Making the best choices in the process of buying a home entails understanding mortgages, how debt affects credit, closing costs, and many other factors. If a potential homeowner is not careful they could end up paying a lot more than they need to, due to a lack of research. 

Given the world’s current predicament, doing your homework as a homebuyer is more important now than ever before. Fortunately, everything you need to know to prepare can be found online. The following variables are the most significant money matters you need to keep in mind before making the decision to buy a home.

Settle All Prior High-Interest Debts

If you're ready to do this, then you might be financially ready to purchase a home. As financial planning expert Sophia Bera explains, "owning a home is going to feel pretty exhausting while trying to pay down credit card debt and keep up with mortgage payments.” 

This is why Bera recommends first getting rid of any high-interest debts before making any further huge financial decisions. Settling debts and keeping up-to-date on any other payments also helps raise your credit score, which will get your mortgage deals with better interest rates. A credit rating of around 730 is usually enough to get the most competitive loan rates.

Down Payment Costs

After settling high-interest debts, can you still pay the total cost of the down payment? This may range anywhere from 3 to 20% of the total worth of the property, depending on your credit score, your relationship with the buyer, and how current events are directly affecting the real estate market. 

Will you have to delay paying for certain debts or even incur extra debt in order to afford total down payment costs? And if so, how do you plan to deal with the blow to your credit score? Just because the money to pay for the down payment is there doesn't necessarily mean that you can afford it.

Interest Rates

Interest represents the percentage cost of borrowing money. The lower the interest rate, the better it is for buyers. Given the uncertainty of the current global climate, it comes as no surprise that interest rates for homes are currently at an all-time low. “It’s definitely a good time to shop around and get a good rate,” says licensed real estate Compass sales person Zsuzsanna Bircsak. “Put in your offer and lock your rate in.”

Look for a Lower APR

Whatever type of loan or repayment terms banks or other lenders offer, keep an eye not just on the interest rate, but more importantly, the annual percentage rate (APR). The home loan option with the lowest APR is typically also the least expensive option for the borrower. 

This is because APR is the total yearly cost of borrowing money, a combination of not just the interest rate, but any other costs or fees associated with annually paying for the loan. This makes it the most important number when you're shopping around for mortgages —although you should not neglect to compare all other significant loan repayment terms as well.

Consider Working with a Mortgage Broker

This could be a viable and affordable shortcut to understanding everything you need before buying a home. Mortgage brokers are commonly paid by lenders and sometimes by borrowers. It is best to ask your potential broker certain questions that could reveal crucial aspects of their compatibility with your financial status. This includes asking what type of loan is best for you, which will also reveal how well they take your interests into account. 

Another is to ask for a breakdown for different payment amounts, which makes it easier to compare down payments, APRs and interest rates, and other terms. These seemingly simple questions can not only reveal whether or not you're compatible with a broker but can also give you a better idea of how buying a home really works. 

You can also be direct and ask the broker if they can offer a rate match. If a mortgage broker has no problem with rate comparisons, consider your goals before deciding on a loan type. This will make it easier for you to understand and compare terms, and they will likely be able to help you make the best choices when it comes to buying a new home. Fortunately, most brokers can be contacted online, allowing you to make inquiries without violating any physical distancing protocols.