For most Americans, buying a home is one of the most important purchases they will make.

The median value of the home in the United States is $ 231,000, based on data from October 2019. Since most people do not have this type of money, it is a mortgage where you borrow money to a lender and you spend years paying it plus interest: it’s a necessary part of the home buying process.

The conditions of your mortgage are very important, as the interest rate, the type of mortgage and the period you have to pay can have a huge impact on the total amount you spend. Reduce your interest rate by one or two percentage points, or pay off the mortgage a few years earlier, and you will save thousands of interest over the course of the loan.

“Buying a house is in all probability the most important purchase ever,” same Valerie Saunders, executive of the National Association of Mortgage Brokers (NAMB). It is important to seem around and make sure that the terms of the loan you are receiving meet your needs. In addition to the interest rate and details of your home loan, it is also a good idea to best prepare a successful mortgage application.“There are 3 pillars: your credit rating, your financial gain (which turns into a debt-to-income ratio) and your wealth. On the recipient aspect, these are very the 3 most vital things.”

1. Improve your FICO credit rating

Your three-digit credit score can mean the difference between a low-interest rate or more expensive loan terms.

A credit score is usually a vital consider determinative risk. A capitalist will use the score as a benchmark to figure out a human ability to repay their debt. the higher the score, heaps of potential it’s that the recipient will not be in default. In general, the more secure the lender is in being able to pay on time, the lower the interest rate.

To improve your score, pay your bills on time and payor delete these credit card balances. If you must maintain a balance, make sure it does not exceed 20-30% of your available credit limit. Also check your credit standing regularly and check for errors. If you find bugs, try to fix them before applying for a mortgage.

2. Create a job folder

You will be more attractive to lenders if you can demonstrate stable employment and income for at least two years, especially with the same employer. Be prepared to show the pay stubs and W-2. It can be more difficult to qualify if you are self-employed or if your salary comes from several part-time jobs.

3. Save for an advance

Investing more money can help you get a lower mortgage rate, especially if you have enough money to finance a 20% down payment. Of course, lenders accept lower down payments, but less than 20% usually means that you need to purchase private mortgage insurance, which can range from 0.05% to 1% of the original loan amount per year. The sooner you can pay your mortgage less than 80% of the total value of your home, the sooner you can get rid of mortgage insurance and reduce your monthly bill.

4. Consider a variable rate mortgage

Finding a traditional 30-year fixed-rate mortgage may not make financial sense for all home buyers. You can save money by going for a shorter period, for example, B. five, seven or ten years, set a lower rate. An adjustable-rate mortgage call is one option that you should consider. However, please note that the interest rate may increase after the specified period and that the interest rate may be adjusted.

“Variable rate mortgages (ARMs) are a financial tool that works for some. They are really designed as short-term credit products (with interest rates) that will be adjusted in the future depending on the type of MRA, “says Moffitt, adding that buyers generally choose a term of three to ten years. , according to your needs.