Select Page

Most Americans dream of homeownership, and many of them eventually achieve it. Doing so is often the biggest single financial transaction of a person’s life, and the benefits are enormous in terms of generating wealth and monetary stability throughout their adult life. Still, this only happens after someone understands what a mortgage is.

Mortgages are loans that let you own a home. More specifically, they let a lender, such as a bank or other financial institution, own your home while you live in it and make payments to them. Once the mortgage is paid off, you would then own your home.

There are three components to mortgages, and understanding each is crucial considering that many mortgages last 30 years. They might last even longer if one refinances.

How Mortgages Work

The first part of a mortgage is the monthly payment. This is what you have to pay every calendar month to pay down the entire mortgage throughout the loan. These payments will cover the loan principal plus interest. Other fees, such as property taxes, might be included in the bill.

Second, there are fees associated with getting the loan in the first place. These vary based on where you live, the property you buy, and the specific lender that you deal with. However, all are upfront fees that must be paid before the mortgage loan can even start.

Third, you will have a down payment. This is another up-front amount of money, but it’s not a fee. It’s actually applied to the principal of the loan and used to secure your mortgage. The bigger the down payment you make, then the better off your financing is going to be. Larger down payments result in lower interest rates, fewer fees, and faster equity in your home.


These various mortgage loan components are all things that you might have to live with for decades, so finding the right mortgage loan is crucial to homeownership success. Use a mortgage loan calculator to figure out how much of a mortgage payment you can afford every month to not overspend on a home. Always leave yourself some wiggle room in case of unforeseen expenses or loss of income.

Tips for Obtaining a Mortgage

Getting a mortgage is a bit more complicated than most people might imagine. It is a wise idea to begin preparing for a mortgage years before applying for one. You might be wondering how that all works, and I’ll explain.

Your credit score has a lot to play with whether or not a mortgage will be approved and what sort of percentage one will be dealing with. Naturally, that means that one should begin working on their credit score as soon as they start getting serious about homeownership.

It’s easy to check a credit score ahead of time. Just remember to aim somewhere above 580, as that is what the Federal Housing Administration requires for an FHA loan (alongside a down payment of 3.5%). Once one has their credit score, it’s essential to assess the situation and take steps to improve the score – if that is needed.

Another thing to keep in mind; it’s okay to look at several different lenders. There’s no rule saying a person has to get their mortgage through the bank they typically deal with – or that they have to stick with the first bank they talked to. This is a significant expense – shop around and try to find the best deal available.

Finally, take the time to research and understand PMI. That is to say, private mortgage insurance. This is especially important if you’re going to be using a downpayment of less than 20%, as many lenders will require it as an additional precaution. PMIs are designed to protect lenders, so it is essential to understand all of the rules that come with them.

This blog/website is only made available for educational purposes. It is designed to give visitors general information and a general understanding of select financial topics. It is not intended to provide specific financial or investment advice. Conduct your own due diligence or consult a licensed financial advisor/broker before making any and all financial/investment decisions.