10 Mortgage Fundamentals

There are many different types of mortgages available today, and it's important to determine which best meets your needs before committing to such an important outlay. Before you get to that point, however, you need to learn some fundamentals about mortgages in general. Below are 10 basics to get you started.

1. Your house is the collateral. No matter which type of mortgage you end up using, the basic principle is simple — you're borrowing money to pay off the purchase of your home, and you're paying interest on the loan. Your house and the land it sits on are the collateral against that loan. If someone cannot pay in conjunction with the terms of the contract, the lender can foreclose on your home.

2. Preapproval. Before house hunting, get preapproved by a lender, so you can receive a mortgage once you find the house you want.

3. Mortgage and down payment. A down payment on a house is typically anywhere from five to 20 percent. The down payment precedes the mortgage, which is then the amount borrowed on the remaining cost of the house. Therefore, a $300,000 home, after a 20 percent down payment of $60,000, would require a mortgage of $240,000.