Mortgage hunting doesn’t stop at deciding on a loan

When it comes to shopping for a mortgage, the most important thing to remember is that the best loan for you may not be the cheapest loan you’re offered, or the loan with the cheapest monthly payments.

The loan you choose needs to work for your personal finance situation, not only on the day you close, or for the first year, but for the entire time you plan to live in the property and keep that loan.

Choosing the best loan means you have to take the time to understand what your needs are and what kind of loan will meet those needs.

Once you decide which loan you want, here are some tips for negotiating for the best deal:

1. Know what you want before you call the lender. The mortgage market is extremely competitive for conventional loans, that is, for loans that are $417,000 or less. To find lenders, you can look at Bankrate.com, but you should also ask your real estate agent to recommend several lenders her clients have worked with successfully. Ask your friends who they worked with, and don’t forget to check out the biggest national lenders.

2. Consider using a mortgage broker: Brokers often have access to more than a dozen end investors, and their job is to do the shopping around for you. Just don’t be fooled into thinking the mortgage broker is on your side. Mortgage brokers are paid by the end lender (the practice is called a “service fee premium”), and they receive a higher fee if they sell you a more expensive loan. So choose a reputable mortgage broker and ask him to disclose in writing what his fee will be from the end lender.

3. Stay on top of interest rates. Interest rates change frequently during the day. If you decide to float your loan, watch the bond market activity closely. If rates seem to be dropping, you’ll be able to react quickly and call in your lock. (Be sure to get confirmation in writing that your loan has been locked and at what interest rate.) Many lenders will offer you the opportunity to reduce the interest rate on your loan at least once between the time you apply and the closing date.

4. Watch the points and fees. The number of points and fees can change as frequently as interest rates, as lenders struggle to stay competitive. You may see zero-point, zero-fee loans being offered, but lenders will often give you a higher interest rate in exchange for paying points and fees upfront. This may sound good, but you’re effectively financing those points and fees over the life of the loan. It pays to shop around — particularly if you can save $3,000 to $8,000 or more on the purchase of your home.

5. Don’t be afraid to ask for what you want. In a buyer’s market, lenders are hungry for business. If you ask them to reduce the fees (without raising the interest rate), they may well do it. Ask each lender to provide a detailed listing of the fees and charges for your loan. You can compare lenders and then go back to each lender and ask for the elimination of specific fees. It takes moxie but is doable.

6. Consult with your real estate attorney before you apply for the mortgage. Although attorneys aren’t used in every state to help buyers and sellers close on their homes, I believe they provide a useful service. (Full disclosure: I’m married to a real estate attorney.) If you live in a state where real estate attorneys are used, you’d be smart to consult with yours before you apply.