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Once a simple task that meant comparing the fixed interest rate mortgages of a dozen or so lenders, the mortgage search today is more like finding your way through a maze. There are dozens of loan types, hundreds of loan programs and thousands of mortgage brokers, bankers, lenders, finance companies, credit unions, even stock brokerage firms originating loans.

Because there is so much to learn, finding a mortgage that fits does not begin with an application, but education. If theres but one aspect of the home buying transaction you take the time to learn in detail, make it mortgages. Discover too late that you cant afford your mortgage, and you could not only lose your home, but also be unable to purchase another one for years.

Obtaining information is easy. Mortgage information sources are as numerous as mortgage types. Web sites, topical newspaper articles, mortgage books, consumer seminars and workshops can help. Professionals, including financial planners, real estate agents, mortgage brokers and lenders, can also assist you.

First, compare fixed-rate mortgages with adjustable rate mortgages to determine which type best fits your current financial lifestyle and, to some extent, your future obligations 15 to 30 years down the road. Learn how much of a mortgage you can afford. Lenders are apt to qualify you for as much as they are willing to lend, which can be more than you can really afford. Its up to you to take stock of your income and expenses, both current and projected, to determine what you can comfortably manage each month.

Along with your mortgage payment of interest and principle, remember to add related insurance costs, taxes, homeowner association dues and any other costs. Also, obtain copies of your credit reports from all credit reporting agencies. Obtaining your credit report in advance gives you time to challenge missing information, errors, or other discrepancies. If necessary, you can put a statement on your credit report to explain any blemishes you cant cure. Lenders likely will ask you to explain problem areas on your credit record anyway. Your attention will let the lender know you are conscientious about your finances.

When you are ready to shop for a loan you have two basic choices -- direct lenders and mortgage brokers. Direct lenders have money to lend. They make the final decision on your application. Lenders have a limited number of in-house loans available. Brokers are intermediaries who, like you, have many lenders from which to choose. If you have special financing needs and cant find a loan to suit them, an experienced broker may be able to ferret out the financing you need. Mortgage brokers, however, are paid with a slice of the amount you borrow, some more than others.

Along with shopping the source, youll also have to shop loan costs, including the interest rate, broker fees, points (each point is one percent of the amount you borrow), prepayment penalties, the loan term, application fees, credit report fee, appraisal costs and a host of others.

Before you actually apply for a mortgage on or off line, gather documents necessary to prove claims youll make on the application. The application will ask for information about your job tenure, employment stability, income, your assets (property, cars, bank accounts and investments) and your liabilities (auto loans, installment loans, mortgages, credit-card debt, household expenses and others).

The lender will run a credit check on you, but youll have to supply supplemental documentation including paycheck stubs, bank account statements, tax returns, investment earnings reports, rental agreements, divorce decrees, proof of insurance, and other documentation. If the lender deems you creditworthy, it will likely hire a professional appraiser to make sure the value of the home you are about to buy is commensurate with your loan amount.

During your loan application, get a rate lock - an essential document in a rising mortgage rate market. On or offline, a rate lock -- in writing - guarantees you a certain interest rate and terms for a given period.

Lock in all the costs you can, the interest rate, and points.
Set the lock on application rather than on approval. On approval means you wont have a stab at rates until the loan application is approved. In a rising market, a lock on approval would cost you more in higher interest rate.
Along with shopping around for the best mortgage, shop around for both the terms of the lock contract and its cost. Both can vary.
Your lock-in period should be long enough to allow for settlement, contingencies imposed by the lender or the purchase contract and other factors that could delay the process. Consider all factors that could delay your settlement, including the time it will take you to provide requested materials about your financial condition, unanticipated construction delays on a new house and the like.
Most lock periods range from 15 to 60 days. Anything longer could be cost prohibitive. Ask your lender to estimate (in writing, if possible) the average time for processing loans. Once you lock-in a rate, you must make sure that your loan is approved and closed before the commitment expires. Follow up on your loan application to make sure you dont delay sending additional documents the lender requires.

Finally, once the lender approves your loan, youve been prequalified for a certain amount, but that doesnt guarantee you the loan. Prequalification indicates you are creditworthy enough to obtain a loan and it lets you know how much the lender is willing to lend you based on your income and debts. Often, the lender has yet to pull your credit report. Its wise to take the next step and get preapproved for a specific amount the lender will actually lend you.

A preapproval - in writing - is the amount the lender guarantees it will lend you, based on a thorough analysis of your application. The preapproval not only gives you the security of shopping for a home you can afford; it tells the seller you are a serious buyer ready with solid financing. Thats a negotiating edge you want in any market.

When considering the many mortgage loan programs that are available, you may find yourself overwhelmed. Click on a mortgage loan type to get a primer (in laymans terms) on how a particular mortgage plan works.

Fixed-Rate Mortgage
A mortgage loan program where the interest rate does not change for the life of the loan.

Adjustable Rate Mortgage (ARM)
A mortgage loan program in which the interest rate is adjusted periodically based on an index. Also called a variable rate mortgage.

Balloon Mortgage
Behaves like a fixed-rate mortgage loan for a set number of years (usually five or seven) and then must be paid off in full in a single "balloon" payment. Balloon mortgage loan programs are popular with those expecting to sell or refinance their property within a definite period of time.

Two-Step Mortgage
A mortgage loan program where the interest rate is fixed for the first seven years and then is adjusted one time for the balance of the loan period.

Conforming Loan
A mortgage loan program for up to and including $417,000.00 in the continental United States (Alaska and Hawaii limits are higher).

Jumbo Loan
A mortgage loan program for $417,001.00 or more in the continental United States (Alaska and Hawaii limits are higher). These limits are set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

This is the most popular and conventional loan program. Your monthly payment is calculated based on the initial interest rate and never changes for the 30-year life of the loan. The 30-Year Fixed Rate Mortgage is considered the most conservative because there is no risk that changing market conditions will affect your monthly payment.

This loan is probably right for you if you dont plan to move or refinance for at least 10 years and you expect interest rates to increase over this period, or you just feel comfortable knowing that your payment wont change no matter what. This loan may also be right for you if you dont expect your income to increase significantly over the next several years.

Like the 30-Year Fixed Rate Mortgage, this program guarantees that your payment never changes over the life of your loan. Since you are committing to pay off your loan over a shorter period, however, your monthly payment will be significantly higher than for a 30-Year mortgage.

This loan may be right for you if you are interested in paying off your loan more quickly. This loan may also be appropriate if you expect to stay in this home in your retirement and you will be retiring in fewer than 30 years and wish to start retirement without mortgage debt.

The most aggressive of the Fixed Rate Mortgage options, this loan is paid off in only 15 years, resulting in a much higher monthly payment. This program is for those who can afford the higher monthly payment and are willing to pay more over a shorter period of time with the goal of owning the home without debt as soon as possible.

This loan could be for you if you are very aggressive about owning your home sooner or are close to retirement and wish to remain in your home and start retirement without mortgage debt.

This is a 30-year loan in which the rate (and therefore your monthly payment) changes every 12 months on the anniversary of your loan. The amount of the rate change (referred to as an Adjustment) is determined by a mathematical formula based on the U.S. bond market (typically the yield on the 1 Year U.S. Treasury Bill). Your lender does not control this number, so it is safe to assume that your adjustment will be fairly determined (although you should always verify your new rate by comparing with published numbers).

This loan is considered quite risky because your payment may change significantly from year to year. In exchange for taking this risk, the borrower is rewarded with an initial rate that is significantly below market rates for 30-Year Fixed Rate Mortgages. Even after the loan adjusts, your new rates will typically be below rates being offered to new borrowers for the 30-Year Fixed Rate program. In periods of rising interest rates, it is possible that you will ultimately pay much more for a 1-Year Adjustable than a 30-Year Fixed Rate Mortgage.

This loan may be right for you if you need to qualify for the largest loan possible using your current income and you are confident that your income will increase significantly in the short term to cover any anticipated increases in rates over the next few years. Although this loan comes with adjustment rate caps (usually 2% limit per adjustment and 6% over the lifetime of your loan), you should assume that your first adjustment typically results in an increase in your interest rate.

This loan may also be right for you if you can afford any increases in your interest rate and are willing to take a chance on changes in interest rate in exchange for a lower initial monthly payment and, hopefully, low payments in subsequent years.

This is a 30-year loan in which the rate (and therefore your monthly payment) changes every 3 years. Your new rate is calculated based on a predetermined formula.

This loan, while risky, is safer than the 1-Year Adjustable Rate Mortgage only because it does not adjust as frequently. This loan is right for you if you are willing to take on a moderate amount of interest rate risk in exchange for a lower initial rate that cannot change for three years. This loan could be right for you if you expect to move or refinance in about three years.

This loan may also be right for you if you wish to qualify for more money now based on your current income and you expect your income to increase over the next three years to cover any adjustment in your monthly payments.

Finally, this loan may be right for you if you plan to stay in your home longer than three years, and your income will be able to absorb any increases in your monthly payment.

This is a 30-year loan in which the rate (and therefore your monthly payment) changes every 5 years.

This loan is a nice compromise between shorter term Adjustable Rate Mortgages and Fixed Rate programs. You might choose this program if you expect to stay in your current home beyond the initial five years, you still wish to keep your payments relatively low, and you are willing to accept a small amount of interest rate risk in exchange for this benefit. This program may not be right for you if you are concerned that your income may not support increases in your monthly payment.

This 30-year loan offers a fixed interest rate for the first 3 years and then turns into a 1 Year Adjustable Rate Mortgage for the remaining 27 years of the loan. This loan has recently become quite popular by those seeking to minimize monthly payments while accepting a certain amount of risk.

This loan may be right for you if you wish to maximize the amount of loan you qualify for and expect to remain in this home for more than 3 years. This loan is generally the least expensive way to fix your monthly payment for the first three years of your loan. After that, this loan is like a 1 Year ARM with all of its risks and rewards. This loan may not be right for you if you are concerned that your income in three years may not cover your monthly payment after your first adjustment.

This 30-year loan offers a fixed interest rate for the first 5 years and then turns into a 1 Year Adjustable Rate Mortgage for the remaining 25 years of the loan. This loan has a longer initial fixed period than the 3/1 Adjustable.

This loan may be for you if you fit the profile for the 3/1 Adjustable Mortgage but wish to trade off a higher initial rate for the security of a longer initial fixed period. If you are certain you will only remain in this home for less than the initial 5 years, consider the 5/25 Balloon Mortgage instead.

This 30-year loan offers a fixed interest rate for the first 7 years and then turns into a 1 Year Adjustable Rate Mortgage for the remaining 23 years of the loan.

This loan could be right for you if you plan to remain in this home at least the initial seven years but consider it likely that you may wish to remain longer. If you are certain you will only remain in this home for less than the initial seven years, consider the 7/23 Balloon Mortgage instead.

This 30-year loan offers a fixed interest rate for the first 10 years and then turns into a 1-Year Adjustable Rate Mortgage for the remaining 20 years of the loan.

This loan may be right for you if you plan to remain in this home at least the initial ten years, but consider it likely that you may wish to remain longer. Consider this loan if you wish to have a long period of fixed monthly payments, but still wish to enjoy some savings over the 30-Year Fixed Rate Mortgage.

Although your monthly payment is calculated as if you will pay off the loan over 30 years, this loan requires that you completely pay your remaining balance (a significant percentage of your original loan amount) in a single payment after 5 years. This loan may be suitable for those who will sell their home or refinance on or before the balloon payment date.

This loan could be suitable for temporarily relocated workers or others who are certain they will not stay in their new home beyond the 5-year period. Unlike the 5-Year Adjustable, 5/1 Adjustable, and 5/25 Two-Step programs, which also offer a fixed rate for 5 years, the borrower often enjoys a lower interest rate for this program because the borrower is not obliging the lender to extend credit beyond the initial fixed period.

Note: Some balloon programs offer the borrower a Conditional Right to Reset, which effectively provides for an extension beyond the initial fixed period.

This is a longer version of the 5/25 Balloon Mortgage. Your monthly payment is calculated based on a 30-year amortization schedule, but you are required to pay off your outstanding balance after 7 years.

This loan may be for you if you are certain you will be moving or refinancing on or before the 7-year deadline and you wish to have the security of a fixed payment amount during this period.

Note: Some balloon programs offer the borrower a Conditional Right to Reset, which effectively provides for an extension beyond the initial fixed period.

This 30-year mortgage offers an initial 5-year fixed rate. After this initial period expires, the rate is adjusted once for the remaining 25 years of the loan.

Consider this loan if you expect to remain in the home for at least five years, but consider it a possibility that you could remain much longer. Since there is uncertainty about how much your payment will change after year five, you should only consider this program if you expect to be able to afford your post-adjustment monthly payment. If you are certain that you will be moving or refinancing within five years, you could consider the 5/25 Balloon program, but only if there is a significant monthly savings.

This 30-year mortgage offers an initial 7-year fixed rate. After this initial period expires, the rate is adjusted once for the remaining 23 years of the loan.

Consider this loan if you expect to remain in the home for at least seven years, but consider it a possibility that you could remain much longer and you are comfortable with the prospect of a future adjustment. If you are certain that you will be moving or refinancing within seven years, you could consider the 7/23 Balloon program, but only if there is a significant monthly savings.

Conforming refers to loans up to a federally set limit. Loans above that amount are considered Jumbo loans. For most people, the amount of the loan they are seeking is already determined by the amount of down payment they can afford and the sale price of the home (or existing loan balance in the case of a refinance).

Those borrowers whose proposed loan amount is near the federally set limit, or those who have significant flexibility in determining their down payment, should consider keeping their loan balance below this limit so that they may secure a Conforming loan. Conforming loans are most often (though not for all lenders) offered at lower rates than their Jumbo counterpart.

Ultimately, your potential lender will be your greatest source of answers and advice. Be sure to ask a lot of questions and ask for clarification if there is anything you dont understand.