Financing

When you secure a mortgage, the lender loans you a predetermined amount of money to buy a home. You agree to pay back the loan, including interest, over a predetermined number of years. Once the mortgage is paid off, you will completely own the home.

The mortgage interest rate is based mainly on a couple of factors, the current market rates and the degree of risk the lender assumes to lend you the money. Current market rates are beyond your control, but you can have some input over how the lender sees you as a borrower. The higher your credit score and the fewer negative items you have on your credit report, the more you’ll look like a responsible borrower. Also, the lower your DTI-Debt to Income ratio, the more money you’ll have to make your mortgage payment. Good credit scores, fewer negatives on your credit report, and a low Debt to Income ratio, will reduce your risk in the eyes of the lender and hopefully result in a lower interest rate.

The amount of money you can borrow will be determined by what you can reasonably afford and the fair market value of the home, which is determined by an appraisal. The lender cannot lend an amount higher than the appraised value of the home, unless the borrower pays the difference.