How to Get a Mortgage

Biltmore Estate, built by George Vanderbilt in Asheville, North Carolina, in 1888–95, is the largest house in the United States. CREDIT: Porsche997SBS | Creative Commons View full size image

Unless you're paying full price and in cash, you'll need a mortgage to buy a home.

A mortgage is the loan that finances the property's purchase. According to the National Association of Realtors, a home is used as collateral for a mortgage loan, which is also a legal contract that the buyers sign promising they'll pay the money back over a certain number of years, usually between 15 and 30.

Those who don't make the monthly payments — which include principal, interest, taxes and insurance — run the risk of having the home seized and resold by the loan's lender.

Before buying a home, it's critical to know what lenders look for when determining whether to approve a mortgage loan.

According to Wells Fargo, lenders examine a number of factors, including:

• The value of the property being purchased and its appraisal value
• The stability of the homeowner's income
• The homeowner's assets and available income for a down payment
• Current debts and credit history

The bank advises homeowners to keep their total debt level, including mortgage payments and any previous obligations such as car payments, at or below 36 percent of their pre-tax monthly income.

According to the U.S. Department of Housing and Urban Development, the two most common types of mortgages are:

• Fixed-rate: The interest rate stays the same for the term of the mortgage, which normally is 30 years.
• Adjustable Rate Mortgage: Interest rate and monthly payments typically start lower than a fixed-rate mortgage, but your rate and payment can fluctuate either up or down as often as once or twice a year, depending on various financial indicators.

Home buyers can obtain a mortgage loan from a bank, a savings and loan, a credit union, a private mortgage company, or various state government lenders.

Chad Brooks is a Chicago-based freelance business and technology writer who has worked in public relations and spent 10 years as a newspaper reporter. You can reach him at chadgbrooks@gmail.com or follow him on Twitter @cbrooks76.