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Mortgages for Kids

Mortgages can be a complex financial topic, but an important one to understand! Here are the basics.


Ever wondered how your parents bought the house that you live in? If you own your family home, your parents probably took out a mortgage to buy your house. 

Mortgages might sound like grownup talk right now. As a kid, you may ask yourself how one even begins buying a home! But it’s a process that you will also go through if you decide to buy a home one day. And after reading this article, you can pat yourself on the back because you’ll already be one step ahead. 

What Is a Mortgage?

You know we like to keep it simple here, so we’re not gonna make this confusing: A mortgage is a type of loan used specifically to buy a house. Pretty straightforward, right? 

You see, not everyone has loads of cash handy to buy a house. This is why a mortgage is an excellent tool to help you afford a home. 

To actually get a mortgage, you borrow money from a bank and pay it off monthly. Just like with other loans, banks charge interest on mortgages. As you might already know, this is an extra fee you will also need to pay off along with your loan. 

Types of Mortgages

Mortgages can come in all shapes and sizes. Before taking out a home loan, it’s important to know all the info on the different types of mortgages out there. Understanding these factors can help you decide which type of loan is best for you. 

The following list of loans will give you all the deets you will need when you buy a house of your own one day. 

Conventional Loan

Conventional loans are ideal for people with good credit who want to buy a property. The loans come in two forms: conforming and non-conforming. 

  • A conforming loan has to follow rules set by the FHFA on things like credit and loan size. So, the amount of your loan will all depend on the cost of your house. 
  • A non-conforming loan is just what it sounds: They do not stay within the FHFA rules and are best for buying pricey houses. 

Jumbo Loan

Jumbo loans are super common for high-income locations such as LA and NYC – you know, fancy cities where you need a lot of dough to own a home. 

Often, these types of large loans require a down payment of 20 percent or more. On top of that hefty first payment, you must have many assets in cash and/or savings accounts to qualify. On a positive note, Jumbo loans do give buyers the opportunity to invest in homes with lots of value.  

Government-Insured Loan

The government itself does not give out loans, but they do have agencies that back up mortgages. The goal of these loans is to make homeownership more accessible. 

For example, a government-issued loan could be the best option when someone has a lower credit score or less cash for their down payment. This type of loan can be a great option for the first time, but it may also be available for repeat buyers. 

Fixed-Rate Mortgage

If you’re looking for the most stable type of loan, this is the one for you. Why? Because a fixed-rate loan stays the same every month. 

This means the interest rate remains the same, making it easier to budget your monthly payments. That’s why this type of loan is perfect for people who plan to live in their house for the long term.  

Adjustable-Rate Mortgage

An adjustable-rate mortgage is the complete opposite of a fixed-rate mortgage. In other words, the interest rate changes over time – meaning it can go up and down, depending on economic conditions. 

One big plus of these types of loans is that interest rate tends to be on the lower side at the start of an adjustable-rate mortgage. If you’re the type of real estate investor looking to sell their house after five or so years, this would be a better option for you.  

The Mortgage Process

Wondering what it’s like to actually take out a mortgage? Here’s our step-by-step process, so you can see for yourself that buying a home can be a piece of cake!

Step 1. Apply for Loan Pre-Approval 

When you apply for a loan, you’ll learn how much money a bank is willing to lend you and what the interest rate will be. This all depends on your credit score, income, and other assets. 

Step 2. Officially Getting Approved

Nowadays, you can see once you’ve been approved online. But, just to make it official, you’ll also get a letter sent in the mail. And once you get that approval, you’re free to start house hunting! 

Step 3. Putting in the Offer to a Home 

The best part of the whole process is finding a house that’s the perfect fit. Once you’ve seen enough homes and think you’ve found “the one,” you’re gonna need to make an offer. 

If you’re using the help of a realtor – which most people do – they will start the negotiation process for you. If the seller accepts your offer, it’s time to move on to the actual home-buying process. 

Step 4. Verify the Details

While verifying details, your personal assets and finances will be looked at more closely. Inspections of the home will also take place. An underwriter does this, and when they have completed the needed work, the buyer will get a Closing Disclosure. This document provides the buyer with all the needed details about their loan.

Step 5. Close on the Property!

A closing meeting can occur once your loan has been approved. During this meeting, you’ll want to have your down payment ready. So, be sure to bring your checkbook, ID, and that closing disclosure. 

Now’s also the time to clear up any last-minute concerns. Because once you sign the loan, you will now officially be a homeowner! Hooray!

Mortgage FAQs

Still have questions? Don’t sweat it; we’ve rounded up the most frequently asked questions that we’ve answered for other kiddos. This should help you get a better picture of what exactly a mortgage is. 

What Is a Down Payment?

To buy a home, the buyer must pay the seller a certain amount of money upfront. This is called a down payment. Down payments can range from 3% to 20% of your new home’s value.    

How Does a Down Payment Work?

A down payment works by paying the agreed amount upfront to the seller. This serves as a sort of “investment” in the house and shows the seller that you’re motivated. 

The bigger the down payment, the better. It proves you are a reliable buyer and gives you a jump start on paying for your home. 

How Long Is a Mortgage For?

Mortgages can be both short- and long-term. During a short-term mortgage, you will spend about 10 – 15 years paying for your home. Whereas a long-term mortgage usually takes around 30 years. 

What Are Mortgage Payments?

Mortgage payments are the process by which you pay for your home. Every month you will need to pay for a little bit of your house. Most people are not able to pay for a home all at once. So a mortgage offers a step-by-step process for homeowners. 

How Your Parents Can Help You Learn About Mortgages

If your parents are homeowners, they’ll have first-hand experience with the process. If they’re not, this is an opportunity for your family to learn together! Either way, chances are that your parents will be the best teachers you can find! 

Don’t be afraid to ask questions. This open communication will help you learn more about mortgages. Some good things to ask your parents include:

  • What happens when you can’t make your mortgage payment? 
  • How much did your family give for your home’s down payment? 
  • What financial institution did your parents go through?
  • What’s the interest rate on your parent’s mortgage?
  • What information was needed for your family to get approved? 

Mortgage Definitions

These are some must-know definitions that every prospective home buyer and financially savvy kid should know:

  • Principal: The money that the buyer borrows to pay for the house.
  • Interest: The additional payment that the bank gets for letting you borrow the money. 
  • Home Equity: The difference between the mortgage that you still owe and the market value of your home. Think of it as how much of the home you actually own. For example, if your home is worth $270,000 and you still owe $200,000 then your home equity is $70,000. 
  • Collateral: An asset that you offer the bank as guarantee that you’ll pay back the loan. In the case of a mortgage, your own home is considered collateral. 
  • Foreclosure: When you fail to pay your mortgage and the bank takes away your home.  

Kids Resources and Books About Mortgages

Isn’t it fun to learn about mortgages and dream of the day when you buy your own home, apartment building, or commercial property? If you’re into real estate, these are some books and games that can help you learn more:

Monopoly is more than a kid’s game. It’s actually a great way to practice your property-buying skills! It might seem silly, but this classic board game might be just the thing that will help prepare you for the future. 

You’ve probably heard the phrase, “don’t judge a book by its cover.” Well, that’s what we want you to do with Baby’s First Real Estate Book! Don’t let the title baby scare you away because this book’s perfect for getting the basics of real estate down. Everyone starts somewhere, even real estate pros and experienced homeowners. 

If you’re looking for a game you can enjoy with the whole family, look no further than The Entrepreneur Game. It’s the perfect board game that lets you have fun and learn about finance at the same time! You might even give your parents a run for their money! 

The Next Step

Even though buying a house may seem like a long time away, it’s never too early to start learning about mortgages. The sooner you start your financial journey, the more of a head start you will have! 

You have already done more than most kids your age by reading this article. But it doesn’t stop here, friend! Use the tools learned here to start asking questions and expanding your knowledge. So that when the time comes to buy a house, you can be a total pro.

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About the Author

Lucia Caldera

Lucia Caldera is a writer who specializes in personal finance. Her goal is to create approachable content that sparks financial wellness and unlocks personal growth. Lucia's work reflects her passion for financial education as the key to reducing the wealth gap for future generations.

Last updated on: March 15, 2024