Before you start shopping for a mortgage, you need to know where you stand financially. You will want to figure out exactly how much you can afford to pay each month, as well as how much you have available for the down payment and closing costs.

Once you have an idea of your financial picture, you will be presented with two major options: the length of the mortgage, and the type of interest rate, fixed or adjustable. While interest rates on shorter-term loans are lower, the monthly payments are substantially higher. If you cannot afford the higher payments for a 15-year mortgage without depleting your cash reserves, you will be better off with a longer-term loan. Over the long run it will cost you more, but you will have more available capital when you need it, and you will be less likely to default on the loan should an emergency arise.

If you are not averse to taking a risk, or think your income will increase substantially in the future, you may opt for an adjustable rate mortgage (ARM). ARMs usually start with temptingly low rates, but those rates can go up significantly when adjustments are made. A young couple on the fast track might find this advantageous since they may not have the money for higher payments now, but will down the road. A family with numerous other bills to pay cannot take the risk of having an interest rate that may increase considerably. You will also need to consider how long you plan to stay in the house. If, for example, you take an adjustable rate mortgage with a very low initial rate and plan to move before the rate increases, you will save money with the low rate and will not have to worry about the increase. Therefore, the best mortgage loan for your needs should:

• Have payments that fit comfortably into your budget
• Have a comfortable level of risk connected to it
• Coincide with how long you plan to live in the house

To find the best mortgage, talk to several lenders, read the real estate sections of your local newspapers, and go online and compare rates. You can also use mortgage calculators to figure out what your monthly payments will be. Perhaps most importantly, while searching for the right mortgage, you will need to work with the right lender. Seek out a lender that has been recommended by someone you know and trust, and not with a lender who solicits you first. A good lender can help you find the best mortgage for everyone involved. Educate yourself first, and then sit down and discuss various options with your lender.