There’s a difference between how large a loan you qualify for and how much you actually feel comfortable borrowing. A bit of soul-searching can help you make the right decision. 

There are certain requirements for a qualified mortgage which are based on your ability to repay your mortgage based on your income, assets and debts   A rule of thumb is you do not take on monthly debt payments more than 43% of your pre-tax income.

Only you can decide how much you want to spend each month. Choose a loan with a monthly payment that leaves you with an adequate amount of income left over for savings, regular expenses and discretionary spending. 

A number of mortgage products are available and the best fit for you will depend upon your goals and resources.  Among the numerous mortgage products offered are conventional mortgages with fixed terms, adjustable-rate mortgages, VA loans, FHA loans, USDA rural housing loans, affordable housing programs and non-conforming loans. 

Some questions to consider:

• Would you prefer a conventional fixed-rate loan (with an interest rate that remains constant over the full term), or an adjustable-rate mortgage (ARM) which might offer a lower rate that could change over time?
• Do you know whether you qualify for VA or USDA loans which might offer more competitive rates and down-payment assistance?

A knowledgeable mortgage lender can walk you through all of your options to help you determine the right mortgage product for your particular preferences and circumstances. 

Interest rate and APR are easily confused as interchangeable terms, but they are not the same. The interest rate, which is expressed as a percentage rate, refers to the cost a homebuyer pays each year to borrow the principal loan amount. 

The APR, or annual percentage rate, is a broader term. APR¬ covers the interest rate as well as: any mortgage-broker fees, discount points (a form of prepaid interest meant to reduce the cost of the loan for the homebuyer) and other closing costs that figure into the total cost a homebuyer pays to borrow money. 

While also expressed as a percentage rate, the APR is generally higher than the interest rate, since it includes additional charges. 

A number of factors are considered when a lender decides whether to issue a prequalification, including income, employment history, credit score, financial history (including any bankruptcies, late payments or collections) and current debt load (including credit cards, car loans, student loans and other loans). 

As a prospective homebuyer, there are actions you can take before applying for a loan to increase your likelihood of approval, such as paying down your credit card debt and taking steps to improve your credit score.

When you begin your home-shopping process, you’ll likely come across offers for getting prequalified.  Prequalification provides you with an estimate of how much you can afford.  Real estate agents and sellers typically like to see a prequalification letter from your lender, therefore, it’s a good idea to work with a lender before you seriously begin your house hunting.

With prequalification there is no guarantee that you’ll be given the loan should you want to move forward. Rather, it gives you a good idea of how big a loan you might expect to be approved for. 

How to get answers to your mortgage questions will vary depending on the mortgage lender you select. Some mortgage lenders may not have offices in your area, leaving you with web forms, email addresses and toll-free phone numbers as your primary avenues to getting your questions answered. 

Other lenders will have offices in your hometown, allowing you to have a personal relationship with professional staff members who can answer your questions directly.