Understanding mortgage basics in plain language.
Rates, points, PMI and closing costs — explained the way I explain them to my own clients, with the Cook County details that catch buyers out.
By Rumi Velinova, REALTOR® · RE/MAX At Home · Published November 2024 · Last updated November 2024 · Evergreen guide
What each term actually means.
None of this is complicated once someone explains it without jargon. Here is the version I give clients at the kitchen table.
- Interest rateThe cost of borrowing, before fees
- APRThe rate plus lender fees — the better comparison number
- Discount point1% of the loan paid upfront to buy the rate down
- PMIInsurance protecting the lender when you put under 20% down
- EscrowMonthly collection for property taxes and insurance
- Closing costsTypically ~2–4% of the purchase price in Illinois
Four choices that change your payment.
Down payment size
Twenty percent removes PMI, but waiting years to reach it while prices rise can cost more than the insurance would have. Run both scenarios with real numbers before you decide.
Points, or no points
Buying the rate down only pays off if you keep the loan past the break-even point, usually four to seven years. If you may move or refinance sooner, keep the cash.
Fixed or adjustable
A fixed rate buys certainty. An ARM can make sense for a genuinely short holding period, but only if you can comfortably afford the payment after the first adjustment.
Loan type
Conventional, FHA and VA each have different down payment, credit and mortgage insurance rules. The right one depends on your file, not on which is generally 'best'.
In Cook County, always ask the lender how they escrowed property taxes. If they used the seller's old assessment, your payment can jump after the first reassessment.
How to make your file strong before you shop.
Get fully underwritten rather than pre-qualified. An underwritten approval means a human has reviewed your documents, and in a competitive offer it carries real weight with sellers.
Shop two or three lenders within the same short window. Credit scoring treats clustered mortgage inquiries as a single event, so comparison costs you nothing.
Read the Loan Estimate line by line and compare APR, not headline rate. Fees vary between lenders far more than rates do.
Do not open new credit, change jobs or move large sums between accounts during the process. Every one of those triggers fresh questions and can delay a closing.
If you are relocating from abroad with a thin US credit history, tell me early. Some lenders underwrite non-traditional credit files routinely and most simply do not.
Finally, budget beyond the payment: taxes, insurance, utilities on a larger home, and a reserve for the first year of repairs. Comfortable beats maximum approved every time.
Where to go next.
Not sure what you can comfortably afford?
I'll introduce you to two or three lenders who fit your situation — no pressure, no obligation.
- No obligation
- · Four languages
- · Reply within 1 business day