This week, the free booklet is named "Choosing the Mortgage that’s Right for You," and it explores the world of home lending. The vast majority of buyers today rely on a home loan to make their dream come true. And since there are so many types and varieties of loans available today, the first time buyer is well served by taking a basic look at the pros and cons of various mortgage options.

Three specific steps are recommended:

Step One defines what a mortgage is and helps you calculate your borrowing power.

In my experience, gaining a complete understanding of the concept of loan amortization is all but impossible for a first time buyer, yet this educational brochure does an excellent job.

Covering first the concept of principal and interest, then moving on to the topic of amortization, the buyer is led progressively through a thorny part of the homebuying path. Next, we are carried though an understandable explanation of the four factors key to any loan program:

* the size of the downpayment

* the amount of the loan

* the interest rate being charged by the lender, and

* the term (or length) of the payback period.

While these concepts may seem basic to seasoned home owners, the knowledge that a change in any of these factors will have a direct impact on the monthly payment is a milestone for a first time buyer.

I was pleased to see that "Gifts from Relatives" was included as a possible source of down payment funds in the worksheet, as it recognizes what has long been a reality in the world of first time homebuyers. Today, more lenders than ever allow at least a portion of a buyer’s downpayment to come from unconventional sources such as gifts.

This step also covers loan qualifying guidelines and different types of loan programs.

The chapter covers the traditional 28%-36% expense ratio lenders still use to estimate your borrowing power, but goes on to acknowledge that some loan programs offer much higher ratios, while others focus more heavily on other factors, such as your past credit experiences.

In addition, the relationship between shorter loan term and lower interest rate is explained. It makes sense that the faster you pay back the loan, the less interest the lender needs to charge.

Then all these thoughts are brought together in a worksheet calculation of approximately how much house you can probably afford.

In Step Two, we learn about different kinds of mortgages.

First, the world is divided into fixed-rate and adjustable loan products, and the pros and cons of each are discussed. While the authors acknowledge that some buyers who plan to sell in a few years may be better off with ARM style products, they fail to report that we are likely in a period of rising interest rates, and that anyone selecting an adjustable rate loan today is probably betting against the odds.

Next, combination adjustables are explained. These loans are adjustable instruments which come with an initial period of a fixed rate, such as a 5/1. Under this loan, the rate is fixed for the first five years, then changes annually based on market conditions.

Finally, the concept of "two-step" loans is explained. These are the so-called "hybrid" loans that combine the stability of a fixed-rate for a set number of years with the low price of an adjustable program. Thus you might end up with a 5/25 loan, in which the rate is set for the first five years, then changes once and remains constant thereafter.

In Step Three, the concept of a home loan as a financial commodity is presented. Because most of these home loans are considered "conforming" under Fannie Mae guidelines, they typically have identical features regardless of where you apply. So the idea of shopping and comparing is particularly helpful for first time buyers who are easily "directed" to a single lending source.

Quite frankly, the task of shopping for a mortgage and comparing different offerings from a variety of lenders is a difficult one. One source may offer a low rate with higher points or closing costs, while another lender may offer a higher rate with reduced closing costs, or even no costs at all. Knowing which is the best deal is not easy.

Because the shopper is likely to encounter so many variables, the Fannie Mae guide gives the buyer a "Mortgage Comparison Shopping Chart" which allows him to compare apples to apples.

This is the best comparison chart I have ever seen for homebuyers, and even seasoned shoppers would do well to incorporate it into their routine. By prompting the applicant to ask all the important questions, it becomes harder for a mortgage salesperson to gloss over weak points of their particular product.

The excellent booklet "Choosing the Mortgage that’s Right for You" is available free for downloading at http://www.homebuyingguide.comwww.homebuyingguide.com, or you can request a free copy by calling 1-800-611-9566.