Geared towards first time homebuyers and those who want to revisit the basics. Mortgage 101 provides an overview of need-to-know information that will help you achieve home financing goals.
- What is a mortgage?
- Why do I need a mortgage?
- How do I get a mortgage?
What is a mortgage?
In general terms, a mortgage constitutes a loan made by a bank or lending institution to a person who wants to buy a house but doesn’t have the full amount to purchase. Most mortgages are available in 30 year, 20 year, 15 year, and 10 year terms.
For the technical definition of a mortgage and other mortgage terms, visit our Terms section.
Why take out a mortgage? As you know, houses cost several hundred thousand dollars and very few people can afford to pay the full value of a home at the time they’re looking to purchase it. In order to help people achieve their dream of owning a home, mortgage lenders provide the funds up front and require a long-term payment plan with interest added.
What is interest?
Interest is a percentage of the overall house value that is added to your mortgage repayment that is a charge for borrowing from the lender.
With each month, you’ll pay down some of your principal, and as that amount slowly decreases, so will the interest amount you’ll pay per month.
The difference in interest rates may seem small (sometimes just 1% or 2% higher) can result in several thousands of dollars more in how much you’ll pay in overall interest during the life of the loan.
Refinancing a Mortgage
To refinance your mortgage is to restructure the terms of an existing mortgage loan in order to lower a monthly payment, consolidate high-interest debts (such as credit card debt or car payments), or leverage existing home equity for other purposes.
How do I get a mortgage?
After doing your research on available loan programs and getting comparative rate quotes, contact a Mortgage Loan Originator at the lending institution you choose. This person will be able to make sense of the several different loan options available, guide you to the right loan program choice, and help you to…
Submit your mortgage loan application!
Once you’ve submitted your application – which will include compiling such important documents as W2’s, tax returns, credit reports, etc.—a Loan Processor will be your main contact for the next steps and through to the end of the mortgage process.
Should I get pre-approved?
Many prospective homeowners choose to get pre-approved for a mortgage loan, which may increase your purchasing power when you’ve found the right home by confirming to real estate agents and potential sellers that you are able to finance your loan. Pre-approval may also result in an accelerated journey through the mortgage process because your information will have already gone through a comprehensive review before you’ve even toured your dream home.
- Go to our next lesson, the Mortgage Process, to look at each step your mortgage loan goes through before your move-in date.