What is a mortgage? A mortgage is simply a loan you obtain in order to pay the difference between the cash you are able to put down on a home and its purchase price. In general, mortgages require monthly payments which are made up of several components:

Your lender will work with you to determine how much you are able and/or willing to pay monthly, taking each of these factors into account.

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Andy Dielmann, the president and broker of Dielmann Sotheby's International Realty has been in the real estate business in St. Louis for 30 years. In addition, many of the area's most savvy and experienced real estate agents call Dielmann Sotheby's International Realty home. As a result, we have worked with a large number of lenders over the years and know which ones have a solid history of providing competitive loans and top-notch service from beginning to end. These are the lenders to which we will refer you.

In addition, you should ask other recent home buyers and real estate professionals you may know about their experiences with various lenders. Once you have narrowed down the list, you'll want to interview them, keeping the following in mind:

• The loan officer you choose must be willing and able to talk with you in terms you understand and patiently answer as many questions as you have.
• Consider more than just the interest rate that is quoted to you. Make sure you also understand the implications of any fees or penalties that may apply to your loan.
• Only consider lenders who leave you confident that they will guide you each step of the way and meet every deadline -- from selecting the mortgage that suits you all the way to the closing.
• Mortgage lenders are competitive. If you like one lender best, but another offers a better rate, don't hesitate to ask the lender you like best to match it.

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"Pre-Approval" is the term used to describe the process whereby a lender evaluates and verifies your financial information in order to determine the amount of money they would be willing to lend you. Ideally, you should begin the loan pre-approval process before you begin to search for a house, as this offers you several advantages...

• By knowing how much a lender is willing to lend, you can focus only on properties you know you can afford to buy.
• When you make an offer on a home, the seller will know that you are a serious buyer who is able to follow through on the offer. For good reasons, buyers fear accepting an offer only to find out that the buyer cannot secure financing. And, for this very reason, if someone else is bidding on the home at the same time, having pre-approval may give you the edge.
• Once you have found a home and had your offer accepted, you will already have some of the paperwork to complete the loan process out of the way.

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Particularly for first-time home buyers, one of the biggest questions is "How much down payment do I need?"

Ideally, lenders like for buyers to have at least 20% of the purchase price available for down payment. This provides the lender with some assurance that if the buyer defaults on the loan, they can afford to resell the home, and after paying all the associated fees of selling it, not take a loss.

In addition, if you have 20% of more of the purchase price as down payment, you can expect to be quoted much more competitive interest rates and lower up-front fees.

If you borrow money from a mortgage lender with less that a 20% down payment, you should expect to obtain and pay for Private Mortgage Insurance (PMI) which provides the lender with additional protection if you default. PMI can add several hundred dollars to your mortgage payments each year until you can prove you have 20% equity in your home -- either through making payments, making improvements or appreciation of your home's value.

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While there are numerous ways for mortgage loans to be configured, most are either "Fixed Rate Mortgages" or "Adjustable Rate Mortgages." The difference lies in how the interest rate for the loan is determined.

Fixed Rate Mortgages carry the same interest rate during the entire term of the loan.

Advantage:

• Fixed Rate Mortgages allow you to know, quite precisely, what your monthly payments will be throughout the life of the loan.

Disadvantages:

• Since the lender has to set a rate they know they can live with over 15 to 30 years, you may end up paying higher interest on your loan overall.
• If interest rates fall, you may end up with an interest rate considerably above what the current market is offering.
• In order to lower your interest rate, you will need to refinance your loan.

Adjustable Rate Mortgages (often referred to as ARMs) have rates that adjust periodically, based on interest rates for loans in general. If interest rates (overall) go up (or down), your mortgage rate will likely be adjusted up (or down) as well.

Advantages:

• You will maintain a competitive interest rate throughout the life of your loan without having to refinance.
• You will often qualify for a lower initial interest rate because the lender will be "covered" regardless of what happens to interest rates in general during the life of your loan.

Disadvantages:

• Since the interest rate on your mortgage will rise and fall over the course of the loan, it may make budgeting for this expense more difficult.
• If rates rise significantly, so will the interest on your loan. As a result, you may end up paying more interest over the life of the loan than if you captured a Fixed Rate at a time when interest rates were significantly lower.

Your lender will work with you to determine which option is best for you.

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All homeowners must carry homeowner's insurance. You will not be able to close on your purchase without it and will usually be asked to pay the full first year's premium at closing.

• Homeowner's insurance can be a significant additional expense to homeownership. You should shop for homeowner's insurance at the same time you are searching for a home and take this expense into account when determining how much you can afford to spend on a home.
• Insurers will be able to give you an estimated cost for homeowner's insurance based on a description and general location of the homes you are investigating.
• To minimize cost, buy the most comprehensive coverage and highest deductible you can afford.

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