Mortgage Loans - The Basics

A mortgage may be the largest investment of your entire life.

Deciding whether or nor a mortgage is right for you may also be the single most important financial decision you ever make.

Getting down to basics, a mortgage is a loan you take out to purchase a home. With a mortgage loan the amount of money you are borrowing, not including a down payment on your new home, is known as the principal.

Over the life of the mortgage you'll pay interest, which is the percentage of the loan amount you will pay to acquire a mortgage.



Interest payments are spread out, or amortized over the life of the loan. With a traditional 15- or 30-year fixed-rate mortgage your interest payment is at its highest rate starting with your first payment, and then slowly decreases with each successive payment.

For most consumers, acquiring a mortgage is the only path to home ownership. With median level homes ranging anywhere from $150 - $250,000 and more in some cities, very few people can purchase a home outright.



If you're like most of us and want to own your own home, you need to know how large a home you can afford. This will be influenced most directly by the price of the home and indirectly, by several other factors including the age of the home, size, condition, available land and location within the city you choose to live. If the home needs renovations you need to make sure that the costs of renovations will not exceed the resale value of the home.

Before you begin shopping around for the mortgage that is right for you, you can use the resources of many potential lenders to help you determine what you can afford.



Once you know how much home you can afford you will be ready to begin searching for a mortgage.

Local mortgage companies, banks and credit unions and even online mortgage brokers should all be scrutinized in your search for a loan.

A broker typically represents a number of different lenders with a variety of loans available to consumers. If a broker charges fees for brokerage services you need to determine the qualifications of the broker. Will the extra fees you pay help you get a better deal on a mortgage? The best brokers should be able to provide several loan options and be willing to provide comparisons of all available loan options.



Some brokers may also be willing to assist if any disputes should arise between you and your lender of choice.

If you can find an upfront mortgage broker you will eliminate any guesswork as to the true costs of a mortgage loan, with all fees disclosed in writing before the loan application is even submitted.

Before you submit a loan application you should get pre-qualified for a mortgage. This will establish in writing how large a loan you qualify for.



Once you pre-qualify make sure the lender will provide you with a free, no obligation pre-approved commitment letter.

Once you're pre-approved for a mortgage you'll have cleared one major obstacle in the sometimes long and winding road to home ownership.

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John Campbell is the writer and editor of CashBuzz, A financial portal for the rest of us. Check out cashbuzz.com for the latest articles on money management and tips and tricks that can help improve your finances.



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