While making the decision to buy a home is a big one, the real work comes when figuring out how best to finance your dream house. Mortgages have evolved a lot over the years, from having to have a 50-percent down payment, to none at all. With a wide range of mortgages and lending institutions out there, doing your research and knowing the criteria will help you get the cheapest mortgage possible.
Know the market. Researching and tracking interest rates over the past few months will help you determine what the average rate is. You'll be able to see spikes and drops, which will help you see what a "good" and fair interest rate for the time is. While interest rates aren't the only thing to look at, they have a strong bearing on your future monthly mortgage payment. For example, a $150,000 mortgage for 30 years at 7 percent would result in approximately $1,000 a month. That same mortgage at 6 percent drops your monthly payment by about $100.
Make sure your credit is as good as it can be before applying for a mortgage. Those with the best credit scores qualify for the best mortgages. Having a FICO score in the 700s is a good way to ensure you're getting a good interest rate and mortgage. If your score is on the low end, there are ways to improve it. Make sure you pay credit cards on time, pay down debt and limit the number of cards you apply for.
Shop various lending institutions the same way you would if you were searching for a car loan. Various mortgage providers have different fees, rates and criteria for their products, so researching a range of lending institutions gives you the best shot for an affordable mortgage. Most companies will give you a Good Faith Estimate (GFE) for free, which gives you a good idea of their rates, closing costs and fees.
- While an adjustable rate mortgage (ARM) may seem attractive in some cases, it can be a slippery slope. While rates may go lower, they could also spike very high, causing you to not be able to afford your mortgage. A fixed-rate mortgage is the most secure option.
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