Buying a home is often one of the largest financial decisions you'll ever make.
But the best mortgage decision isn't always the one that gets your house paid off the fastest.
How much should you put down?
Should you choose a 15-year or 30-year mortgage?
Does it make sense to pay mortgage points?
Should you make extra mortgage payments—or invest that money for retirement instead?
And how much house can you comfortably afford, even if a lender approves you for more?
These questions are where mortgage planning and financial planning intersect.
In this educational webinar from Hendricks Wealth & Estate Management, Jim Hendricks is joined by Rick Litton of Guild Mortgage to discuss mortgage basics, loan options, down payments, mortgage insurance, refinancing, and why the mortgage you choose should fit into your broader financial plan.
How Does a Mortgage Fit Into Your Overall Financial Plan?
A mortgage isn't simply a loan used to purchase a house.
For many households, the mortgage payment affects nearly every other financial goal.
Your housing costs can influence how much money you have available to:
- Save for retirement
- Build an emergency fund
- Invest
- Pay down other debt
- Fund college expenses
- Travel
- Handle unexpected expenses
- Maintain your home
- Pursue other long-term goals
That's why the question isn't simply:
"How much will a bank lend me?"
A better question may be:
"How much house fits comfortably within my overall financial plan?"
Being approved for a mortgage and being financially comfortable with that mortgage are two different things.
How Do You Get Preapproved for a Mortgage?
Mortgage preapproval generally begins with a review of your financial circumstances.
A mortgage professional may evaluate information including:
- Income
- Employment
- Credit
- Existing debt
- Available assets
- Down payment
- Loan type
- Expected purchase price
Once this information is reviewed, the lender can estimate the mortgage and purchase price for which you may qualify.
But income isn't always as simple as looking at your salary.
How Is Income Calculated When Applying for a Mortgage?
The answer can depend on how you're paid.
Salaried Employees
A consistent salary can often be relatively straightforward for underwriting purposes.
Hourly Employees
Hourly income may require reviewing earnings history, particularly when hours vary.
Self-Employed Borrowers
Self-employed borrowers may require a more detailed review.
Business income, tax returns, deductions, and other factors can affect how much income a mortgage lender is permitted to use when evaluating the application.
That's one reason someone earning a substantial amount of money may still qualify for a different mortgage amount than expected.
Should You Get Preapproved Before Shopping for a House?
Generally, getting preapproved before seriously shopping for a home can be helpful.
A preapproval gives you a clearer picture of:
- Your potential price range
- Estimated loan amount
- Down-payment needs
- Possible monthly payment
- How your credit and income affect the mortgage
It can also help avoid falling in love with a home before understanding whether the purchase fits your finances.
But remember:
Your maximum mortgage approval doesn't necessarily have to become your home-buying budget.
What Are Mortgage Points?
A mortgage point generally equals 1% of the loan amount.
For example:
On a $300,000 mortgage:
1 point = $3,000
Borrowers may sometimes pay points upfront in exchange for a lower mortgage interest rate.
This is often referred to as buying down the rate.
Is It Worth Paying Points to Lower Your Mortgage Rate?
It depends on how long you expect to keep the mortgage and how much the lower interest rate saves you each month.
The webinar provides an example:
Suppose paying $3,000 in points lowers your monthly payment by approximately $45.
The important question becomes:
How long will it take for that $45 monthly savings to recover the $3,000 upfront cost?
This is sometimes called the break-even period.
If you sell the home or refinance before reaching that point, you may never recover the upfront expense.
When Might Paying Mortgage Points Not Make Sense?
Paying points may be less attractive if you expect that you could:
- Move relatively soon
- Sell the property
- Refinance the mortgage
- Otherwise replace the loan before reaching the break-even point
The webinar specifically discusses avoiding unnecessary upfront points when borrowers believe there may be a reasonable possibility of refinancing later.
Mortgage rates are unpredictable, however, so a decision shouldn't depend solely on assuming that rates will decline.
Instead, compare the guaranteed upfront cost with the potential monthly savings and how long you realistically expect to keep the loan.
What Closing Costs Should a Homebuyer Expect?
Buying a home generally involves expenses beyond the down payment.
Examples discussed during the webinar include:
- Title-related costs
- Lender fees
- Attorney fees where applicable
- Recording fees
- Homeowners insurance
- Other transaction expenses
The exact amount varies by:
- Home price
- Location
- Loan
- Insurance
- Title charges
- Lender
- Other transaction details
Homebuyers should therefore avoid using every available dollar for their down payment.
You may also need cash for closing costs, moving expenses, repairs, furnishings, and an emergency reserve.
What Is Private Mortgage Insurance?
Private mortgage insurance, commonly called PMI, protects the lender—not the borrower—if the borrower defaults on certain mortgages.
On many conventional loans, mortgage insurance may be required when the borrower puts less than 20% down.
The amount can depend on factors such as:
- Down payment
- Credit profile
- Loan characteristics
Generally, the smaller the down payment, the greater the lender's exposure—and potentially the greater the mortgage-insurance cost.
Should You Always Put 20% Down to Avoid Mortgage Insurance?
Not necessarily.
Avoiding mortgage insurance can be beneficial, but putting 20% down isn't automatically the correct decision for every household.
Suppose putting 20% down would leave you with almost no:
- Emergency savings
- Investment assets
- Retirement contributions
- Cash reserves
In that situation, maintaining additional liquidity could potentially be more important than avoiding every dollar of mortgage insurance.
The right down payment should be considered within the context of your entire financial position.
How Much Money Should You Put Down on a House?
There isn't one down-payment percentage that works for everyone.
Your decision may depend on:
- Cash available
- Emergency reserves
- Mortgage insurance
- Interest rate
- Monthly payment
- Investment assets
- Retirement savings
- Other debt
- Upcoming expenses
- Loan program
In the webinar, Jim discusses a general preference for a 20% down payment when financially practical, largely because it can help conventional borrowers avoid mortgage insurance.
But the broader point is more important:
Don't evaluate your down payment independently from the rest of your financial plan.
What Is the Difference Between a Conventional, FHA, and VA Mortgage?
Different mortgage programs are designed for different borrowers and circumstances.
What Is a Conventional Mortgage?
A conventional mortgage is a mortgage that is not insured by a federal government agency such as the Federal Housing Administration or Department of Veterans Affairs.
Conventional loans can be appropriate for borrowers who meet applicable credit, income, down-payment, and underwriting requirements.
What Is an FHA Loan?
An FHA loan is a mortgage insured by the Federal Housing Administration.
The webinar discusses how FHA financing may provide additional flexibility for some borrowers, including those with:
- Smaller down payments
- Certain credit circumstances
- Debt-to-income ratios that may not work with a conventional loan
FHA loans also have mortgage-insurance requirements that borrowers should understand before selecting the loan.
What Is a VA Loan?
A VA loan is a mortgage program available to eligible veterans, active-duty service members, and certain other qualifying borrowers.
Depending on eligibility, VA financing can offer advantages such as:
- Little or potentially no down payment
- Different mortgage-insurance structures than conventional or FHA financing
- Other veteran-specific benefits
Eligibility and costs depend on the individual borrower and applicable VA requirements.
State-level benefits for veterans can also vary.
When Might Someone Refinance From FHA to a Conventional Mortgage?
One situation discussed during the webinar involves borrowers who initially use FHA financing and later refinance into a conventional mortgage.
For example, over time a homeowner might:
- Build additional equity
- Improve their credit
- Qualify for a conventional mortgage
- Potentially reduce or eliminate certain mortgage-insurance costs
Refinancing isn't automatically beneficial, however.
The decision should consider:
- New interest rate
- Closing costs
- Monthly savings
- Mortgage insurance
- Remaining loan term
- Break-even period
- How long you expect to remain in the home
When Does Refinancing a Mortgage Make Sense?
People often assume refinancing makes sense whenever the new interest rate is lower.
But rate alone doesn't answer the question.
Consider:
How much will the refinance cost?
How much will the monthly payment decrease?
How long will I keep the mortgage?
Am I extending the loan term?
Will mortgage insurance change?
Am I taking cash out?
A refinance that saves money each month may still take years to recover its closing costs.
That makes calculating the break-even period important.
What Is a Cash-Out Refinance?
A cash-out refinance involves replacing an existing mortgage with a larger mortgage and receiving some of the difference in cash, subject to lender requirements and available home equity.
Borrowers may consider cash-out refinancing for purposes such as:
- Debt repayment
- Home improvements
- Other major expenses
However, moving other debt into a mortgage shouldn't be viewed as automatically eliminating that debt.
You're converting it into debt secured by your home.
The financial consequences should be carefully evaluated.
Should You Choose a 15-Year or 30-Year Mortgage?
This is one of the most important financial-planning questions discussed in the webinar.
A 15-year mortgage generally offers:
- Faster payoff
- Less time paying interest
- Typically higher monthly payments
A 30-year mortgage generally offers:
- Lower required monthly payments
- More monthly cash-flow flexibility
- A longer repayment period
- Potentially more total interest if held for the full term
At first glance, paying the mortgage off in 15 years can sound like the obvious choice.
But a financial planner may look beyond the mortgage itself.
Why Might Someone Choose a 30-Year Mortgage Instead of a 15-Year Mortgage?
The webinar discusses a financial-planning argument for maintaining flexibility.
A lower required mortgage payment may leave more money available for:
- 401(k) contributions
- Roth IRA contributions
- Other investments
- Emergency reserves
- Other financial goals
This can be especially meaningful if choosing the higher 15-year payment would cause someone to reduce retirement savings.
The decision shouldn't simply be:
"Which mortgage pays my house off fastest?"
It should also consider:
"What opportunities am I giving up by committing more money to the house every month?"
Is It Better to Pay Off Your Mortgage or Invest?
There isn't one correct answer for everyone.
Paying extra toward your mortgage offers a relatively straightforward benefit:
You reduce debt and avoid future mortgage interest.
Investing offers the possibility of higher long-term returns—but those returns aren't guaranteed.
Investments can:
- Rise
- Fall
- Experience prolonged periods of volatility
Your decision may depend on:
- Mortgage interest rate
- Expected investment horizon
- Risk tolerance
- Retirement savings
- Tax considerations
- Emergency reserves
- Age
- Cash-flow needs
- Personal preference regarding debt
The webinar favors maintaining a longer mortgage and investing excess cash for investors who have the discipline, time horizon, and risk tolerance to follow that strategy.
But this should not be interpreted as a guarantee that investments will outperform your mortgage rate.
Should You Make Extra Payments on Your Mortgage?
Extra principal payments can reduce:
- Outstanding mortgage balance
- Future interest
- Time required to repay the loan
But there is an opportunity cost.
Every extra dollar sent to your mortgage is a dollar that isn't available for another purpose.
Before accelerating mortgage payments, consider whether you are already:
- Receiving the full employer 401(k) match
- Saving appropriately for retirement
- Maintaining sufficient emergency reserves
- Addressing high-interest debt
- Funding other important goals
Paying off a mortgage faster can be financially satisfying.
But becoming house-rich and cash-poor can create other problems.
Is Your Home Your Biggest Investment?
A home is often one of the largest assets someone owns.
But the webinar makes an important distinction:
Ideally, your retirement savings may eventually become an even larger financial asset than your home.
That perspective can change the way you think about mortgage decisions.
Putting every available dollar toward your house may reduce debt.
But if doing so causes you to underfund retirement for decades, the tradeoff may be significant.
Your house and retirement portfolio should be viewed as parts of the same financial picture.
Why Liquidity Matters When Buying a Home
Home equity can increase your net worth, but it isn't the same as having cash available.
Once money is used for a down payment or additional principal payment, accessing it again may require:
- Selling the home
- Obtaining a home-equity loan
- Opening a line of credit
- Refinancing
That's why maintaining liquidity can be important.
A household shouldn't necessarily empty its bank and investment accounts simply to maximize the down payment.
Keep sufficient resources for life after closing.
How Much House Can You Really Afford?
A lender determines how much mortgage you may qualify for based on underwriting rules.
A financial planner may ask a different question:
What mortgage payment allows you to continue doing everything else that's important to you?
Before deciding on a home price, consider:
- Mortgage principal and interest
- Property taxes
- Homeowners insurance
- Association fees
- Utilities
- Maintenance
- Repairs
- Furniture
- Landscaping
- Future improvements
The mortgage payment isn't the complete cost of homeownership.
What Is Debt-to-Income Ratio?
Your debt-to-income ratio, or DTI, compares certain monthly debt obligations with qualifying income.
Mortgage lenders use DTI as one factor when determining whether a borrower qualifies for a loan.
But qualifying under a lender's DTI rules doesn't automatically tell you whether the payment will feel comfortable within your household budget.
Two families with identical incomes and identical mortgage payments can have very different financial situations.
One may have:
- Large childcare expenses
- Private-school tuition
- High medical expenses
- Aggressive retirement goals
while another doesn't.
That's why mortgage qualification and financial planning should work together.
Why Does Your Credit Score Matter When Getting a Mortgage?
Credit can affect several parts of the mortgage process.
Depending on the loan and borrower, credit may influence:
- Loan eligibility
- Interest rate
- Mortgage insurance
- Available financing options
Improving credit before purchasing a home may therefore potentially improve the financing terms available to you.
If you're planning to buy a home in the future, reviewing your credit before beginning the mortgage process can give you time to address potential issues.
Why Is a Team Approach Helpful When Buying a Home?
A home purchase involves more than a buyer and mortgage lender.
Depending on the transaction, the team may include:
- Mortgage professional
- Financial advisor
- Real estate agent
- Attorney
- Insurance professional
- Title company
- Tax professional
Each looks at the transaction from a different perspective.
A mortgage professional focuses heavily on getting the loan completed properly.
A financial advisor can help evaluate how that loan fits into your larger financial life.
Working together can help ensure that the goal isn't simply getting approved, but making a home purchase that remains financially sustainable.
What Should You Ask Before Choosing a Mortgage?
Before signing a mortgage, consider asking:
What is the interest rate?
Am I paying points?
What are the lender fees?
What are my estimated closing costs?
Will I pay mortgage insurance?
When can mortgage insurance potentially be removed?
Should I consider conventional, FHA, or VA financing?
How much cash will I have left after closing?
What would the payment be on a 15-year versus 30-year mortgage?
How does this payment affect my retirement savings?
How long would I need to keep this mortgage to recover any upfront costs?
Understanding the answers before closing can help prevent expensive surprises later.
What Are Common Mortgage Mistakes to Avoid?
The webinar highlights several decisions that deserve careful attention.
Mistake #1: Buying the Most Expensive House You Qualify For
Approval is not the same as affordability.
Mistake #2: Looking Only at the Interest Rate
Fees and points matter, too.
A slightly lower advertised rate may come with substantially higher upfront costs.
Mistake #3: Paying Points Without Calculating the Break-Even Period
If you sell or refinance early, you may never recover the upfront cost.
Mistake #4: Using All of Your Cash for the Down Payment
Don't forget about closing costs, emergencies, repairs, and other financial goals.
Mistake #5: Automatically Assuming the Shortest Mortgage Is Best
A shorter loan reduces repayment time but also requires a larger monthly commitment.
Mistake #6: Paying Extra Toward the Mortgage While Neglecting Retirement
Debt reduction is valuable, but so is building long-term retirement savings.
Mistake #7: Choosing a Mortgage Without Looking at Your Complete Financial Plan
Your mortgage decision affects much more than your house.
A Financial Planning Checklist Before Buying a Home
Before making an offer, consider working through these areas.
1. Establish a Comfortable Home Budget
Don't rely only on your maximum mortgage approval.
2. Determine Your Down Payment
Consider mortgage insurance, liquidity, emergency reserves, and other investments.
3. Estimate Closing Costs
Keep these expenses separate from your expected down payment.
4. Compare Loan Programs
Understand conventional, FHA, VA, and other options available to you.
5. Compare Mortgage Terms
Review both the required payment and long-term implications of a 15-year versus 30-year mortgage.
6. Evaluate Points
Calculate how long it takes for a lower payment to recover any upfront points.
7. Protect Your Emergency Fund
Don't arrive at closing with no financial cushion.
8. Protect Retirement Savings
Understand whether the home payment will force you to reduce retirement contributions.
9. Budget for the Real Cost of Homeownership
Include taxes, insurance, maintenance, utilities, and repairs.
10. Review the Mortgage as Part of Your Full Financial Plan
The house should support your financial life—not consume it.
Your Mortgage Should Support Your Financial Plan
A mortgage is ultimately a financial tool.
The goal doesn't necessarily have to be paying it off as quickly as possible.
Nor should the goal automatically be borrowing as much as possible.
The more useful objective is to find the balance between:
Homeownership
and:
everything else your money needs to accomplish.
That can mean choosing a comfortable home price instead of the maximum one.
It can mean keeping cash available rather than putting every dollar into the down payment.
It can mean choosing a 30-year mortgage to preserve flexibility.
Or it may mean paying a mortgage down more aggressively because reducing debt is particularly important to your individual plan.
What matters is that the mortgage decision is made intentionally—not independently from the rest of your finances.
Watch the Full Webinar
Want to hear the complete discussion?
In "Financial Planning and Mortgages: How to Be Smart," Jim Hendricks of Hendricks Wealth & Estate Management and Rick Litton of Guild Mortgage discuss mortgage preapproval, points, closing costs, mortgage insurance, conventional versus FHA and VA financing, refinancing, down payments, and how mortgage decisions fit into a broader financial plan.
Frequently Asked Questions About Mortgages and Financial Planning
Should I get a 15-year or 30-year mortgage?
It depends on your financial situation. A 15-year mortgage generally pays the loan off faster but requires a larger monthly payment. A 30-year mortgage can provide greater cash-flow flexibility, potentially leaving more money available for retirement savings, investments, and other goals.
Is it better to pay off my mortgage early or invest the extra money?
There is no universal answer. Paying down a mortgage provides a predictable reduction in debt and future interest, while investing offers potentially higher returns but also involves market risk. Your mortgage rate, time horizon, retirement savings, risk tolerance, and liquidity should all be considered.
How much should I put down on a house?
The appropriate down payment depends on your finances and mortgage program. A 20% down payment can often help conventional borrowers avoid private mortgage insurance, but using too much cash for the down payment could leave insufficient emergency reserves or investment savings.
Is putting 20% down on a house always best?
No. While 20% can help avoid PMI on many conventional mortgages, preserving emergency savings and maintaining adequate liquidity can sometimes be more important than reaching a specific down-payment percentage.
What are mortgage points?
One mortgage point generally equals 1% of the loan amount. Points may be charged upfront in exchange for a lower interest rate.
Is paying mortgage points worth it?
It depends on the upfront cost, monthly savings, and how long you'll keep the mortgage. Calculate the break-even period before deciding whether to pay points.
What is private mortgage insurance?
Private mortgage insurance, or PMI, is insurance that protects the lender if a borrower defaults. It is commonly associated with conventional mortgages where the borrower puts less than 20% down.
What is the difference between FHA and conventional mortgages?
Conventional mortgages aren't insured by the FHA, while FHA loans are government-insured and may offer additional flexibility for some borrowers. FHA loans also include specific mortgage-insurance requirements.
What is a VA mortgage?
VA loans are available to eligible veterans, active-duty service members, and certain other qualified borrowers. Depending on eligibility, they can offer financing with little or no down payment and other potential benefits.
When should I refinance my mortgage?
Refinancing may make sense when the new loan meaningfully improves your financial situation after considering the new interest rate, closing costs, mortgage term, monthly savings, and how long you plan to keep the loan.
How much house should I buy?
Consider more than the amount a lender approves. Your housing payment should leave sufficient room for retirement savings, emergency reserves, other debt, everyday spending, and long-term financial goals.
Should I make extra mortgage payments?
Extra payments can reduce interest and shorten the mortgage term. Before accelerating payments, consider whether you're adequately funding retirement, maintaining emergency savings, and addressing higher-interest debt.
Does my credit score affect my mortgage?
Yes. Credit can affect mortgage eligibility, interest rates, mortgage-insurance costs, and the loan programs available to you.
What costs should I expect when buying a house?
In addition to your down payment, costs can include lender charges, title-related expenses, recording fees, attorney fees where applicable, homeowners insurance, and other transaction costs.
Should a financial advisor be involved when I buy a house?
A financial advisor can help evaluate how a proposed mortgage affects retirement savings, investments, cash flow, debt, emergency reserves, and other financial goals. A mortgage professional and financial advisor can therefore provide different but complementary perspectives.
About Hendricks Wealth & Estate Management
At Hendricks Wealth & Estate Management, we believe buying a home should be considered as part of your complete financial plan.
Your mortgage can affect your cash flow, retirement savings, investment strategy, debt management, taxes, emergency reserves, and long-term financial goals.
We help individuals and families evaluate how major financial decisions—including home purchases and mortgages—fit alongside everything else they are trying to accomplish.
The goal isn't simply to help determine whether you can afford a house.
It's to understand whether that house—and the mortgage used to purchase it—fits comfortably into your longer-term financial plan.
Illinois Office
2403 Harnish Drive, Suite 201
Algonquin, IL 60102
847-428-3997
Florida Office
5245 Office Park Blvd., Suite 103
Bradenton, FL 34203
941-308-9862
HendricksWealth.com
When You're Ready, We're Ready.