Now that you've taken a good look at your life and goals, develop a long-term financial strategy that achieves them. Are you willing to take risks with your money or do you prefer to play it safe? Your philosophy will determine what kind of mortgage you choose.

• Get your financial documents together. To qualify for a home loan, you have to prove to lenders that you can pay back the money you're borrowing and then some. Lenders analyze the risk involved in lending to you by evaluating your debt-to-income ratio and credit score.
• Collect your documents: a current pay stub; the past two years of W-2 forms and tax records; bank, retirement account and other income statements; car, credit-card and other debt statements; student loan records -- any piece of paper that shows how much you're worth and how much you owe. See this list.
• Review your credit report and make sure it reflects any corrections you requested. See if you can do anything else to improve your credit score.
• Create a binder, file drawer or box where you can keep track of all the paperwork you'll accumulate over the next few months. Start by putting your credit report, financial documents and home wish list here.

Don't rely solely on a broker or lender to educate you. The traditional home loan is a 30-year fixed rate, but different mortgage programs offer other benefits, such as a lower interest rate or less stringent requirements. Get a sense of what you need and what you can handle.

• A mortgage requires you pay back principal (the amount of the loan) plus interest (money paid to the lender for the privilege of borrowing their money). A mortgage is amortized, meaning you repay the loan through monthly payments of principal and interest over the life of the loan. Expect to pay more interest than principal; that's how lenders make money.
• Read about the different types of mortgages and check competitive interest rates online. Find out what kind of mortgage is right for you.
• Choose a type of mortgage you're comfortable with. You can get a fixed, adjustable or a hybrid of both.
  • A Fixed Rate Mortgage (FRM) has an unchanging interest rate. This works best for buyers who expect to own the home for a long period of time or prefer an unvarying monthly payment. Lenders charge higher interest rates for these, because the money is loaned for a longer time and is more of a risk to the lender.
  • An Adjustable Rate Mortgage (ARM) has a rate that changes over the life of the loan. ARMs usually offer a low "teaser" rate for the first year or so, and then adjust based on market conditions. ARMs are "capped," often at around 2 percent per year and 6 percent over the course of the loan. ARMs may offer lower rates but can be risky when interest rates climb (they topped 18 percent in the 1980s). Read more about ARMs.
  • Not sure which one you should get? Take our mortgage quiz and find out which type fits your personality.
• See if you qualify for governmental loans such as those sponsored by the Federal Housing Administration (FHA), Department of Veterans Affairs (VA), and the Rural Housing Service (RHS) or Farmers Home Administration (FmHA) for those living in rural areas. None of these agencies loan you the money; they only guarantee them. Ask your lender if they participate in these programs.

Whether you go with a broker or contact lenders directly, compare the rates and terms you're offered and negotiate for the best deal. Get offers from at least three different lenders.

• Consider hiring a mortgage broker. Mortgage brokers have gotten a bad rap as of late, but they provide a useful service if you'd rather not make dozens of phone calls to various lenders. A well-connected broker can get you competitive loan rates and terms in the time it takes you to talk to one loan officer.
  • Get tips on finding the right broker.
  • Find out how broker commissions work.
• All lenders need the same information from you and get it through an interview or written application. Save yourself from more paperwork by filling out Fannie Mae's Uniform Residential Loan Application. All lenders should accept this form in lieu of an in-house form, but ask first.
• For each loan offer, find out these basic things:
  • Mortgage type
  • Interest rate
  • Length of loan
  • How points will affect the rate
  • Required down payment
  • If you have to pay PMI (private mortgage insurance)
  • Estimated monthly payment
  • Escrow for taxes and insurance
  • Estimated closing costs (includes appraisal, lender fees, title fees, recording fees, etc.)
• Print out and use this worksheet to compare loans.
• Lenders can prequalify you for a loan, meaning they do a basic evaluation to figure out how much you can borrow. But it's better to get a pre-approval letter. The pre-approval process is more time-consuming and detailed, but it carries more weight in the negotiating process. See Step 4 for more.
• Applying for any type of credit has a negative impact on your credit score. But when a mortgage lender pulls your credit, you get a two-week window when subsequent credit checks can't hurt your score. Negotiate! Don't be afraid to tell one lender what another is offering to see if that lender is willing to beat the deal.
• Decide if you want to pay for a lower interest rate. You can pay what are called "points" to lower your rate, but you'll have to shell out more cash at closing. One point is equal to 1 percent of your loan.
  • Which is better: a lower interest rate or lower closing costs?
  • Note that points are tax-deductible, but closing costs are not.
  • Mortgage interest is also tax-deductible. Read about more tax advantages for homeowners in Step 7.
• Start thinking about the title company and closing agent. The title is the legal record of who owns the property. During the homebuying process, you hire a title company to search and examine the title to make sure the seller actually owns the property and has the right to transfer the title to you, the buyer. It also ensures the title is "free and clear," and there are no other liens against the property. The closing generally occurs in the title company's office with a settlement agent.
  • The lender calculates title charges, which include the closing fee, search, examination and insurance, which protects you from other people's claims against your home.
• Budget for an appraisal. A pre-approval doesn't mean you're guaranteed the loan. When you find a home you want to buy, the lender must have it appraised to make sure you're not borrowing more than the home's market value. Ask your lender for a list of recommended local appraisers.
  • Don't confuse an appraisal with a home inspection. An appraiser calculates a home's market value while an inspector verifies the overall condition of the home's structure. The cost of an appraisal depends on the size of the home. It can range from $300 to $600.
  • To get an idea of how home value is calculated, read this.
• Shop for a home inspector. Lenders may also require a pest and/or termite inspection as a condition of loan approval. Even if you're not required to have one, get a general professional home inspection which covers all major mechanical systems, structural integrity, cosmetic features and other aspects of the house. It can help reveal potential problems that a seller may not be aware of or disclose. Look for an inspector now, so you'll be ready when you find the house you want to buy. Find out how to find the right home inspector.
• Understand what goes in escrow. Many lenders will require you to prepay portions of your property taxes and homeowners insurance at closing, which are put into what is called an escrow account. The amount set aside will depend on the time of the month and year of your closing date. If you know the closing date, the lender should be able to give you an exact number. Note that property taxes are tax-deductible.
• Study your Good Faith Estimate (GFE). This is a document from the broker or lender that breaks down the loan terms, interest rate, points and how much cash you'll need to bring to closing, including the down payment, and other legal and lending fees. It also estimates what your monthly payment would be under the loan terms.
  • See a sample GFE. There are typically eight sections:
    • Costs associated with taking out the loan (points, processing and underwriting fees, appraisal)
    • Title charges (search, exam, insurance)
    • Government recording and transfer charges
    • Additional settlement charges (home and pest inspections)
    • Items required by the lender to be paid in advance (prepaid loan interest, PMI, hazard insurance)
    • Reserves deposited with the lender (escrow)
    • Total estimated monthly payment
    • Total estimated funds needed to close
  • Get GFEs from at least three lenders to really compare interest rates, closing costs and other fees. Some fees are required no matter what lender you choose, such as those for an appraisal, title search as well as city and state recording. Others, like underwriting fees, application fees, loan origination fees or discount points, differ by lender so they can be negotiable. Get tips for mortgage shopping.
  • Loan origination fees are not tax-deductible, but interest points are. If your GFE shows an origination fee of a point, ask if the lender can charge you an interest point instead. The bank gets the same amount of money, but you get the tax advantage.
  • Lenders estimate your property taxes and insurance costs. Contact the city and county to get tax information from the prior year. That way, you aren't shocked at closing.
• Find out what happens if you pay off the loan early. Avoid loans with prepayment penalties. These penalties for paying off a loan early can be as high as the equivalent of six months' interest on your entire mortgage! If you can't avoid it, negotiate with your broker or lender. Perhaps you can prepay up to 20 percent of the total loan without paying a penalty, or maybe you can arrange to prepay a certain amount annually without penalty.

A pre-approval letter shows a seller and his or her real estate agent that a lender has agreed to lend to you, up to a specific, maximum mortgage amount. It proves you're able to buy a home and establishes your maximum home price so you don't get carried away during your house hunting.

Ask the lender to send you a pre-approval letter along with the GFE. You may need to provide copies of your financial documents. The pre-approval letter will be useful during your house tours.

You don't have to pay PMI (private mortgage insurance) or shell out a lot of cash at closing. Some lenders will let you finance closing costs or you can negotiate to have the seller pay them.

• If you pay less than 20 percent of the cost of the home in the down payment, you may be required to pay for PMI. This will increase your mortgage payment by about $80-$200 each month, depending on the home price. Ask your lender about alternatives to paying PMI.
• Look into a no-closing-costs mortgage. Some lenders are willing to absorb the costs of closing and PMI to get your business. For example, Bank of America's No-Fee Mortgage Plus program offers a $250 Best Value Guarantee, meaning that if you're approved for the program and choose another lender instead, they'll give you $250. You can go with them, or use their terms to negotiate a better deal with other lenders.

You may be able to get help with your down payment or a better interest rate and loan terms through programs specifically geared for first-timers and low- to moderate-income borrowers.

• See if you qualify for a mortgage credit certificate (MCC), which helps homebuyers cover part of the interest. You must get an MCC before you get a mortgage and buy a home. Contact your state or local housing finance agency for more information on this and other programs.
• Find out about federal homebuying programs.
• Look for more state and local programs.

Homeownership comes with great tax perks. Mortgage interest, property taxes and points are just some of the expenses that are tax-deductible. As you shop for a mortgage, keep in mind how each loan will affect you come April 15. Read the top 10 tax tips for homeowners.

Once you find a house you want to buy, make an offer to the seller through a "purchase agreement." The seller or his or her agent can give you one. Once the contract is signed by both parties, give a copy of the agreement to the lender you choose to get the formal financing process started.

If your mortgage professional hasn't done so already, he or she will get copies of your financial documents and send your information to a person called an "underwriter" who analyzes the lending risk and formally approves or rejects your loan application.

At this point, you may want to consider locking in your interest rate, especially if rates are constantly fluctuating. Ask your lender if they charge fees to lock in your rate.

With the current mortgage mess, the lending industry has tightened requirements for approving home loans, making it more difficult for buyers to borrow money. Try these nontraditional financing options. "Motivated" (read eager) sellers will be willing to help a serious buyer. See what motivated sellers are doing.

• If you can't get a mortgage, ask the seller if he or she will consider seller financing. If you decide to do this, work with a real estate attorney to make sure the contracts are legal and fair.
• Ask the seller to do a mortgage assumption, meaning you would take over the seller's mortgage payments.
• If you're strapped for cash, ask the seller to pay closing costs or include a furniture stipend.
• Work out a lease-to-own deal, in which you're a tenant for a set period (usually one to three years), with some of the rent being applied toward a down payment.
• If your interest rate is too high, ask the seller to pay points to lower it.

In recent years, lax lending standards led to many homeowners overextending themselves, falling victim to predatory lenders and struggling with mortgages that are more than their homes are worth. All of this has fueled the recent surge in foreclosures. Don't let this happen to you.

• Learn how you can avoid mortgage default and protect against foreclosure.
• If you have bad credit, you may want to put off buying a house and improve your financial situation first. Bad credit can make you a miserable mortgage payer.
• Beware of predatory lenders.
• As with anything that involves disclosing personal financial information and your Social Security number, beware of scams. Work with brokers and lenders you trust. Get referrals from family and friends. Don't apply for mortgages you heard about through spam. Verify the source of all e-mail correspondence. If possible, visit lenders' offices and speak to mortgage professionals in person.