Shopping for a mortgage can be a intimidating, even if you have a strong grasp of basic mortgage knowledge. Do some comparative research before making your final decision. To begin, there are several sources that can provide mortgage information, referrals, and rates.

• Personal referrals Use your own personal resources first. Family and friends are a great place to start. Someone you know got a mortgage loan and if their experience was a good one, you have the first place to call.



• Real estate agent/broker If you are working with a real estate agent, ask for contacts. You do not have to use your agent's sources, but they are frequently the ones with good terms and a lot of experience.



• Internet The Internet has become a big player in the mortgage arena. Many lending institutions have their own Web sites that you can visit to obtain information. Two such sites are http://www.bankrate.com and http://www.lendingtree.com.



• The newspaper Many newspapers, particularly the Sunday or weekend editions, have a real estate section, a good source for a list of lenders and their rates. These rates may not be current, so it is important to call the source directly.



• Real estate listing magazines/brochures Mortgage ads generally focus on rates. Call a few of the companies in the ads and compare them to others.



• Yellow Pages The phone book is not the best place to begin your search. But you may stumble upon an organization that is local, one that you recognize, or maybe even someone that you have dealt with before.

You will quickly learn that there are thousands of banks, mortgage companies, mortgage brokers, and credit unions competing for your loan. If they are aggressive, use that to your advantage. The lowest rate may not be the best deal for you. There could be hidden fees that change the appearance of a competitive offer into a deceptive one.

Be Smart in Choosing a Mortgage
Let's assume that you have decided you want a 30-year, fixed-rate mortgage. In discussions with lenders you learned there are other charges and fees in addition to the interest. There are points, or loan-origination fees, various appraisals and surveys. Once you reach this point, compare each lender's costs by asking for a written good-faith estimate of all the costs your lender will charge.

The good-faith estimate will show your estimated monthly mortgage payment, including principal, interest at the rate quoted, real estate taxes, and insurance. This estimated monthly payment is referred to as PITI (principal, interest, taxes, insurance). Note that taxes and insurance are estimated and can vary from lender to lender. Compare your good-faith estimates to determine the most competitive offer.

Here are some tips for comparing good-faith estimates:

• Ask for a zero-point quote so you can compare similar loan offers. A point is equal to one percent of the amount of money that you are borrowing. If you are borrowing $100,000 and you are required to pay one point for the loan, you will pay $1,000. Points can become very expensive. Most mortgage loan programs have zero-point rate quotes available. Be sure to ask your lender.



• What is the annual percentage rate? It is the rate plus the cost to borrow money. It shows the real cost of the mortgage stated as a percentage of the loan amount. It will be slightly higher than the quoted interest rate because it includes lender charges. If two mortgage lenders have the same interest rate and the same points, the one with the lower APR will have lower lender charges and is likely the better deal.



• Remember that rates change every day, so a comparison of rates must be done on a same-day basis. Lender fees likely will not change.



• Include all lender fees in your comparison. Costs that often show up on the good-faith estimate include appraisal and credit report fee, application fee, document-preparation fee ("doc prep"), underwriting fee, and processing fee. Lender fees will vary. Many companies show costs differently, and it can be hard to compare at first glance. If it doesn't make sense, ask questions.



• Look at the total closing costs and the estimated amount of money you will need to pay up front. If you don't understand the numbers, ask the lender to explain. If it still doesn't make sense, keep looking for a lender.

Because it is nearly impossible to find the lowest rate with the lowest fees on any given day, you can work on finding a competitive rate with reasonable fees. It is just as important to find a lender with whom you feel comfortable.

How much can you afford?
The mortgage industry is technical and automated. In many cases, obtaining a mortgage loan approval can be accomplished in a matter of minutes with underwriting/approval software that most mortgage lenders have. You can find out quickly what amount you can borrow based on your credit, income, and assets.

But do you want to borrow that much? How do you figure out how much you can afford to borrow? There can be a big difference between what the lender is willing to lend you and what you should actually borrow. Refer back to the percentage of your income you figured out that you have available to spend on housing.

Example If your annual income is $30,000, or $2,500 per month, and you know you can spend 35 percent of your income on housing, then you could probably afford to spend $875 a month for your mortgage payment and other housing-related costs.

Estimate the maintenance and other costs associated with any house you are interested in buying. Subtract these expenses from the $875 to see how much is left for the mortgage payment.

A mortgage calculator let you to see actual monthly principal and interest payments, based on interest rates and loan amounts. You can compare monthly payments by varying rates, loan amounts, and term (or length) of the loan. You will find mortgage calculators online at many finance-oriented sites, such as http://www.bankrate.com and http://www.money.cnn.com.

Your real estate agent or loan officer will be able to work through the numbers with you. But they may want to work from what you can qualify for rather than what you can afford. Be smart and stick to your budget. It's your money.