Your Simple Guide to Home Mortgages

Since most home buyers don’t have the financial resources to pay cash for a home, they borrow money from a lender in the form of a mortgage. A mortgage is a long-term loan that a borrower obtains from a bank, savings and loan, independent mortgage broker or credit union. The house and the land that it occupies, or if a condominium, the unit deed, serve as collateral for the loan. This means that you agree to forfeit your interest in the property to the lender if you are unable to repay the loan under the agreed upon terms. Mortgage loans are generally structured to be paid off in monthly installments over a 15- or 30-year period.

Every mortgage loan contains four components:

• PRINCIPAL: The amount of money you borrow
• INTEREST: The amount that you pay the lender for the use of the borrowed funds
• TERM: The amount of time in which you agree to repay the loan
• AMORTIZATION: The gradual reduction of a debt by periodic payments of interest and principal that are large enough to pay off a loan at maturity

Buying a home is a team effort, and understanding who’s involved can help you feel more confident and in control. Here are the key players you’ll encounter along the way:

• The Borrower (That’s You!)
  As the homebuyer, you’re the one applying for and repaying the loan. Your income, credit history, assets, and employment are key factors in determining loan approval and terms.
• The Lender
  This could be a bank, credit union, or mortgage company—the institution that provides the loan. They review your application, underwrite the loan, and set the terms for repayment.
• The Mortgage Broker (Optional)
  A mortgage broker acts as a matchmaker between you and potential lenders, helping you shop for the best rate and loan program. They don’t lend money directly but can streamline the process.
• The Real Estate Agent
  Your agent helps you find the right home and negotiates the purchase terms. They also guide you through the buying process from offer to closing.
• The Appraiser
  Hired by the lender, the appraiser provides an independent estimate of the home’s market value to ensure the loan amount is appropriate for the property.
• The Home Inspector
  While not always required, a home inspector evaluates the property’s condition to identify potential issues before you commit to buying.
• The Underwriter
  Working behind the scenes for the lender, the underwriter assesses the risk of the loan by reviewing your financial documents and the property details.
• The Closing Agent or Settlement Agent
  Typically a title company or attorney, this person ensures all legal documents are properly signed, funds are distributed, and ownership is officially transferred.

Each of these professionals plays a vital role in turning your homeownership dream into reality. Understanding who does what makes the process smoother and far less intimidating.

Because most people do not have enough cash for the full purchase price of a home, they obtain a home loan (mortgage) to help pay for it.  These loans are based on a few borrowing principles.

Our online calculators can help you calculate how much house you can afford, determine your monthly payments and figure out if you can pay off your mortgage early.

The Purchase Price

This is the agreed-upon cost of the home, as determined between buyer and seller.

Down Payment

This is the upfront cash amount you contribute toward the purchase. The rest of the home’s cost is covered by your mortgage. Together, your down payment and loan amount equal the total purchase price.

Interest Rate

The interest rate is the basic cost of borrowing money, expressed as a yearly percentage. It directly impacts your monthly payment and the total amount you’ll repay over the life of the loan.

Annual Percentage Rate (APR)

APR includes your interest rate plus any additional fees and points, giving you a more complete picture of your loan’s true cost. Because lenders are required to calculate APR the same way, it’s a helpful tool for comparing offers.

Loan Term

This refers to how long you’ll take to repay the loan—typically 15, 25, or 30 years.

Maturity Date

The date by which your loan must be fully repaid, based on your chosen term.

Points

Points are upfront fees paid to the lender at closing, usually expressed as a percentage of your loan amount. For example, one point equals 1% of the loan. Origination fees are a common type of point.

PITI

Your monthly mortgage payment usually includes four components—collectively referred to as PITI:

• Principal: The amount you borrowed.
• Interest: The lender’s charge for the use of funds.
• Taxes: Property taxes assessed by local governments.
• Insurance: Homeowners insurance to protect against loss or damage.

Impounds (Escrow Reserves)

Many borrowers opt to have their property taxes and insurance included in their monthly payment. These funds are held in an escrow account by the lender and paid out on your behalf when due.

Rate Lock

A rate lock is your lender’s commitment to hold a specific interest rate (and any associated points) for a set period—typically 30, 45, or 60 days—while your loan is being finalized. To secure the promised rate, your loan must close within this timeframe.

Second Mortgage

A second mortgage is any additional loan secured by your home, subordinate to the first. Common uses include home improvements, education expenses, or debt consolidation.

Equity

Equity is the difference between your home’s current market value and the amount you still owe on any loans secured by it. As you pay down your mortgage—or as your home’s value rises—your equity increases.

Closing

Closing is the final step where ownership officially transfers from seller to buyer. You’ll sign documents and pay closing costs, which may include lender fees, title insurance, and other related expenses.

Escrow

Escrow involves a neutral third party who temporarily holds funds and documents during the transaction. The escrow agent ensures all parties meet their obligations before finalizing the sale and distributing funds.

Prepayment Charges

Some loans include fees if you repay your mortgage early. While accepting a prepayment clause may lower your interest rate, it’s important to weigh this against your long-term goals—especially if you plan to pay off your mortgage ahead of schedule.

There’s no one-size-fits-all mortgage. At Customers Bank, our knowledgeable Relationship Managers are here to help you choose the loan that best suits your financial goals and lifestyle. Here are a few common options:

Fixed-Rate Mortgages

With a fixed-rate loan, your interest rate—and monthly payment—stays the same for the life of the loan. This option offers stability and predictability, especially valuable in a fluctuating market.

Adjustable-Rate Mortgages (ARMs)

ARMs often start with a lower initial interest rate than fixed-rate loans. However, the rate can change periodically based on market conditions, which means your monthly payments may increase or decrease over time. ARMs can be cost-effective in the short term but carry more risk if interest rates rise.

Interest-Only Loans

These loans allow you to pay only the interest for an initial period, after which you begin paying both principal and interest. While this can lower your initial monthly payments, the loan balance doesn’t decrease during the interest-only phase, which may result in higher future payments.

For a more comprehensive list of terms you should know, visit our Mortgage Glossary.

Qualifying for a mortgage starts with understanding how lenders evaluate your financial readiness. One of the key criteria they use is your debt-to-income ratio, often referred to as “28/36.”

Here’s what that means:

• Housing Expense Ratio (28%)
  No more than 28% of your gross monthly income (your income before taxes and deductions) should go toward housing expenses. This includes your projected mortgage payment, property taxes, insurance, and any applicable homeowners association (HOA) fees.
• Total Debt Ratio (36%)
  No more than 36% of your gross monthly income should go toward all of your monthly debt obligations combined. This includes your housing costs plus any car loans, student loans, credit card payments, personal loans, or other long-term financial commitments.

These guidelines help lenders assess whether you’ll be able to comfortably manage your mortgage payments alongside your other financial responsibilities. Keep in mind that while these benchmarks are common, some lenders offer flexible programs that can accommodate different financial situations—especially for strong credit profiles or substantial down payments.

It requests information about your income, assets, liabilities and a description of the property.

SUBMIT ALL DOCUMENTATION REQUESTED BY YOUR MORTGAGE LENDER

The lender will need documentation pertaining to your personal finances — your earnings, your monthly expenses, and your debts — to help gauge your willingness and ability to repay the mortgage. You may be requested to provide any or all of the following information:

• Social Security Number
• Birth date
• Most recent pay stub showing year-to-date earnings
• W-2 tax forms and tax returns for the last two years
• Names, addresses and telephone numbers of your employers for the past two years
• For all loans and charge accounts, the name of the borrower, name and address of the institution, account number, monthly payment and current balance
• For all deposit accounts, such as checking accounts, savings accounts, stocks, bonds, etc., the name on the account, name and address of the institution, account number and current balance
• Three months of your most recent statements for deposit accounts, stocks, bonds, etc.

PAY AN APPLICATION FEE TO COVER PROCESSING COSTS (IF THE LENDER CHARGES ONE)

Customers Bank does not charge an application fee. All other closing costs will be itemized in separate disclosure documents, which the lender is required to provide to you upon receipt of your application.

YOUR LENDER IS REQUIRED BY LAW TO PROVIDE YOU WITH THE FOLLOWING ONCE YOU SUBMIT YOUR APPLICATION:

• Truth-in-Lending Disclosure: This statement includes a summary of all costs associated with the loan.
• Your Annual Percentage Rate or “APR”: This is the cost of credit expressed as a yearly rate. The APR includes the interest rate, points, broker fee and certain other charges that you (the borrower) are required to pay.
• A Good Faith Estimate (GFE) of the costs associated with the loan.
• ARM Disclosure (if applicable): Information on the important terms and costs of an adjustable-rate mortgage, the past performance of the index to which the interest rate will be tied and a copy of the booklet, “Consumer Handbook on Adjustable-Rate Mortgages.”
• “A Home Buyer’s Guide to Settlement Costs”:  A government publication that describes the closing or “settlement” process and its costs as well as information on your rights.
• A notice concerning your right to a copy of the property appraisal, if you are being charged for that appraisal. You are entitled to a copy if you have paid the cost of the appraisal to the lender.

ONCE YOU SUBMIT YOUR APPLICATION, SEVERAL THINGS TAKE PLACE BEHIND THE SCENES:

• APPRAISAL: The lender will order an appraisal on the property because it is the collateral for your mortgage. You are entitled to a copy if you have paid the cost of the appraisal to the lender.
• CREDIT REPORT: Lenders will also examine your file at the credit bureau to learn if you pay your bills on time. You have a right to know what information is contained in your credit report and to have someone from the credit bureau help you understand what the report says. The major credit bureaus are:

You can order a free annual credit report online at www.annualcreditreport.com (This links to a third party partner website.^§), by calling (877) 322-8228, or by completing the Annual Credit Report Request Form found at www.annualcreditreport.com (This links to a third party partner website.^§), and mailing it to:

Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281

• FLOOD HAZARD DETERMINATION: The lender will determine if the property is in a flood hazard zone, and if so, you’ll be required by Federal law to purchase flood hazard insurance prior to closing your loan. If you do not purchase the required insurance, the lender will not fund your loan.  You are required to maintain flood insurance for the life of your loan while your property is in a designated flood zone

• PEST INSPECTION: You may want to pay for a pest inspection to be fully aware of the condition of the home you are about to purchase.

• CREDIT DECISION – UNDERWRITING: Your lender will review all of the information obtained as part of your loan application. This information can include your application, your credit history, your tax returns, the appraisal for the property, the title search for the property, your financial condition (assets, debts, income and expenses), the amount of your down payment, as well as the type and terms of the loan you are requesting.  When all of the information is considered, the lender will take one of the following actions:

• • The lender may approve your application.
  • The lender may ask for additional information.
  • The lender may decide not to lend you the money you’ve requested.
  • The lender may make you a counter-offer. For example, you may apply for a 30-year fixed-rate loan with a 15% down payment. The lender may offer to make you a 30-year fixed-rate loan with a 20% down payment.
  • If your application is turned down, Federal law requires the lender to tell you so in writing and to provide you with the specific reasons for the denial.  Make sure you understand the reasons given — you may be able to find answers or alternatives that will satisfy the institution’s lending standards.

For instance, you may discover that you inadvertently reported your monthly income rather than your annual income, or that your credit history includes information that is inaccurate.

As you work to get a loan during your home-buying journey, the following information will be helpful to have. See our mortgage application checklist.

• Is the loan fixed or adjustable?
• If the loan is fixed, what is the fixed-rate period?
• If the loan is adjustable, what is the fully indexed rate, the index and the margin? (Index + Margin = Fully Indexed Rate)
• If the loan is a fixed-rate loan, what is the interest rate?
• What will my monthly loan payments be?
• Will I be required to have mortgage insurance with this loan?
• Does the loan have an interest-only payment option?
• Does the loan have a pre-payment charge?
• What are the closing costs?
• Are there any points or is there an origination fee?

Refinancing is the process of obtaining a new mortgage with all or some portion of the proceeds used to pay off the original mortgage.

Refinancing can be a good idea for homeowners who:

• Want to lower monthly payments by getting a lower interest rate loan.
• Want to convert from an adjustable-rate mortgage (ARM) to a fixed-rate loan for the certainty of knowing exactly what the mortgage payment will be for the life of the loan.
• Want to build up equity more quickly by converting to a loan with a shorter term.
• Want to draw on the equity built up in their house to get cash for a major purchase or for their children’s education.