Discussing Your Goals with Your Lender or Broker

Once you've selected a lender or broker and collected your paperwork, it's time to sit down and discuss your goals. This can take place as a face to face meeting, a phone call, or even a series of online exchanges or emails. If you and your lender or broker are both comfortable with the arrangement, use whatever communication method works best for you.

If he hasn't had a chance to review your paperwork yet, your lender or broker may ask you a few basic questions about your income, credit status, and employment history. This information will help him get a ballpark idea of your qualifications as a borrower.

Or, if he's already reviewed your documents, your lender or broker may cut right to the chase. He'll want to know the answers to a few questions about your upcoming home purchase. For all of these questions, it's okay if you don't know the answer. Instead of making something up, be honest; if you've done a good job with your interview process, you can trust your lender or broker to help you find the right answers.

• How much money are you planning to borrow? You can give him a range or a specific number. As you discuss your finances, this number might change.
• Do you have a down payment? If so, how much? Remember to set some money aside for closing costs, expenses, and a rainy day fund. Many lenders require that you keep at least two months' mortgage payments in a reserve fund -- some lenders require up to six months of reserves.
• How much can you comfortably afford to spend each month on your housing expenses? This number will need to include more than your mortgage payment; remember that you'll also be paying insurance and taxes, as well as other expenses. If you're a renter, your monthly rent payment is a good place to start.
• Are you planning to stay in your home for a long time, or sell it in the next 3-7 years? If you're planning to stay for a long time, choose a 30 year fixed interest rate. If you know you intend to sell or refinance within 3-7 years, an adjustable rate mortgage can save you thousands of dollars in interest.
• When will you start shopping for a home? Once you get pre-approved, you'll have a window during which your pre-approval is still valid -- usually 30 - 90 days. Once this window expires, you'll need to get pre-approved again, which can lower your credit score by several points.
• Do you have any questions for me? You've already interviewed your lender or broker, but you may have questions about the process, different loan types, terms, market conditions, interest rates, and so on.

As you discuss your goals and finances with your lender or broker, the two of you will start to build a complete picture of the type, terms, and amount of your mortgage. You'll get a better understanding of how much you can really afford to spend on a home.

The ultimate goal is the pre-approval letter. Your lender may be able to draft this for you at the end of the meeting, or may need a day or two to process all your information. If possible, get this electronically, as a PDF or other document file.