What is a mortgage?

If you’re looking to buy a home, this is an important type of loan that you’ll want to know more about.

If you're thinking about buying a house, you've probably heard the term "mortgage." This is a key part of purchasing a home, and something you’ll need to understand before going forward.

Mortgage definition

So, what is a mortgage loan? A mortgage is a loan in which the lender gives the borrower a sum of money to purchase property or real estate. The lender then holds the title of the borrower's property until the loan is paid off.

How does a mortgage work?

Even with the mortgage definition in hand, you may still have several questions about how a home loan works.

To get a mortgage, most lenders will require that you have a down payment to put toward a percentage of the home price. After your down payment has been provided, your home loan then covers the remainder of the home purchase price.

The mortgage is comprised of principal, which is the amount you originally borrowed, plus interest. You will make a monthly payment on the total that you owe and pay off the home loan over an agreed-upon length of time. 

To get a home loan, a good place to start is to speak with a mortgage loan officer. This professional will walk you through the application process, which includes checking your credit, verifying your income, and helping to determine how much you can afford to borrow.

How do mortgage payments work?

Each month, part of your payment goes toward the principal and part goes to the interest on the loan. Depending on how your loan is structured, you may also pay a portion of other fees and expenses monthly as well, such as your homeowner’s insurance, property taxes, private mortgage insurance, and/or association dues.

Only the portion of your payment that's applied to the principal reduces your balance. Loans are often structured so a greater portion of the payment goes toward interest at the beginning of the loan, with the proportions of your payment for principal versus interest changing gradually over the life of the loan.

Mortgage 101

While it could take a whole book to write a comprehensive mortgage guide, you can grasp some of the basics quickly with these key facts:

• Mortgages feature either a fixed interest rate that doesn't change or an adjustable rate that will vary from year to year.
• The value of your down payment can vary between different loan programs but many loan programs allow for lower down payments and some allow for gift funds.from a direct relative or a close friend that you could use towards the down payment.
• In addition to your down payment, you will have other expenses such as a closing costs for your loan to get processed and underwritten, title fees to acquire appropriate title insurance, and possible prepaid items such as proration of daily interest, property taxes and homeowner’s insurance. Closing costs and prepaids usually amount to anywhere between 3 and 5 percent of the amount mortgaged.

What is a home loan prequalification?

Real estate agents often ask that you get prequalified for a mortgage before you begin looking at houses. This gives you a good idea of what you can afford to buy. Without a prequalification, you may end up shopping for homes that are out of your price range.

To get a mortgage prequalification, you'll need to talk to a lender and provide them with some basic financial information, including your household income and household debt. A prequalification is not a guarantee of mortgage approval, but it will give you an idea of where you stand.

What is a home mortgage loan officer?

A mortgage loan officer is an individual who will help you explore your options when it comes to choosing a home loan. A loan officer will help you evaluate your financial situation and determine what type of mortgage is best for your needs. This professional can help you determine the appropriate price range for your budget, and find a mortgage program that helps you get the home you want without creating undue financial strain. Your home mortgage officer will serve as your primary point of contact for financial matters throughout the application and home buying process.

If you’re ready to talk to someone to learn more about the financing process, find a U.S. Bank mortgage loan officer near you.