As the song goes, "My Momma told me, you better shop around." When it comes to buying a home, shopping around means not only finding the right home, but also finding the right mortgage. By taking a little time to educate yourself on what a mortgage is, you'll be better prepared to choose the financing that's right for you.

So how do you shop for a mortgage? What does that mean? Think of it like this. Most people don't have enough cash to pay for a house outright. They need to borrow the money to pay for a home and the fees involved in buying a home. The loan you get to buy a home and finance the charges associated with buying the home is called a mortgage.

Before you walk into your local bank, or set up a meeting with a lender recommended by a friend or professional, it helps to know a little bit about what makes up a mortgage and how much it will cost you. Following are some key things you'll want to know when you're determining what type of mortgage you want to choose.

Types of Mortgages

There are two main types of mortgages - conventional and government-backed loans. Let's take a closer look at these two options:

1. Conventional Loans
You can get a conventional loan through lenders such as banks, thrifts, or mortgage brokers. If you obtain a conventional mortgage you'll be required to put down between 3 and 20 percent of the loan amount. Most likely you'll also be required to purchase private mortgage insurance (PMI) if you make a down payment of less than 20 percent.

2. Government-Backed Loans
The difference between a conventional and a government-backed loan is that the conventional loan is backed, or financed, by the lender, while a government-backed loan is financed by…you guessed it… the government. You can get a government-backed loan through your local bank…there's no special government loan office you need to go to first. You've probably heard of two types of government-backed loans -- FHA (Federal Housing Administration) loans or VA (Department of Veterans Affairs) loans. Let's look at both:

FHA Loans. FHA loans are typically the easiest loans to qualify for. They have lower down payment requirements than conventional loans (typically between 3 and 5%), and allow you to finance some of the closing costs. FH A loans are also assumable, meaning that when you go to sell your home a qualified buyer can just pick up the monthly mortgage payment instead of having to create a new mortgage loan. FHA loans also frequently offer down payment assistance programs or allow a portion of the down payment to be made through a gift or grant. Visit the U.S. Department of Housing & Urban Affairs (HUD) website for more information on FHA loans.

VA Loans. VA loans are for active or former military personnel, or for unmarried surviving military spouses. To qualify you will need to have served active duty for at least 180 days, or 90 days combat duty. If you're no longer active duty, you must have an honorable discharge. VA loans require very low, or no down payment, and they frequently carry lower than average interest rates. The VA loan, like an FHA loan, is assumable. Visit the Veteran's Administration website for more information on VA loans.

Okay, so once you've decided which type of financing you want to pursue - Conventional or Government-Backed, you'll next need to decide what type of mortgage structure you're most comfortable with - a fixed-rate mortgage or an adjustable-rate mortgage. Read on to learn more about mortgage structures.

Mortgage Structures

There are two main types of mortgage structures - fixed-rate mortgages (FRM) and adjustable-rate mortgages (ARM). Let's look at both:

1. Fixed-Rate Mortgage
A fixed-rate mortgage (FRM) means that your interest rate and monthly mortgage payment is fixed, or will not vary. So if you take out a mortgage loan with an interest rate of 6.25% that has a monthly payment of $1,150 it will always remain at that same 6.25% interest rate and that same $1,150 monthly payment. The stability and predictability of fixed-rate mortgages is very attractive to a lot of buyers.

2. Adjustable-Rate Mortgages
The other, most common option is an adjustable-rate mortgage (ARM). The most important thing to know about ARMs is that first letter: A. "A" stands for adjustable. That means that with an ARM, your interest rate and monthly payment will adjust, or vary, depending on the current financial market.

Your lender will tell you what the loan's "defined adjustment period" is, which is how frequently the interest rate can change. There will be an initial period, which can vary between 1 and 10 years, and then after that time the interest rate can vary adjust every year for as long as you owe on the loan. If you get an ARM your lender will give you a minimum and maximum rate. That way you'll know the lowest or highest your interest rate could be, and therefore how little or how much your monthly mortgage payment could be. If the interest rate rises, your monthly mortgage payment will increase. And the reverse is true. If the interest rates drop, your monthly mortgage payment will be lower.

Length or Term of Mortgage

The amount of time you have to pay the mortgage loan back is also known as the mortgage term. The most common fixed-rate mortgage term is typically 15 or 30 years. So if you took out a 30-year loan, you will have 30 years to pay it back.

Just like fixed-rate mortgages come in a variety of terms (15, 20, and 30 years, for example), you can choose a variety of ARM term lengths such as a 5/1 ARM, 7/1 ARM or 10/1 ARM. When looking at the ARM term, the first number (such as 5 in a 5/1 ARM) is the initial period or how long until the interest rate can be adjusted (higher or lower depending on the current financial market.) The second number (such a 1 in a 5/1 ARM) is how frequently your interest rate can be adjusted after the initial period - so in this case you'll have 5 years where the interest rate will be fixed, but then after that your mortgage can adjust every year (meaning increase or decrease) depending on what is happening with interest rates.

How do you decide what term you want? Well, the longer the term, the lower your monthly mortgage payment (because you're spreading the full amount that you owe over a longer period of time.) But the longer the term of the mortgage, the more interest you'll be paying as well. That's because interest compounds over time, so the longer you take to pay the loan back, the more interest accumulates. To decide what term mortgage you want to take out, consider:

1. How much of a down payment,
2. How long you think you would likely be in the home before you would want to move/buy another home, and
3. How much of a monthly mortgage payment you're comfortable making.