A loan used to buy a home, repaid monthly over time, with your home as collateral.

Principal, Interest, Taxes, and Insurance — the four common parts of a monthly payment.

How much down payment do I need?

As little as 3% on conventional or 3.5% on FHA. Some VA and USDA loans allow 0%.

Private mortgage insurance, charged on low-down conventional loans. You can usually remove it once you reach about 20% equity.

At purchase, a neutral company that holds funds. Monthly, an account that pays your taxes and insurance. See Escrow & Impounds.

What is the difference between rate and APR?

The rate sets your payment; the APR adds fees to show the fuller cost. See Rate vs APR.

How long is a typical mortgage?

Often 30 years, though 15-year and other terms exist.

What credit score do I need?

About 620+ for conventional and 580+ for many FHA loans. See What Credit Score Do I Need.

Why did my payment change?

Usually because property taxes or insurance changed, which adjusts your impound account.

The part of your home you truly own — its value minus what you owe.

Get pre-approved to learn your real budget, then shop with confidence.

Mortgage Basics: How Home Loans Work (California Guide)

Q: What are closing costs?

One-time fees to set up the loan, often 2%–5% of the price. See Closing Costs Explained.

Think of this as "mortgages for beginners." Once you understand these basics, every other page on the site will make more sense.

Quick answer

A mortgage is a loan used to buy a home. You pay a down payment upfront, and the lender covers the rest. You pay the loan back monthly over time, usually 30 years. Your payment is often made of four parts — principal, interest, taxes, and insurance — known together as PITI. In California, property taxes and the supplemental tax bill are important extra pieces to understand.

What this means

When you buy a home, you rarely pay all cash. Instead:

You pay a down payment (your share).
The lender lends you the rest.
Your home is the collateral, meaning the lender can take it if you do not pay.
You repay the loan in monthly payments until it is gone.

Over time, you build equity — the part of the home you truly own. Equity grows as you pay down the loan and as your home's value rises.

The parts of your monthly payment (PITI)

Part	What it is
Principal	The amount that pays down what you borrowed
Interest	The cost of borrowing the money
Taxes	Property taxes (in California, about 1.1%–1.25% of value)
Insurance	Homeowners insurance, and sometimes mortgage insurance

If your down payment is under 20% on a conventional loan, you may also pay PMI (private mortgage insurance). And if you have an impound account, your taxes and insurance are collected monthly and paid for you. See Escrow & Impounds.

How a mortgage works

1
Get pre-approved. A lender checks your finances and tells you your budget.
2
Shop and make an offer. With your pre-approval, you find a home and offer a price.
3
Open escrow. A neutral company holds the money and paperwork in California.
4
Appraisal and underwriting. The lender confirms value and approves the loan.
5
Close. You sign, pay your down payment and closing costs, and get the keys.
6
Repay over time. You make monthly payments and build equity.

Key mortgage terms (explained simply)

Down payment

The cash you pay upfront, shown as a percent of the price.

Closing costs

One-time fees to set up the loan (often 2%–5% of the price). See Closing Costs Explained.

Interest rate

The percent you pay on the money you borrow.

APR

The rate plus many fees, showing the fuller cost. See Rate vs APR.

Fixed-rate

A rate that never changes.

ARM

A rate that is fixed for a few years, then can change.

PMI

Mortgage insurance on low-down conventional loans; removable later.

Equity

The part of the home you own.

Escrow

A neutral process at purchase, and a monthly account for taxes and insurance.

DTI (debt-to-income)

How much of your income goes to debt; lenders use it to judge affordability.

Types of loans (quick overview)

Loan type	Good for
Conventional	Strong credit; can remove PMI later. See Conventional
FHA	Lower credit or smaller savings. See FHA
VA	Eligible veterans; 0% down, no PMI
USDA	Eligible rural/suburban areas; 0% down
Jumbo	High-priced California homes above the limit

Benefits of understanding the basics

You make better choices. You know what you are signing.

You avoid surprises. No confusion about PMI, taxes, or escrow.

You compare offers well. You understand rate vs APR.

You feel confident. The whole process feels less scary.

Things to watch

A home costs more than the payment. Add taxes, insurance, repairs, and maybe HOA dues.

California's supplemental tax bill arrives after you buy and surprises many people.

Your payment can shift if taxes or insurance change.

Borrowing the max is risky. Just because you qualify does not mean you should.

What it looks like in practice

Maria's first home in Sacramento

Maria buys a $480,000 condo with 5% down. Her monthly payment includes principal, interest, property taxes, and insurance (PITI), plus PMI because she put down less than 20%. A few months after closing, she gets a supplemental property tax bill because her home was reassessed at her purchase price. Because she learned the basics first, none of this surprises her — and she plans to remove PMI later once she has enough equity.

Example is for learning only. Your numbers depend on your finances and the home.

Common beginner mistakes

1Thinking you need 20% down. Many California buyers put down 3%–5%.

2Forgetting closing costs. They are extra, on top of the down payment.

3Ignoring property taxes. California's taxes and supplemental bill matter.

4Only comparing the rate. Use the APR and the fee list too.

5Opening new credit before closing. It can change your approval.

6Skipping pre-approval. It tells you your real budget.

This page is for education only. It is not a loan offer or a promise of approval, rates, or terms. Qualification depends on your individual circumstances. Equal Housing Opportunity · NMLS #362311 · CA DRE #01871814.

Mortgage basics: how home loans work.

What this means

The parts of your monthly payment (PITI)

How a mortgage works

Key mortgage terms (explained simply)

Types of loans (quick overview)

Benefits of understanding the basics

Things to watch

What it looks like in practice

Common beginner mistakes

Next steps

Continue reading

Buying a home in California: your complete starting guide.

Credit & debt (DTI): what lenders look at in California.

Closing & escrow in California: how the finish line works.

Ready to see what may fit your goals?