouses. Learn more via VA.gov.
Jumbo, HELOC, and DSCR Loans
Specialty loans for high-priced homes, home equity, or investor income properties.
Buying a Home? Get up to 1.5% Cash Back at Closing
Get pre-approval first, then start exploring homes knowing you can receive up to 1.5% of the home price back at closing.
Common Mistakes First-Time Buyers Make
- Not comparing lenders
- Ignoring APR
- Skipping pre-approval
- Underestimating closing costs
- Forgetting about taxes & insurance
“Your loan isn’t just about the rate-it’s about the right fit.”
Conclusion: Home Loans Made Smarter
Buying a home is a big decision - and having the right information puts you ahead. But the real advantage comes from pairing smart research with a smarter way to buy.
When you use a reAlpha real estate company, you can be eligible to receive up to 1% of the home purchase price back as a credit at closing. Add reAlpha Mortgage, and that rebate can increase to up to 1.5% back, helping offset closing costs and keep more money in your pocket when it matters most.
The rebate is simple, transparent, and applied directly at closing - no complicated hoops, no delayed payouts. Just real savings tied to using a fully integrated homebuying experience.
See how much you could save:
- Check your eligibility
- Explore homes that fit your budget today.
- Your next move could come with thousands back at closing.
Estimate your savings → Rebate Calculator
It's not just smart - it's strategic. Ready to buy with confidence and cash in hand? Explore your savings at reAlpha Mortgage.
FAQs
What is the minimum credit score for a mortgage?
Most lenders want 620+, but FHA may allow as low as 580. VA doesn’t set a score - but lenders usually do.
How much do I need for a down payment?
Depends on the loan. Conventional = 3–5%, FHA = 3.5%, VA = 0%.
Are VA loans really zero down?
Yes! Plus, no monthly mortgage insurance. You may still pay a funding fee - unless you’re exempt.
How long does it take to close?
30 to 45 days is standard, but with full documentation, some lenders close in 21 days or less.
What are closing costs?
2%–5% of the purchase price, covering lender fees, title insurance, appraisal, etc.
Required Disclosures
- reAlpha Mortgage, LLC | NMLS ID #1743790
- This content is for educational purposes only and not a commitment to lend or extend credit.
- Loan approval is subject to underwriting guidelines, creditworthiness, and property qualifications.
- Rates, terms, and availability may vary based on market conditions and borrower eligibility.
For accurate rates, consult the Freddie Mac Primary Mortgage Market Survey.
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Article by
Rocky Billore is a mortgage industry leader and Chief Sales Officer with over two decades of experience across residential and commercial lending. Since entering the industry in 2004, he has been directly involved in funding more than $1.4 billion in loans. A recognized expert in VA and government lending, Rocky combines deep program knowledge with a data driven, relationship-first leadership style. His work focuses on building scalable sales organizations, developing high performing teams, and aligning technology with real world lending outcomes to improve the homeownership experience.