Buying a home, especially your first, is a big step in life. It can also be confusing to navigate all the different aspects and terminology. When making such a big purchase, you want to make sure you're prepared from the start and are making all the right decisions as the process moves along. If you're thinking of getting a mortgage or refinancing the one you already have, there are a number of factors to consider, including how good your credit score is and whether you can lower your debt-to-incom🐲e (DTI) ratio.

What Influences Mortgage Rates?

Mortgage rates are influenced by a number of different factors: the economic environment, inflation, and the 澳洲幸运5官方开奖结果体彩网:Federal Reserve.

The Federal Reserve's 澳洲幸运5官方开奖结果体彩网:Fed Funds Rate, the key overnight bank lending rate that 澳洲幸运5官方开奖🎶结果体彩网:influences all kinds of other interest rates, has risen since 2022 when the Fed raised rates aggressively in order to fight rising inflation. 澳洲幸运5官方开奖结果体彩꧟网:Rates are expected to start decl✱ining following the Fed's September 2024 meeting.

The Federal Reserve may start to raise in🐲terest rates, which can have an overall impact on your mortgage rate. When and how depends on what kind ꩵof mortgage you have.

Long-term fixed-rate mortgages are tied to the yields of long-term U.S. Treasury notes. When these yields rise, so do interest rates. 澳洲幸运5官方开奖结果体彩网:Adjustable-rate mortgages (ARMs) and home equity lines of credit (HELOCs) are tied to the prime lending rate. When the Fed raises its rate, banks hike their prime rate, 🍷thus increasing yℱour mortgage rate as well.

Using a 澳洲幸运5官方开奖结果体彩网:mortgage calculator is a good resource for helping you budget these🐬 costs.

Check Your Credit Report

Lenders review your 澳洲幸运5官方开奖结果体彩网:credit report to determine if you qualify for a loan and at what rate. By ꩲlaw, you are entitled to one free credit report every year from each of the “big three” credit rating agencies—Equifax, Experian, and TransUnion. Take a close look at your credit report to make sure it’s accurate. If there are any mistakes, you should take immediate steps to fix them.

Watch out for suspicious items, identity theft, data from a former spouse that no longer belongs to you, out-of-date informatio🐲n, and incorrect notations for closed accounts. Follow up with the lender or creditor who reported the item and make sure you report inconsistencies directly to the three agencies. 

Improve Your Credit Score

Generally, a high 澳洲幸运5官方开奖结果体彩网:credit score means you'll qualify for a better mortgage, so it pays to keep it as high as possible. The most common is the 澳洲幸运5官方开奖结果体彩网:FICO score, which many financial institutions provide for free to their customers each month. You ca🌸n also purchase your FICO score from one of the three credit rating agencies.

To improve your credit scoꩲre, pay down debt, set up payment reminders to pay bℱills on time, keep credit card and revolving credit balances low, and reduce the amount of debt owed. One of the best ways to do that is to stop using (or restrict usage of) your credit cards.

Lower Your Debt-to-Income Ratio

Lenders look at your debt-to-income (DTI) ratio—or your debt repayment compared to your overall income—to measure your ability to manage your monthly payments. They also use it to determine how much house you can afford. Lenders like to see DTI ratios lower than 36%, with no more than 28% of that debt going toward mortgage payments, or the 澳洲幸运5官方开奖结果体彩网:front-end ratio. T🧸he stronger these ratios, the better your mortgage 🗹rate.

There ar♐e two ways to lower your DTI ratio so you get a bett💜er mortgage rate:

• Reduce your monthly recurring debt: Stop spending money on anything except the most urgent purchases.
• Increase your gross monthly income: Get a second job or work extra hours to boost your income potential.

W🦋hile these options are possible, keep in mind that neither of these is always easy to accomplish. 

Consider the Amount of the Mortgage

Remember, qualifying for a certain amount doesn't mean you have to spend that much on a home.

A conservative approach is to spend no more than 30% of your take-home pay on housing costs, which includes your mortgage, 澳洲幸运5官方开奖结果体彩网:property taxes, 澳洲幸运5官方开奖结果体彩网:homeowner’s insurance, and 澳洲幸运5官方开奖结果体彩网:homeowner’s association dues. Don't forget to add in 澳洲幸运5官方开奖结果体彩网:maintenance costs if you really want to make sure you’re looking in th💜e right price rang🔯e.

When shopping for homes, decide what’s more important: having a more expensive home or having a little extra wiggle🧜 room in your budget each month. Bear in mind, being a homeowner with a mortgage is a⛦ 30-year commitment.

Don’t Count on R𝔍efinancing to Lower Your Interest Rate

Mortgage rates have started to edge up from historic lows, and they may keep rising off the historic lows, so it might not be the right time to 澳洲幸运5官方开奖结果体彩网:refinance. But you may be able to save money by shortening your 🍨loan term.

For example, moving from a 30-year 澳洲幸运5官方开奖结果体彩网:fixed-rate mortgage to a 15-year loan with a better rate, or through a 澳洲幸运5官方开奖结果体彩网:cash-out refinancing, in which your new mortgage amount is greater than the existing one. This allows you to tap into your 澳洲幸运5官方开奖结果体彩网:home equity to pay down other debts. Even though your monthly payment will rise, you could end up s෴aving money by paying off higher-interest debt, such as your car loan, student loans, and/or credit cards.

Before doing any refinancing, you should crunch the numbers to make sure you aren't adding to your financial stress.

The Bottom Line

Even a small change in i💙nterest rates can make a big difference in monthly payments, the amount of interest paid over the course of the loan, and the size of the loan (and house) for which you’ll qualify.

If you have a $200,000 30-year fixed-rate mortgage at 4%, for 🅺example, your monthly payment would be $954.83, and you’d pay $143,739.01 in total interest. Bump the rate up by 0.5% (for a total of 4.5%), and you’d be looking at a monthly payment of $1,013.37, and your total interest paid would be $164,813.42—that’s about $2 more per day for 30 years.

Given the above, it is always🌠 a good idea to work on improving your credit score, credit history, and DTI ratio, so you can qualify for 𝐆the best rate available. And, of course, don’t take on more debt than you can comfortably afford.