Some questions you should ask when you shop for a mortgage

A home buyer's first stop in his search for mortgage money should be the bank or savings-and-loan where he deals on a regular basis, financial experts agree. Your bank knows you. Competition being what it is today in the deregulated banking business, your bank may be willing to bend over backward to keep your business, assuming you are a good customer.

Despite rules of thumb that say total housing expenses should not exceed a certain percentage of income, underwriting is still based largely on subjective judgment and involves an analysis of many factors, including some that cannot be expressed in ratios.

Lenders look at your credit history, your residual savings, job stability, and savings patterns. And who should know more about these than the banks and savings-and-loans you deal with regularly. Furthermore, when lenders begin to pull out of the market, they cut off would-be borrowers with whom they have no dealings long before they cease making loans to their regular customers.

While some banks give their regulars a preferred rate, others will charge rates above the market. Therefore, to get the best rate possible, you should shop around.

To make accurate comparisons, however, you will need to know more than the contract rate quoted by each lender. Each has a different set of fees. Some charge an application fee, some don't. All will want you to pay service charges or points. And if the down payment is less than 20 percent, there will be a fee for mortgage insurance, too.

To make the comparison, ask for the annual percentage rate on the loan. Often referred to simply as ''the APR,'' the annual percentage rate is another term for ''yield to the lender.'' In other words, it shows how much money the lender will make by advancing you money to buy a home. It is a computation of the interest rate you have been quoted, plus the effect of the other fees you must pay to use the money put up by the lender. The APR computation, in essence, includes the nominal interest rate, plus the lump-sum charges amortized over the life of the loan. It is, therefore, always higher than the quoted interest rate.

While the ''truth in lending'' law requires that your lender disclose the annual percentage rate you are paying at settlement, he does not have to give that figure when you apply for the loan. You may have to ask for it.

And be sure to ask if you can pay off your mortgage ahead of time without paying a penalty. Some lenders charge a prepayment fee, some don't. Such fees are prohibited on government-backed loans, and some states prohibit them, either without qualification or after a specified number of years. While it is unlikely that you will pay off your loan early enough to incur a prepayment penalty, it is always a possibility.

Also, find out if the lender will allow you to pay your taxes and insurance directly. The lender usually pays these bills annually when they come due, but he collects the money from you in monthly installments along with your principal and interest payments.

In some states, lenders are required to pay you interest on the money they set aside for such payments, while others don't require it. If your lender will not pay interest on your escrow account, try to get him to let you pay your tax and insurance bills yourself. That way you will be able to put the money into a savings account where it will earn interest until it's time to pay up. But don't forget to put the money away each month, or you'll have to come up with a big chunk of cash at one time when the tax bill comes in.

If you are working with a real estate broker, try to find one that is well connected in the mortgage field. Like the builder, the broker can be invaluable in helping you obtain the best deal. And if you are a marginal buyer, he may be able to steer you to the lender with the most liberal underwriting guidelines.

A good firm will also help the buyer prepare his loan applications. Processing usually takes less time when the buyer's application is in order. When the buyer is not prepared, there can be delays. And the longer the wait, the stronger the chance that interest rates will go up.

In this regard, the agent should accompany you on your interview with the lender. Never mind that you may be letting the agent in on your family's financial secrets. If you are ''up front'' with the agent in the first place, you shouldn't mind. It's a lot better that he be on your side if any problems arise.

One of the most important things a lender looks at is your potential earning ability. Therefore, the more positive indications you can mention about your finances the better. If you're in line for a big pay raise, ask your employer to document it for the lender. If you have been getting steady raises over the years, document that, too. And don't forget that big income-tax refund you've been expecting.

Lenders also look at all debt obligations that take longer than eight months to pay off. So if you are heavily in debt, it might be worth your while to pay off some of the bigger ones. The less you owe elsewhere, the more you'll be able to borrow on your house.

When considering an applicant for a mortgage, loan officers are interested in the ''three C's'' - credit, character, and capacity.

They'll want to know about your job history, credit references, outstanding debts, charge accounts, savings, life insurance policies, and, above all, your income.

Here, specifically, is what you will need for the lender:

* Your social security number and that of any co-borrower, such as your spouse or co-signer.

* Previous address if you have been at your present one for less than two years.

* Similarly, the correct mailing addresses of your previous employer if you haven't been working at your current place of employment for at least two years.

* Your gross monthly income and that of your co-borrower. Lenders will want to see your latest W-2 income-tax form. If you're self-employed, they will want a financial statement, signed copies of your federal tax return for the last two years, and, if you have one, an audited profit-and-loss statement.

* All savings institution account numbers, approximate balances, and the names of the institutions and their addresses. All accounts will be verified, so don't exaggerate.

* A complete list of liabilities (with correct account numbers) and assets. If you own other property, you'll need to provide the name and address of the lender on each, its current value, the amount of the loan outstanding, and the loan number.

* A written explanation of any problems with the application of which you are aware. If, for example, you are continually late in paying your American Express account, be up front about it. The lender will find out anyway, so there is no sense in being defensive about it.

* A copy of the listing agreement or sales contract if an appraisal has to be made. If you are buying an existing house, also bring a copy of the survey plat.

* And finally, a blank check so you can pay for the appraisal and credit check.