Financial Capability

• Before a person takes out a mortgage, she should determine what size mortgage she can afford. She must determine what her current and future income and expenses will be. Using this information, she should determine how much she will be able to pay for a mortgage each month. This can be a difficult calculation, as both of these variables may change in the future; therefore, she should allow a comfortable financial cushion for payments.
  
  

Credit History

• Well before applying for a mortgage, a person should begin to establish a good credit history. A successful history of borrowing money and paying it back on time will boost a person's credit score. The higher a person's credit score, the lower the interest he will likely have to pay on a home loan. Even a small difference in the interest rate can add up to a difference of tens of thousands of dollars over the life of the mortgage.
  
  

Shopping For Terms

• When applying for mortgages, a home buyer should apply to a number of different lenders offering home loans. This is because each lender will calculate the terms it is willing to offer borrowers depending on a different formula. These formulas weigh relevant factors, such as the individual's income and her credit rating rating, differently. This means that two lenders will likely offer an individual two different rates of interest on the same loan.
  
  

Interest Rates

• When selecting among mortgages, a home buyer will be asked to choose between two types: a variable-rate mortgage and a fixed-rate mortgage. Under a fixed-rate mortgage, the interest rate the individual pays on the loan's principal is set at the time of purchase and will not deviate over the life of the loan. With a variable-rate loan, the rate changes constantly, in line with changes in the prevailing lending rate. Variable-rate mortgages are riskier, as they run the risk of the interest rate spiking up, increasing the size of payments.