One of the most important decisions you will be faced with in the home purchasing process is determining which loan program best suits your needs. Your Real Estate Agent can be instrumental in this endeavor. In our competitive market, it is often advantageous to seek out a lender before writing a contract on a property. This will indicate to the seller that you are a truly serious buyer and have the means to purchase their home. Therefore we recommend that you choose a lender and begin the application process even before you begin seriously looking for a new home with your Realtor.

The mortgage application process can seem overwhelming. First there is the application form, which asks for detailed information about you, your employment record, the house you want to purchase, etc. The lender will need documentation pertaining to your personal finances -- your earnings, your monthly expenses, and your debts -- to help gauge your willingness and ability to repay the mortgage.

Lenders also will examine your file at the credit bureau to learn if you pay your bills on time. A lender may reject your application if the report shows that you have a poor credit history. Thus, you may want to make sure your credit file is accurate before you apply for your mortgage. You have a right to know what information is contained in your credit report and to have someone from the credit bureau help you understand what the report says. Following are web sites for several of the major credit reporting agencies:

www.equifax.com, www.experian.com (aka TRW) , www.transunion.com

When looking at your projected mortgage payment and existing debt, some lenders might use "front-end and back-end" ratios such as "28 and 36" to determine whether you qualify for the loan.

In the case of "28 and 36," the 28 refers to the percentage of your gross income (before taxes) that may be spent on housing expenses, including principal and interest on the mortgage, real estate taxes, and insurance. The 36 refers to the income that may be spent for payments on all your debts (including the mortgage): the monthly payments on your outstanding debts, when added to the monthly housing expenses, may not exceed 36 percent of your gross income. When you talk to a lender, find out what ratios will be used to evaluate your application.

Be prepared to provide certain documentation about your income (W2's for prior years and year-to-date pay stubs), current debts (account number, outstanding balance, and creditor's address for each), and the purchase contract for the home you want to buy. When you file your application, ask the lender how long the approval process will take. The time may vary depending on the complexity of your mortgage, current market conditions, and whether you have to provide additional information. It's common for a decision to be made within 30 days after the lender receives all the necessary information. Applications for FHA or VA loans may take longer.

If your application is turned down, federal law requires the lender to tell you, in writing, the specific reasons for the denial. Make sure you understand the reasons given -- you may be able to find answers or alternatives that will satisfy the institution's lending standards. Even if that doesn't happen, understanding fully why the loan was denied may improve your chances with the next lender you visit. Factors that may affect the loan decision include:

Downpayment
Is your proposed downpayment sufficient? If not, perhaps the lender offers other types of mortgages with lower downpayment requirements or may offer downpayment assistance programs such as Nehemiah, Neighborhood Gold or Ameridream as well as local government funded programs.

Appraisal
Is the size of the mortgage you need too high, given the property's appraised value? If similar houses in the neighborhood have sold at prices comparable to yours, maybe the appraiser undervalued the property. Suggest that the lender re-examine the appraisal. Your Realtor will be able to help you with this. You also have the right to receive a copy of the appraisal if you have paid for it.

Credit History
Is the lender doubtful -- because of your level of debt or credit history -- about your ability to make the monthly payment? Ask how your debt ratios compare to the lender's standards. If there were special circumstances surrounding old credit problems, ask for a chance to explain. Often times you can raise your credit score simply by writing a letter of explanation or paying off an old debt you may have forgotten.