What Is a Home Loan?

A home loan is a type of mortgage that enables you to buy a home without needing to pay the full purchase price upfront. Instead, payments are made over time at a fixed interest rate, making ownership more accessible for those who may not have enough funds to buy one outright.

The lender provides you with a loan for an amount known as the “principal,” which must then be repaid to them over time. Loan types vary, from fixed to adjustable, but most home loans are “fully amortized,” meaning your monthly payments are scheduled so that all of your principal will be repaid at the end of their term.

Home loans come in many forms, from those for first-time buyers to construction and reverse mortgages. Each has its own characteristics such as size, maturity date, features and lenders involved.

Home loan options usually consist of 30-year fixed-rate mortgages, which offer predictability and affordability. In addition, 15-year and 10-year fixed rate mortgages exist that allow you to lock in a low interest rate for an extended period of time.

Another popular mortgage is the USDA loan, issued by the U.S. Department of Agriculture and designed to assist low- to moderate-income people purchase homes in rural areas. This specialized program is available in certain states with no down payment requirement, making it attractive for many potential home buyers.

As a first-time buyer, it’s wise to get preapproved for a mortgage before beginning house hunting. Doing this can help save time from looking at homes that you cannot afford.

Your credit history plays an integral role in determining whether or not a lender will approve of you for a mortgage. It demonstrates your responsibility as an accountable borrower who makes timely and on-time payments, helping reduce overall interest costs. Furthermore, good credit may even qualify you for lower loan rates than what the market might otherwise provide.

When searching for a home, it’s wise to speak with a local mortgage broker first. They can inform you of the loan programs available in your area and explain the mortgage process so that you are aware of what to expect.

Some lenders provide a special “zero down” mortgage that can save you thousands in upfront fees. This option is ideal for first-time home buyers or homeowners with limited savings who cannot contribute more than 20% toward the home’s purchase price.

Other loans that may save money include FHA loans, which require a lower down payment than conventional mortgages and come with other advantages for those who qualify. Furthermore, FHA loans come with mortgage insurance which protects the lender in case of default on your loan.