Dear EchoBay Expert:

Dear Loyal Reader: The first step towards mortgage term negotiations is to shop around for different home mortgage loans. Lenders will be more flexible if they know that you might go to one of their competitors if they aren't willing to negotiate their terms.

As a rule, lenders generally won't negotiate their interest rates down, but it never hurts to try. If you have excellent credit and you think you deserve a better interest rate than the one you're being offered, by all means tell the lender and see if there's anything they're willing to do about it. While it may be possible to negotiate points, it's not always logical.

If you're paying points to lower your interest rate, those are going to need to stay. Aside from points and interest, there are a number of line items you might come across that are clearly negotiable. For instance, if you see a document preparation fee, try to get rid of it - tactfully of course.

Explain to the lender that you would like to keep the costs of your mortgage down and that you should not have to pay extra for the lender to prepare the documents that are needed for you to close your loan with them. If you see a charge of more than $20 for a credit report, discuss that too.

There's no reason to pay close to $100 for something that costs the lender a lot less. If the lender wants to charge you an application fee (and many do), try to negotiate it down or out of the picture altogether. Lenders should be competing for your business, not requiring you to pay to apply with them.

When you receive your good faith estimate, go over each item carefully, and if something doesn't make sense to you, bring it up with your lender and try to negotiate anything that seems unreasonable. Remember, lenders need borrowers just as much as borrowers need lenders.

Dear EchoBay Expert:

Dear Loyal Reader: Lenders calculate how much you can afford based on your debt to income ratio, also referred to as DTI. In this calculation, add up all loan payments and divide the total by your monthly gross income. The standard ratio is 36% total for all loan payments including your new mortgage payment (back end ratio) and 28% for just your mortgage payment (front end ratio).

For example, lets assume your gross income is $3,500 per month. You have a $225 car payment, $15 minimum credit card payment and $50 student loan payment. You are looking at a house that at current mortgage rates will have a payment of $825 per month (this includes principal and interest, PMI, taxes and insurance). Your total debt is $1,115, which results in a back end ratio of 31.8% ($1,115/$3,500).

The front-end ratio (considering mortgage payment only) is 23.5% ($825/$3,500). Based on DTI, you would qualify for the loan. To determine the payment you will qualify for, multiply your gross income by 28% and 36%. This will give you a general idea. Of course, the lender will consider other factors such as your credit history and the amount of your down payment.