6 Ways to Determine the Best Mortgage Loan for You

If only shopping for a mortgage were as much fun as shopping for shoes — or a smartphone or a big-screen TV. Hunting down bargains and saving a few bucks is worth an afternoon or two, right? But the time and effort it takes to decode jargon and apply to lenders when shopping for a mortgage loan may not give off the same vibe.

Still, you can make this as pain-free as possible.

Here are six steps to determining which mortgage loan is right for you.

» MORE: Best mortgage lenders in a variety of categories

1. Figure out how much you can afford

Since this is a six-figure purchase, you're probably wondering if it's within your financial reach. A calculator can help you determine how much house you can afford.

If you have a decent credit score, lenders will likely be more optimistic about how much house you can buy than you are. Keep in mind, their job is selling a loan; your job is to pay it back. So leave some room in your budget for living life.

» MORE: Should I buy a house? How to tell if you're ready

2. Set a savings goal for the upfront costs

Lenders not only want you to qualify for a loan, they want you to have money in the bank for the down payment and a long list of closing costs, too.

The down payment always seems like a big ask, but it's to your advantage to cushion your purchase with a little instant home equity by putting down as much as you comfortably can. With a too-small down payment — and with just a little downturn in the real estate market — you could have a big loan on a home that's worth less than you owe.

» MORE: See down payment assistance programs available in your state

3. Consider the length of the mortgage loan

The phrase "30-year mortgage" suggests a long-term commitment. But there are also 10- and 15-year loans. Some lenders even offer loans in varying lengths.

If your budget allows for the bigger payment of a shorter-term loan, you're likely to see two benefits: a significant reduction in total interest expense over the life of the mortgage and a better mortgage rate.

» MORE: Calculate a 15-year vs. 30-year mortgage payment

4. Choose the right type of mortgage

This is where most articles dive into a bunch of mind-numbing mortgage terms. Just know that there are special types of loans for borrowers:

• With a military connection. (See VA loans.)

• Who would like to live in a rural or suburban area. (See USDA loans.)

• Who have a lower credit score. (See FHA loans.)

• Who are buying a house that's more expensive than standard loan guidelines allow. (See jumbo loans.)

If you don't fit any of the descriptions above, you're probably a good candidate for the conventional loans most lenders like best.

5. Know how mortgage interest rates work

The price you'll pay to borrow the money for your home, the interest rate, is another key to choosing the best mortgage loan. Mortgage rates move a lot. Without going all Wall Street on you, here's what you'll want to know: You can lock in your loan's interest rate over the long term, or let it move with the market and adjust twice a year.

A guaranteed-for-the-life-of-the-loan fixed-rate mortgage may start out a little higher than the go-with-the-market adjustable-rate mortgage, or ARM. But the lower ARM rate, which often resets twice a year after an initial term of three, five, seven or 10 years, can fluctuate up or down.

If you are certain you'll move, refinance or pay off the mortgage before the guaranteed rate on an ARM expires, the adjustable-rate mortgage may be a good option. However, if you live in the house past the introductory period and decide you want to stay in the home, interest rates available for a refinance into a fixed rate loan may be considerably higher by then.

» MORE: How mortgage rates are determined

6. Shop mortgage lenders like a bargain-hunter

We saved the most important way to get the best mortgage for last: Shop three or more lenders. Shop like you would for a product you like to enthusiastically bargain-hunt for.