Before you can go looking for homes, you need to know how much you can borrow. Lenders determine how much to loan to you based upon your income, credit history and how much you have for a down payment and closing costs.

The most important place to start is with a lender or mortgage broker. Choose your lender or mortgage broker carefully. Look for financial stability and a reputation for customer satisfaction. Be sure to choose a company that gives helpful advice and that makes you feel comfortable. A lender that has the authority to approve and process your loan locally is preferable, since it will be easier for you to monitor the status of your application and ask questions. Plus, it's beneficial when the lender knows home values and conditions in the local area. Do research and ask family, friends, and Carolina Select Realty for recommendations.

Today's homebuyer has more financing options than ever before. From traditional mortgages to adjustable-rate and hybrid loans, there are financing packages designed to meet the needs of virtually anyone.

While the different choices may seem overwhelming at first, the overall goal is really quite simple: you want to find a loan that fits both your current financial situation and your future plans. To get a suitable mortgage, here's what you'll have to do.

Decide what type of mortgage you want

• Fixed-rate mortgages - Using a fixed-rate mortgage, your interest rate stays the same for the term of the mortgage, usually 15 or 30 years. Your principal and interest payment remains stable, making it easier to plan a monthly budget.
  
• Adjustable-rate loan programs - Adjustable-rate mortgages (ARMs) differ from fixed-rate mortgages in that the interest rate and monthly payment can change over the life of the loan. This is because the interest rate for an ARM is tied to an index (such as Treasury Securities) that may rise or fall over time. In order to protect against dramatic increases in the rate, ARM loans usually have caps that limit the rate from rising above a certain amount between adjustments (i.e., no more than 2 percent a year), as well as a ceiling on how much the rate can go up during the life of the loan (i.e., no more than 6 percent). With these protections and low introductory rates, ARM loans have become the most widely accepted alternative to fixed-rate mortgages.
  
• Balloon and hybrid loan programs - Hybrid loans combine features of both fixed-rate and adjustable-rate mortgages. Typically, a hybrid loan may start with a fixed-rate for a certain length of time, and then later convert to an adjustable-rate mortgage. However, be sure to check with your lender and find out how much the rate may increase after the conversion, as some hybrid loans do not have interest rate caps for the first adjustment period. A balloon mortgage loan has a short term (typically 5 or 7 years), but the monthly payment is computed using a 30-year term. When a borrower uses a balloon loan, he or she will make the monthly payment for the scheduled loan term (5 or 7 years). When this loan term is over, the borrower is required to pay off the remaining balance in one lump-sum payment. If the borrower decides not to sell the property after the loan term is over, the borrower has the option to refinance the mortgage with a new one. Other hybrid loans may start with a fixed interest rate for several years, and then later change to another (usually higher) fixed interest rate for the remainder of the loan term. Lenders frequently charge a lower introductory interest rate for hybrid loans vs. a traditional fixed-rate mortgage, which makes hybrid loans attractive to homeowners who desire the stability of a fixed-rate, but only plan to stay in their properties for a short time.
  

Decide how much money to put down

There are mortgage options now available that only require a down payment of 5% or less of the purchase price. But the larger the down payment, the less you have to borrow, and the more equity you'll have. Mortgages with less than a 20% down payment generally require a mortgage insurance policy to secure the loan. When considering the size of your down payment, consider that you'll also need money for closing costs, moving expenses, and possibly repairs and decorating.

Decide whether to pay points

Discount points allow you to lower your interest rate. They are essentially prepaid interest, with each point equaling 1% of the total loan amount. Generally, for each point paid on a 30-year mortgage, the interest rate is reduced by 1/8 (or.125) of a percentage point. When shopping for loans, ask lenders for an interest rate with 0 points and then see how much the rate decreases with each point paid. Discount points are smart if you plan to stay in a home for some time since they can lower the monthly loan payment. Points are tax deductible when you purchase a home and you may be able to negotiate for the seller to pay for some of them.

Decide when to lock in your rate

A lower interest rate allows you to borrow more money than a high rate with the same monthly payment. Interest rates can fluctuate as you shop for a loan, so ask lenders if they offer a rate "lock-in" which guarantees a specific interest rate for a certain period of time. Remember that a lender must disclose the Annual Percentage Rate (APR) of a loan to you. The APR shows the cost of a mortgage loan by expressing it in terms of a yearly interest rate. It is generally higher than the interest rate because it also includes the cost of points, mortgage and other fees included in the loan.

Understand the feeds involved

Along with shopping the source, you'll 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.

Get a good faith estimate

Make sure you get a good faith estimate from your lender. It should give you a reasonably close estimate of funds you will need at the time of closing.

Know the difference between pre-qualified and pre-approved

The lender may pre-qualified for a loan, but that doesn't 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. It's wise to take the next step and get pre-approved for a specific amount the lender will actually lend you. A pre-approval in writing is the amount that the lender guarantees it will lend you, based on a thorough analysis of your application. The pre-approval 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. That's a negotiating edge you want in any market.