A mortgage is loan that allows you to borrow a substantial amount of money to purchase a property. After the purchase, a mortgage serves as the security instrument that obligates you to pay back that loan, using the property itself as collateral.

In other words, let's say that you want to buy a $300,000 home, but you don't have $300,000 lying around to make that purchase. You still want that home, so you work with a lender to borrow $300,000 to buy that house. In return, the lender wants you to pay back that $300,000 over the next 30 years, with some interest on top to make it worth their while. Should you ever decide to stop paying the lender back, they can take ownership of the house their money bought through a process called foreclosure.

That's the cool thing- everyone who wants to purchase a property is allowed to pursue a mortgage to finance that purchase. That said, you need to ensure that they qualify with their lender and abide by all local laws to ensure that their mortgage can be lawfully written. At a minimum, you need to be old enough to sign legally binding documents. Beyond that, lenders have their own set of minimum standards you'll need to prove, such as FICO score, credit history, or even fall within certain income brackets.

Your credit score is a mathematical representation of how well you manage your personal finances, compared to hundreds of millions of other folks. Whenever you take on a secured debt, such as a car loan or a new credit card, your payment performance is reported to three credit bureaus- Experian, Equifax, and Trans Union. These bureaus then collate your data and run it through their own proprietary algorithms to more effectively qualify your financial management skills.

The exact algorithms that each bureau uses is a closely guarded secret, but it's safe to say that those with a higher credit score tend to have less missed payments on their record, while someone with a lower credit score is likely to have missed some payments in the past, or even have collections accounts registered against them.

Be careful- negative marks on your credit history can last upwards of a decade and has a direct impact on how you get financed in the future and the interest rates you're able to secure. Simply put- the lower your credit score, the higher a risk a lender takes in giving you money, which results in higher payments and interest rates.

A down payment is a chunk of money that lenders require you to bring to the table in order to prove that you have a personal stake in the property you're about to purchase.

The reasoning here is twofold. Let's say that you're purchasing a $300,000 house, and your lender requires you to put $10,500 down. The lender's reasoning is that if you're ten grand into the property, you're statistically less likely to miss payments on repaying your loan, as to do so would forfeit the money you've invested in the event of a foreclosure. Additionally, should the worst happen and you get foreclosed upon, the lender at least has a tiny bit of equity in the property, which will help offset the financial loss that it might take to turn around and liquidate the property.

Down payments are oftentimes governed by the type of loan that is being written, though some lenders have special loans that deviate from the norm.

Closing costs are costs that you are expected to pay in order to complete your real estate purchase. Closing costs include, but are not limited to:

• Origination Charges (underwriting fees, processing fees, discount points)
• Loan-specific costs (appraisals, flood certifications)
• Title expenses (title fees, title insurance, notary fees)
• Taxes
• Insurance

In the last few years, closing costs average around 3-5% of the value of the loan, depending upon the qualifications of the borrower and the property (if you're buying a log cabin in the middle of nowhere, expect your insurance costs to be a bit higher due to the added risk of a fire totaling your house.)

It's worth noting that oftentimes realtors are able to negotiate seller concessions that can be used to cover all or part of closing costs.

Seller concessions are financial incentives that the seller gives the buyer at closing as a way to incentivize them to complete the purchase of the property. For example, as we learned above, closing costs can get fairly pricy. If you're looking to sell your house for $300,000, you might agree to pay for your buyer's closing costs, so that they can actually afford to buy your house.

Seller concessions aren't always sums of money to cover closing costs, however. Occasionally, seller concessions take the form of cash in lieu of repairs, which is where the seller agrees that part of their house needs to be repaired, but rather than delay the house purchase by getting a repair crew involved, they simply offer cash to the buyer for them to fix the problem after the sale. Seller concessions can also take the form of furniture and appliances that are left in the home for the buyer. VA borrowers can also use seller concessions to pay off personal debt!

Seller concessions are not infinite, though, and are limited by the type of the loan backing the purchase.

An overlay is an additional set of rules that individual lenders can impose to restrict the kinds of borrowers that can use their products.

For example, even though the VA loan program does not have a minimum FICO requirement, an individual lender may impose their own requirement of a 620 FICO minimum in order to secure a loan backed by their organization.

Not every lender uses overlays, and even between two companies that do use overlays, it's highly unlikely that both companies impose the exact same restrictions.