The second guide is called "Opening the Door to a Home of Your Own," and it gives the reader a logical path of the steps a buyer will take when buying a home. Here are some questions that first time buyers often have after reading this material:

Q: The booklet talks a little about the process of "underwriting" in getting a loan. What is that?

A: When you apply for a home loan, your loan counselor will help you gather many bits of information about you.

For example, the lender will request written verification of your past and present employment, your past and present residences, and also written verification of all loan balances, rental agreements, and credit card amounts. This is in addition to requesting a completely updated credit history and a calculation of credit scores.

All these bits of information are organized by subject, then submitted to an officer at the lender known as an underwriter. This person is responsible for making sure all the many pieces of information agree with each other, and that you meet the specific requirements for the loan program you seek.

The underwriter checks every item on your application, including past landlords and employers, all of your account balances, and the existence of any assets you may have. For this reason, it is very important that you answer each question on the loan application accurately and thoroughly. Any discrepancies found in underwriting may jeopardize your loan application.

Q: When it comes to my job history, what if I don’t have two continuous years of employment? What happens then?

A: If your current employment is less than two years in length, the lender will look for some kind of explanation, such as:

* You may have been discharged recently from the military or just finished school, or

* Your work might be seasonal, and you might have gaps between the seasons.

If you can explain to the lender the reason for the gaps, the underwriter may be able to approve the loan anyway.

Q: When the lender wants to verify my savings, can I use money that was a gift from my parents?

A: It depends on the loan program you are seeking.

Some loan programs, especially those for first time buyers and those with very low down payments, are very strict about the source of your funds. They want to be sure you are not borrowing the money for your down payment, because they are afraid you will become overburdened with debt.

In contrast, if you are already putting down 20% as a down payment, lenders are typically less concerned about where the money is coming from. They feel that if you have put down that much money, they are protected due to the amount of your investment in the property.

Even so, some lenders require a "gift letter" identifying the source of down payment dollars and certifying that the money is a gift with no expectation of repayment.

Q: Last week, you talked about a fixed rate loan. Isn’t it smarter to get an adjustable loan so the first year payments will be as low as possible?

A: While the first year payments on an Adjustable Rate Mortgage (ARM) are, indeed, lower than the payments of a fixed rate instrument, there’s typically no guarantee as to what might happen over time. Some LIBOR loans have no lifetime ceiling at all, leaving the buyer in the awkward position of never knowing what his monthly payments might be. I don’t recommend adjustable loans for first time buyers.

Q: Is it true that a lender may offer me a higher interest rate loan just because my credit score is lower than average?

Q: Is it safe to use a rule of thumb for calculating how much loan I can borrow?

A: It is an easy-to-use starting point, and not much more. The booklet from Fannie Mae offers a much more detailed Home Mortgage Qualifying Worksheet, which asks all the nosey questions a lender might ask, and helps you calculate more accurately the numbers needed. This would be a good exercise to work through before approaching a loan officer.

The Fannie Mae Foundation is a nonprofit organization, and provides help to all who want to be a part of the American Dream. We can visit their site at www.homebuyingguide.com or by calling 800-611-9566.