7 Things You Didn't Know About Mortgage Loans

Mortgage loans are complicated (and expensive) beasts. But doing your best to understand them? That's critical if you want to avoid overspending or locking yourself into a loan you can never repay.

Are you about to apply for a mortgage loan to buy a house? Here are seven facts you might not know about these financing products.

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Down payments seem pretty daunting to first-time homebuyers -- especially those who believe the old "20% down" myth. Fortunately, most buyers won't need nearly that much to buy a home. In fact, some mortgage programs require zero down payment whatsoever.

The most common no-down loan options include the VA loan (for veterans, active military members, and their spouses) and USDA loans (for use in certain rural and suburban areas). You can use the USDA's eligibility map to see whether a home you're interested in is USDA-eligible.

ALSO READ: 4 Ways to Make a Down Payment on a House When You Don't Have Much Saved

Much like you'd shop around for the best price on shoes or a new car, you should shop around for your mortgage loan too. After all, every mortgage lender has its own unique staffing and overhead costs, and this trickles down to borrowers, often resulting in different prices for the exact same loan product. According to mortgage purchaser Freddie Mac, getting quotes from just five lenders can save you around $3,000.

Mortgage rates are hardly set in stone. In fact, they actually change throughout the day -- several times even. Because of this, your rate can change between applying for a loan and eventually closing on it -- that is unless you "lock" that rate. A rate lock guarantees your rate for anywhere from 30 to 90 days, ensuring it won't be increased (even if market rates rise) before you close on your mortgage.

There are two ways credit scores come into play during the mortgage application process. First, lenders look to make sure a borrower meets the requirements of their loan program. Conventional loans, for example, usually require a credit score of 620 or higher, while FHA loans sometimes go as low as 500.

Beyond this, lenders also use your score to assess your risk -- or how likely you are to repay your loan. If your credit score is low, indicating you might not be good at repaying your debts, they'll slap you with a higher interest rate, which raises your monthly payments and makes your loan more expensive in the long run. If your score is high, on the other hand? You'll get a low rate and a low monthly payment to boot.

ALSO READ: What Is an Excellent Credit Score?

Not very long ago, you had to apply for a mortgage live and in person at the bank or credit union you were working with. You'd hand-fill countless forms and papers and submit paper copies of all kinds of documents, from bank and retirement statements to tax returns and W2s.

Now, that process is much simpler. Tons of mortgage companies offer fully digital application processes, and in some cases, you can even close on your loan digitally, too. (This usually requires using a remote notary and a little technology, but if you're buying from afar, it can make the process infinitely easier.)

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The 30-year mortgage is easily the most popular type of home loan out there. But is it the one you should automatically choose? Definitely not. In some cases, a shorter-term loan -- like a 10-, 15-, or 20-year -- might be better. (Because they come with lower rates, they could save you thousands too!)

The right loan product really depends on how long you plan to stay in the home, your monthly budget, and how quickly you want to pay off the mortgage. Your best bet is to talk with a mortgage professional about your unique situation, and they can point you toward the best loan for your goals.

These two terms might seem interchangeable, but there's a big difference here. A mortgage banker (or lender) actually originates the loan. They -- or their employer -- are the ones loaning you the money. They can only offer you the loan programs, pricing, and services their business provides.

A broker, on the other hand, is more like a personal shopper of sorts. They can give you pricing for a number of different lenders and mortgage companies and point you toward a loan program that fits your goals. These professionals typically get a commission from the lender you eventually choose, but sometimes, you may pay a fee as well. Always ask how a broker gets paid before doing business with them.

ALSO READ: What Is a Mortgage Broker?

As you can see, mortgage loans are nuanced products -- and it's not always clear-cut what loan you should use or which mortgage lender you should go with. If you're unsure, it's always best to talk with a mortgage professional or financial advisor for guidance before starting your application. They can help you plan and advise you on the best steps for your unique goals, budget, and financial situation.

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