SPONSORED CONTENT -- (StatePoint) If you’re hesitant to buy a home right now due to high interest rates, you can use this time to learn how interest rates work, and to take steps to secure a lower interest rate when you are ready to buy.

Defining Mortgage Rates

A mortgage rate is the interest rate you pay on the money you borrow to buy your house, and a lower rate increases your purchasing power. Even a small difference in your interest rate can make a big difference in your payments over the life of your loan. That’s why it’s important to watch mortgage rates closely when house hunting.

Lenders set a mortgage rate for each individual based on several factors, including current market rates and individual credit history. You can determine how much your monthly payments would be at different rates using Freddie Mac’s Fixed-Rate Mortgage Calculator at myhome.freddiemac.com/resources/calculators/fixed-rate-mortgages.

Improving Your Loan Application

Boosting your credit score is one of the best ways to improve your chances of qualifying for a loan and lowering the interest rate you are offered. Some proactive steps you can take to build and maintain your credit include:

• Making payments on time.

• Using as little of your credit limit as possible.

• Paying the full amount due, or at least more than the minimum amount due, on your credit cards.

• Opening and maintaining credit accounts in your own name.

• Keeping only a few credit cards or credit accounts open.

• Paying down debts.

• Reviewing your credit reports annually.

• Disputing inaccuracies in your credit report.

• Trying to have credit inquiries made strategically within a limited time period when comparison shopping for mortgages and loans.

Lenders will also look at your debt-to-income (DTI) ratio when making a decision about your loan application, as it is an important marker of your overall financial health. As a guideline, your monthly debt-to-income ratio should be 33% to 36% or less. Representing how much of your monthly income you are using to pay your debt, this handy calculator can help you determine your DTI: myhome.freddiemac.com/resources/calculators/debt-to-income-ratio-calculator.

To learn more about smart credit management, use Freddie Mac’s CreditSmart online courses found at creditsmart.freddiemac.com.

Shopping Around

In addition to improving your credit and reducing your DTI, you can also potentially get a lower interest rate and avoid certain lender fees by shopping around. Freddie Mac research shows that similar borrowers may receive notably different rates based on the lender, and that homebuyers can potentially save $600 to $1,200 annually by applying for mortgages from multiple lenders. It’s generally a good idea to get three to five quotes. During this process, you can use this Mortgage Worksheet to identify the best lender and mortgage option for you: myhome.freddiemac.com/resources/mortgage-comparison.

If you’re in the market to buy a home, watch mortgage rates carefully. And when you are ready to buy, don’t take the first mortgage offered. Be sure to shop around and ask about opportunities to secure a lower rate.

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