1. How they choose their lender, many people make the mistake of calling on an advertisement or calling their current lender, thinking it will require less documentation (appraisal, tax returns, etc.) because they already have an existing loan.

First of all, most good advertisements are made to sound attractive to entice you to call, but they don't disclose all the facts about the loan, such as prepayment penalties, high cost, or adjustable rate features. As for your current lender, they don't know you from the Man on the Moon. All loans are made to be sold as part of a securitized investment once the loan has been made. Therefore every new loan must be packaged for sale and will require current documentation; i.e. appraisal, income documentation, etc.

So, how to choose? Your choice of lender should come as a referral from someone you trust who has used their services personally.

2. How they select their loan program, most people don't realize the wide variety of loan programs that are available and how to select the one the best fits their personal needs, goals, and qualifications. Many of my clients ask me for a specific loan program, such as a thirty-year fixed, but when I ask them about their future plans, I find they have no intention of keeping their home for more than a few years and could save thousands of dollars by selecting a shorter-term fixed at a much lower interest rate. As an example; if you were to select a 30 year fixed rate on a $300,000 loan at 6%, the payment would be $1,798.65. But if could obtain a five year fixed at 5.5% the payment would be $1,703.37. Over a five year period that would be a savings of $5,716.98.

3. How they decide their loan costs; okay, so let's say you've successfully chosen a loan program that you are qualified for and that you feel provides the right financing for your personal needs. Making the right decision about how many points to pay, if any, and understanding all the costs involved with the loan is critical and could save or cost you tens of thousands of dollars over the life of the loan.

It is possible to get a mortgage with no points or fees (i.e., no cost), and it is possible to pay thousands for a loan. If you are only focused on the payment, or only on costs, either way you can make a poor decision. As an example, if one point (which equals 1% of your loan amount) was $3,000 on a $300,000 loan, and that one point was going to buy you a payment that was $100 a month less than a zero point loan; then all you need to do is divide $100 into $3,000 to realize that it would take 30 payments, or 2.5 years to recapture your initial investment of one point. Whether that is a good investment or not depends on your long term plans for that property, the longer you keep the loan the better an investment it is.

4. How they get bait and switched I have heard many horror stories over the years of how a borrower was promised one thing, and then got to the closing table only to find out that the loan program or associated costs were not what they had been led to believe.

People wonder how this can be possible with all the laws requiring proper disclosure. There are many reasons: few borrowers actually take the time to read all the disclosures or to really understand them, even if they do some lenders send out incorrect disclosures, and some do not send them out at all.

5. How they decide if a home loan is affordable just because you can qualify does not mean that the loan is advisable. Like a good financial planner or CPA, I feel that the advice you receive, or don't receive from your mortgage professional is critical to making a sound decision in deciding if a home is truly affordable for you.

It's easy for people to get caught up in the excitement of owning that new home; it's just as easy to talk them into the loan that has the lowest payment, not to mention the highest commission for the loan officer. This is why so many folks took "Subprime" or "Option ARM loans, often these loans will have an interest rate that is higher than a fixed rate loan, but because the payment is so low borrowers are enticed to take them.

In closing, you can see that finding the right lender for your home purchase or refinance is not as simple as purchasing your appliances. You don't just pick the model and color and then shop around for the best price. Most people would never consider choosing a doctor, daycare, or attorney based on the lowest price quote, but since few people truly understand all of the complexities of mortgage finance, they don't think twice about who can really save them the most money and provide them with the best loan package, tailored to their personal needs and qualifications.

Kyle Dawson, Regional Vice President, Milestone Mortgage