{"id":70844,"date":"2025-08-26T11:10:22","date_gmt":"2025-08-26T18:10:22","guid":{"rendered":"https:\/\/www.redfin.com\/blog\/?p=70844"},"modified":"2025-08-26T11:10:44","modified_gmt":"2025-08-26T18:10:44","slug":"what-is-a-mortgage","status":"publish","type":"post","link":"https:\/\/www.redfin.com\/blog\/what-is-a-mortgage\/","title":{"rendered":"What Is a Mortgage? Breaking Down the Home Loan Process"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">When you\u2019re buying a home, one of the first terms you\u2019ll hear is \u201cmortgage.\u201d Since most buyers don\u2019t <\/span><a href=\"https:\/\/www.redfin.com\/blog\/buying-home-with-cash\/\" data-wpel-link=\"exclude\"><span style=\"font-weight: 400;\">purchase homes with cash<\/span><\/a><span style=\"font-weight: 400;\">, mortgages make homeownership possible for millions. But what exactly is a mortgage, how does it work, and why does it matter?<\/span><\/p>\n<p><span style=\"font-weight: 400;\">At Redfin Real Estate, we help buyers navigate every step of the <\/span><a href=\"https:\/\/www.redfin.com\/guides\/buy\" data-wpel-link=\"exclude\"><span style=\"font-weight: 400;\">homebuying journey<\/span><\/a><span style=\"font-weight: 400;\">, from understanding financing to finding the right home. Whether you\u2019re browsing <\/span><a href=\"https:\/\/www.redfin.com\/city\/14240\/AZ\/Phoenix\" data-wpel-link=\"exclude\"><span style=\"font-weight: 400;\">homes for sale in Phoenix, AZ<\/span><\/a><span style=\"font-weight: 400;\"> or searching <\/span><a href=\"https:\/\/www.redfin.com\/city\/15502\/PA\/Philadelphia\" data-wpel-link=\"exclude\"><span style=\"font-weight: 400;\">homes for sale in Philadelphia, PA<\/span><\/a><span style=\"font-weight: 400;\">, knowing how mortgages work is the first step toward confident homeownership.\u00a0<\/span><\/p>\n<p><img fetchpriority=\"high\" decoding=\"async\" class=\"alignnone size-full-size\" src=\"https:\/\/www.redfin.com\/blog\/wp-content\/uploads\/2025\/08\/shutterstock_2229856779-scaled.jpg\" alt=\"what is a mortgage \" width=\"2560\" height=\"1440\" \/><\/p>\n<h2><span style=\"font-weight: 400;\">What is a mortgage?<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">A mortgage is a loan used to buy a home or property, with the home itself serving as collateral. If you stop making payments, the lender can foreclose to recover their money.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">When you take out a mortgage, you agree to repay the borrowed money (the principal) plus interest over a set number of years, typically through <\/span><a href=\"https:\/\/www.redfin.com\/mortgage-calculator\" data-wpel-link=\"exclude\"><span style=\"font-weight: 400;\">monthly payments<\/span><\/a><span style=\"font-weight: 400;\">.<\/span><\/p>\n<h2><span style=\"font-weight: 400;\">How does a mortgage work?<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Mortgages are typically 15-, 20-, or 30-year loans, repaid in monthly installments that often include four parts (known as<\/span><a href=\"https:\/\/www.redfin.com\/blog\/what-is-piti\/\" data-wpel-link=\"exclude\"><span style=\"font-weight: 400;\"> PITI<\/span><\/a><span style=\"font-weight: 400;\">):<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Principal<\/b><span style=\"font-weight: 400;\">: the portion that reduces your loan balance.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Interest<\/b><span style=\"font-weight: 400;\">: the cost of borrowing money, based on your interest rate.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Taxes<\/b><span style=\"font-weight: 400;\">: property taxes collected by your local government.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Insurance<\/b><span style=\"font-weight: 400;\">: homeowners insurance, and sometimes <\/span><a href=\"https:\/\/www.redfin.com\/blog\/what-is-pmi-insurance\/\" data-wpel-link=\"exclude\"><span style=\"font-weight: 400;\">private mortgage insurance<\/span><\/a><span style=\"font-weight: 400;\"> (PMI).<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Additionally, it\u2019s important to remember that your true monthly housing costs may go beyond your mortgage payment. Homeowners association (<\/span><a href=\"https:\/\/www.redfin.com\/blog\/what-is-an-hoa\/\" data-wpel-link=\"exclude\"><span style=\"font-weight: 400;\">HOA<\/span><\/a><span style=\"font-weight: 400;\">) fees, utilities, and ongoing maintenance can all add up. Factoring these expenses into your budget ensures you choose a mortgage payment that\u2019s realistic and sustainable long-term.<\/span><\/p>\n<h2><span style=\"font-weight: 400;\">Who are the parties involved in a mortgage?<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">A mortgage isn\u2019t just between you and the bank \u2014 there are several key players involved in the process:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Borrower<\/b><span style=\"font-weight: 400;\">: The individual (or individuals) taking out the loan to buy the property.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Lender<\/b><span style=\"font-weight: 400;\">: The financial institution, bank, or mortgage company that provides the loan.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Mortgage servicer<\/b><span style=\"font-weight: 400;\">: Sometimes different from the lender, this is the company you send your monthly payments to. They handle billing, escrow accounts, and customer service.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Appraiser<\/b><span style=\"font-weight: 400;\">: A licensed professional who determines the fair market value of the home to ensure the loan amount is appropriate.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Title company<\/b><span style=\"font-weight: 400;\">: Handles the legal aspects of transferring ownership and ensures the property title is clear of claims or disputes.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Closing agent or escrow officer<\/b><span style=\"font-weight: 400;\">: Oversees the signing of documents and the distribution of funds at closing.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Each of these parties plays a role in making sure the loan is valid, the property is secure as collateral, and the transfer of ownership goes smoothly.<\/span><\/p>\n<h2><span style=\"font-weight: 400;\">Key mortgage terms explained<\/span><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Down payment<\/b><span style=\"font-weight: 400;\">: The upfront money you pay, typically 3%\u201320% of the home price.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Interest rate<\/b><span style=\"font-weight: 400;\">: The percentage charged by the lender for borrowing money.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Loan term<\/b><span style=\"font-weight: 400;\">: The length of time you\u2019ll take to repay (e.g., 30 years).<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Amortization<\/b><span style=\"font-weight: 400;\">: The schedule that breaks down how each payment applies to principal and interest.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Escrow<\/b><span style=\"font-weight: 400;\">: the servicer-managed account used to collect monthly amounts for taxes and insurance and pay those bills when due.<\/span><\/li>\n<\/ul>\n<p><b>&gt;&gt;&gt;Read: <\/b><a href=\"https:\/\/www.redfin.com\/blog\/down-payment-assistance-programs\/\" data-wpel-link=\"exclude\"><b>Down Payment Assistance Programs<\/b><\/a><\/p>\n<h2><span style=\"font-weight: 400;\">Types of mortgages<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">There are several <\/span><a href=\"https:\/\/www.redfin.com\/blog\/types-of-mortgage-loans\/\" data-wpel-link=\"exclude\"><span style=\"font-weight: 400;\">loan options<\/span><\/a><span style=\"font-weight: 400;\"> depending on your finances and goals:<\/span><\/p>\n<h3><span style=\"font-weight: 400;\">Loan programs:<\/span><\/h3>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Conventional loans<\/b><span style=\"font-weight: 400;\">: Not backed by the government, usually require higher credit scores.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>FHA loans<\/b><span style=\"font-weight: 400;\">: Government-insured, often good for first-time buyers with lower credit.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>VA loans<\/b><span style=\"font-weight: 400;\">: Exclusive to veterans and service members, with no down payment required.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>USDA loans<\/b><span style=\"font-weight: 400;\">: For homes in designated rural areas, with low or no down payment.<\/span><\/li>\n<\/ul>\n<h3><span style=\"font-weight: 400;\">Rate structures:<\/span><\/h3>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Adjustable-rate mortgages (ARMs)<\/b><span style=\"font-weight: 400;\">: Start with a lower fixed rate, then adjust based on the market.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Fixed-rate mortgages<\/b><span style=\"font-weight: 400;\">: The interest rate stays the same for the entire term.<\/span><\/li>\n<\/ul>\n<p><b>Further reading on mortgage types:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><a href=\"https:\/\/www.redfin.com\/blog\/what-is-an-adjustable-rate-mortgage\/\" data-wpel-link=\"exclude\"><span style=\"font-weight: 400;\">What Is an Adjustable-Rate Mortgage?<\/span><\/a><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><a href=\"https:\/\/www.redfin.com\/blog\/usda-eligible-homes-for-sale\/\" data-wpel-link=\"exclude\"><span style=\"font-weight: 400;\">How to Find and Buy a USDA-Eligible Home<\/span><\/a><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><a href=\"https:\/\/www.redfin.com\/guides\/first-time-home-buyer-fha-loans\" data-wpel-link=\"exclude\"><span style=\"font-weight: 400;\">First-Time Home Buyer FHA Loans<\/span><\/a><\/li>\n<\/ul>\n<h2><span style=\"font-weight: 400;\">Mortgage process step by step (the basics)<\/span><\/h2>\n<ol>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Get pre-approved<\/b><span style=\"font-weight: 400;\">:\u00a0 A lender reviews your income, credit, debts, and assets to estimate how much you can borrow. This gives you a clear budget and strengthens your offer when you find a home.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Find a home<\/b><span style=\"font-weight: 400;\">: Work with your real estate agent to tour properties and make an offer within your approved price range. A signed purchase agreement will trigger the next steps in the loan process.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Apply for a mortgage<\/b><span style=\"font-weight: 400;\">: Provide your lender with detailed financial documents (pay stubs, bank statements, tax returns) and select the loan program and rate that best fits your needs.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Underwriting<\/b><span style=\"font-weight: 400;\">: The lender\u2019s underwriter verifies your information, reviews the appraisal, and ensures the home meets lending guidelines. You may be asked for additional documents during this stage.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Closing<\/b><span style=\"font-weight: 400;\">: Review and sign final loan documents, <\/span><a href=\"https:\/\/www.redfin.com\/blog\/what-are-closing-costs\/\" data-wpel-link=\"exclude\"><span style=\"font-weight: 400;\">pay closing costs<\/span><\/a><span style=\"font-weight: 400;\">, and receive the keys. Once the loan funds, the home is officially yours.<\/span><\/li>\n<\/ol>\n<p><b>&gt;&gt;&gt;Learn more: <\/b><a href=\"https:\/\/www.redfin.com\/blog\/mortgage-loan-process\/\" data-wpel-link=\"exclude\"><b>14-Step Guide to Navigating the Mortgage Loan Process<\/b><\/a><\/p>\n<h2><span style=\"font-weight: 400;\">Why mortgages matter<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Mortgages make it possible for people to buy homes without paying the full price upfront. They also allow you to <\/span><a href=\"https:\/\/www.redfin.com\/blog\/how-to-build-equity-in-your-home\/\" data-wpel-link=\"exclude\"><span style=\"font-weight: 400;\">build equity<\/span><\/a><span style=\"font-weight: 400;\">, which is the portion of the home you truly own as you pay down the loan. Over time, equity can grow and become one of your largest financial assets.<\/span><\/p>\n<h2><span style=\"font-weight: 400;\">Common questions about mortgages<\/span><\/h2>\n<h3><span style=\"font-weight: 400;\">1. Can you pay off a mortgage early?<\/span><\/h3>\n<p><span style=\"font-weight: 400;\">Yes. Many lenders allow extra payments toward the principal. This can save thousands in interest, though some loans may have prepayment penalties.<\/span><\/p>\n<h3><span style=\"font-weight: 400;\">2. What happens if you don\u2019t pay your mortgage?<\/span><\/h3>\n<p><span style=\"font-weight: 400;\">If you <\/span><a href=\"https:\/\/www.redfin.com\/blog\/what-happens-if-i-stop-paying-my-mortgage\/\" data-wpel-link=\"exclude\"><span style=\"font-weight: 400;\">fall behind on payments<\/span><\/a><span style=\"font-weight: 400;\">, your lender may start the foreclosure process. This can damage your credit score and result in losing your home.<\/span><\/p>\n<h3><span style=\"font-weight: 400;\">3. Do you need perfect credit to get a mortgage?<\/span><\/h3>\n<p><span style=\"font-weight: 400;\">No. While higher scores unlock better interest rates, government-backed loans and some lenders offer options for buyers with lower credit or <\/span><a href=\"https:\/\/www.redfin.com\/blog\/mortgage-with-no-credit-history\/\" data-wpel-link=\"exclude\"><span style=\"font-weight: 400;\">no credit history<\/span><\/a><span style=\"font-weight: 400;\">.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>A mortgage is a loan used to buy a home, but how does it work? Learn the definition of a mortgage, the types available, and what to expect in the process.<\/p>\n","protected":false},"author":562,"featured_media":104527,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"site-sidebar-layout":"default","site-content-layout":"default","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"default","adv-header-id-meta":"","stick-header-meta":"default","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"set","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[34277],"tags":[34642],"coauthors":[34346],"class_list":["post-70844","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance","tag-mortgage"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v24.7 (Yoast SEO v27.7) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>How Does a Mortgage Work? | Redfin<\/title>\n<meta name=\"description\" content=\"A mortgage is a loan used to buy a home, but how does it work? 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