Buying a home should be an exciting time, so why do feelings of anxiety often take over during the financing process.  The fear of rejection, the horror stories from friends and family, and the overall mistrust of the mortgage industry have made the process more intimidating than it really is.

Much like anything else, the key is education.  If you know what to expect, you know when something isn't right.  More importantly, it will lessen the possibility of surprises on the day of closing.  Having a good grasp of the most important factors can table needless tension out of the process.

Three costs are associated with buying a home: the down payment, closing costs and prepaid expenses.

• The down payment amount is determined by what type of loan you're pursuing and your qualification.

• Closing costs are the fees associated with the mortgage transaction.  Closing costs include administrative costs, title company charges and lender, appraisal, credit report and attorney fees.  Beware of "no closing cost" loans.  The mortgage transaction comes with fixed costs, and if you're not paying for them out of pocket, they are likely built into the rate or being charged elsewhere.

• Prepaid expenses include prepaid interest, homeowners' insurance and property taxes.  The amount of your prepaid expenses include homeowner's insurance and property taxes.  The amount of your prepaid expenses is determined by what type of loan you are using and if an escrow account will be established.  An escrow account is established to include your taxes and insurance in your monthly payment.  Prepaid expenses are not closing costs.  These figures are actual costs of taxes and insurance.

The cash required to close is determined by adding the down payment amount, closing costs and prepaid expenses.  Subtract any earnest money, fees paid up front (such as the appraisal) and costs the seller has agreed to pay on your behalf, and you'll arrive at an estimate of cash needed to close.

In the past, there were so many loan programs to choose from, it was easy to get confused.  These days, it's much simpler.  Only a few programs remain, and the majority of the options available are easy to understand.  A fixed rate never changes, and most loans being originated today are fixed rates.

For example, a fixed rate loan at 5 percent stays at 5 percent until the loan is paid off.  The same loan on an adjustable rate mortgage (ARM) stays fixed at 5 percent up to a predetermined date and then adjusts to a new rate.  This new rate can be higher or lower, depending on market conditions.

An ARM is not as attractive now because adjustable rates are not low enough to warrant the risk.  More importantly, loan investors don't want this risky product in their portfolios, and the loan are priced accordingly to discourage consumers and lenders from choosing them.  Don't misunderstand--there are good ARM products, but issued without a thorough understanding, they can lead to financial problems.

 Private Mortgage Insurance, also known as PMI, is another factor in the mortgage industry's shifting landscape.  Typically, PMI coverage is required for any non-government loan with less than a 20 percent down payment.  The PMI companies have their own set of underwriting guidelines, and the credit standards have increased significantly in the past year.  A minimum credit score of 680 is required to obtain this coverage.  As a result of these tightened standards, government loans such as FHA and VA continue to constitute a higher and higher percentage of all loans originated each month.

These are only a few of the basics that consumers need to know and consider when obtaining a mortgage loan. It's more important than ever to sit down with a lender, evaluate their credentials and be sure that their experience and expertise will provide you with the best services and the right loan products.

Adapted from the Dallas Morning News.