Ready to buy your first home? Find out everything you need to know about mortgages. Learn all the real estate lingo, find the best interest rate, and even learn how to hire a realtor.

Imagine opening the front door of your dream house. There’s the family room with a vaulted ceiling. Flattering light fills the -- yes! -- walk-in master closet. The kitchen has shiny new appliances. Then you step onto the patio and find a huge, legalese-infested mortgage growing there. Oh, that’s not part of your four-bedroom fantasy? What about the sub-prime lending crisis and bucking-bronco housing market? Don’t worry -- a little knowledge goes a long way to securing the right loan for you.

Plan Ahead

Want to buy a home in the next six months? Fill out a preapproval application with your chosen lender. You’ll discover any potential credit hassles and what size loan you can land (not that you should house hunt with that top-end figure in mind). Couples should file this paperwork together to provide a full financial picture -- and ensure they both become part of the buying process.
Bottom line: Get your info in order fast. The early bird gets the low-anxiety loan.

Think Short-Term

The popularity of 30- and 40-year mortgages is a recent trend, fueled by lenders who rake in extra moola off of endless interest payments. Example: A $100,000 loan at 7% interest paid off over 20 years incurs $86,072 in interest, while the same loan paid off over 30 years incurs -- yikes! -- $139,509 in interest. (Plus, a shorter mortgage typically scores you a lower interest rate.) But is it worth it?
Bottom line: True, payments on a shorter term will be a bit higher, but frankly, if you can’t pay off a house in two decades, hunt in a more modest neighborhood.

Get Fixed

Fixed-rate mortgages lock in current interest rates, keeping your monthly payments the same for the life of the loan. Adjustable-rate mortgages typically start with a lower rate, but after an initial period (1 to 10 years), payments can drop or rise with market conditions (swell if you like taking your paycheck to the racetrack).
Bottom line: Though mortgage rates have risen from recent historic lows, the average rate (hovering around 6.5%) is still a good enough deal -- a fixed-rate loan is probably the wisest choice if you qualify.

Pay More Now

If your down payment is less than 20% of the purchase price of your new home, you are required to obtain private mortgage insurance (PMI) to protect the lender in case you default. (The assumption is that since you’re not loaded, you’re a risk.) This “insurance� takes the form of an increased interest rate on the extra amount financed and can really add up over time. Wall Street whizzes may prefer to invest that down-payment cash -- a risky strategy unless you’re super-bullish on the market.
Bottom line: Strive for a down payment of 20%, even if that means settling for a home without that highly coveted wine cellar.

Be Sharp on Points

Points are a perplexing aspect of mortgage math. Put simply, a “point� is 1% of the loan amount paid up-front to the lender to “purchase� a lower interest rate. The more points you fork over to the lender, the lower your payments will be for the life of the loan. (Yeah, sounds sorta like a bribe to us too.) Unless you plan to own your new home for only a few years, paying points will help save you bucks in the long run.
Bottom line: Make sure your lender isn’t trying to stick you with a higher-than-average interest rate and multiple points.

Go for Broker...Maybe

Mortgage brokers are industry insiders who coordinate applications and shop around with multiple lenders to find good deals. (Many online lenders are actually brokers.)Of course, this service isn’t charity; a broker marks up the lender’s “wholesale� terms to the “retail� terms you see. But, if you have a relationship with a bank, that comfort level may outweigh any possible savings.
Bottom line: If you use a broker, choose an Upfront Mortgage Broker, who will disclose the fees and wholesale offers of lenders.

Nestpert Jack M. Guttentag of MtgProfessor.com

 How do we know if we're getting a good interest rate?

Buying a home and researching the best mortgage for your financial situation? You might assume the lowest rate is naturally the best. Not true! The teaser rates for adjustable-rate mortgages (or ARMs) and "interest-only" mortgages can suck you in with low payments in the beginning, which seems like a smart bet. But what they don't tell inexperienced buyers is that the rates can skyrocket once your "rate lock" wears off. If life doesn't go as planned and your salary doesn't move up as quickly as you expected or you lose your job, then that bump up in those monthly payments can lead to serious financial trauma. It's much better to seek out a 15- or 30-year fixed mortgage. Check out the latest rates at Bankrate.com and plug them into our handy mortgage calculator to play around with what your potential monthly payments may be.

I heard you have to put down at least 20 percent as a down payment now. Is that true?

Not necessarily. Certain lenders, like FHA loan programs, still require as little as 3 to 5 percent down. Just keep in mind that to qualify for a lower down payment, you’ll likely be required to buy mortgage insurance, which is tacked onto your monthly payment (to protect the lender in case you default on your loan). But there's another catch...

The other catch is, it’s harder than ever to qualify for a bigger mortgage (and the less you put down, the larger your mortgage will be). If you do put down 20 percent, which is a big chunk of change up front, make sure that you also have a cushion of six months’ worth of mortgage payments to make sure you’ll be covered.

Nestpert Joseph Russo, Executive Director of The National Council for Financial Literacy and Real Estate Expert at ITeachAboutMoney.com

Know What a Mortgage Is

A mortgage is a loan that closes the gap between the cash you have for a down payment and the purchase price of the home you're buying. Each month, you'll pay a certain amount toward the interest on the loan and a certain amount toward the principal (the original amount borrowed). At first, you'll pay mostly interest, but as your principal shrinks, you'll pay more principal each month. Check out our Mortgage Glossary to for more mortgage definitions.  

Differentiate Between Fixed and Adjustable Rates

Fixed rate mortgages have interest rates that stay the same throughout the loan's life (usually 15 to 30 years). Adjustable rate mortgages (ARMs) have interest rates that fluctuate. Sometimes the rate varies every 6 to 12 months, and sometimes it varies every month. Usually, your ARM's interest rate will be tied to an economic index. When rates are high, your rate will be high. When they're low, yours will be low. If you're buying a home when interest rates are "historically low," try to get a fixed rate mortgage.

Get Cozy With a Mortgage Broker

If you find a mortgage package that sounds reasonable (someone who manages the bids from banks on your deal), talk to a broker before signing, because they may be able to find a better deal. You usually don't pay brokers -- the bank does -- and they're a good resource for first-time buyers. Here are some tips on finding the right mortgage broker.

Work Those Tax Breaks

If you buy a new or existing home up to November 30th of this year, you could get a first-time home-buyer credit of up to $8,000. You can claim this credit on your 2009 federal tax return. To qualify, the house must be your main home and you must not have owned another main home during the last three years. Unlike prior tax credits, you don't have to repay this one if you stay in your home for three years.

Before hitting another open house, get your mortgage needs squared away. Here are some monster missteps to avoid:

Mistake #1: Having big eyes

Everyone wants to move into a dream home, but you've gotta create a budget and understand how much house you can afford before getting caught up in a fancy model home. Also consider closing costs, taxes, and other home maintenance fees. With banks being more strict about qualifying buyers, it’s a lot more difficult over-borrow, but still be wary of getting in over your head.  

Mistake #2: Neglecting your credit history

Even if you're Mr. and Mrs. Perfect Credit Score, make sure there are no new mistakes. Bad credit can affect the amount of your loan as well as whether you’ll get your loan on time or at all. You only have a certain time frame to close a loan, and you might miss the lock while trying to clear up an error. And avoid closing credit cards while house hunting because it lowers your credit score.

Mistake #3: Missing out on great programs

If you’re a first time buyer, there are all sorts of loans designed to meet your needs. Some are state-funded housing programs and FHA loans.

Mistake #4: Not getting preapproved

Being preapproved allows you to make an offer with an edge, because with all the loose ends tied up you can close the deal quickly. Terms vary, but you usually have from 90 to 120 days in which a mortgage is guaranteed. That’s a lot of time to look for a house -- without stressing that you aren’t presenting the best offer in town.

Mistake #5: Going with the first broker

They might end up being the best and most competitive loan officer you meet, but you need to shop around. Aside from quoting loan rates, you should be offered a good faith estimate of your costs, including the down payment and closing costs, which vary by area, loan officer, and home price. Then there are fees, some of which are negotiable. See if you can get a zero origination fee, which might up your interest rate but result in less money to pay up front when closing. Read some more tips about picking a real estate agent.

Nestpert Jim Pair, vice president of the National Association of Mortgage Brokers