Debt-to-income ratio reflects your financial life and is used to estimate how much you can afford to borrow by comparing your monthly debt payments -- house, car, credit cards, student loans, etc. -- to your gross, or before-tax, income. In years gone by, lenders would allow you to borrow up to 55 percent of your income, Gumbinger said. Today, they're going to want to see you borrowing 43 percent or less, he said.
Watch your loan balance: The lowest rates are reserved for "conforming" loans, which are for $417,000 or less. For those with good credit borrowing no more than that amount, 30-year fixed-rate mortgages cost 4.78 percent on average last week, according to Freddie Mac.
Need more? You'll pay more. But the rate for an "extended conforming" loan of as much as $729,750 isn't substantially higher -- it's roughly 4.875 percent to 5 percent.
If you need a "jumbo" loan, rates are considerably higher, Lazerson said. People in high-cost counties who borrow more than $729,750 are likely to pay 6 percent to 8 percent -- even if their credit is perfect.
Guesstimate your time frame: If you're going to be in your home for decades, it's smart to lock in a 30-year fixed-rate mortgage at today's historically low prices, experts agree. But if you've got a short time horizon, rates on adjustable loans can be highly attractive.
One loan, which is fixed for five years and then adjusts once annually thereafter, was priced at 3.99 percent last week, Lazerson said. And those who have existing adjustable loans that are re-pricing this year are likely to see their rates drop to about 3 percent, Gumbinger said.
If your time horizon is short, these adjustable loans are a deal, both experts say. If you only need a $400,000 loan for five years, for example, the 3.99 percent adjustable rate would save you $240 a month, or $14,364, over the 30-year fixed-rate option.
But if you plan to stay in the home for a while, you'll need to watch rates closely to jump into a fixed mortgage before rates climb.
SHOP RATES AND FEES
It's pretty easy to shop rates at web sites HSH.com or BankRate.com, which list current mortgage rates offered by dozens of lenders. But make sure you also shop for fees. Each lender you consider should provide a "good-faith estimate" of the total fees, including the cost of appraisals, title insurance, processing and "points."
Typically, these fees would amount to anywhere from $0 to $6,500 for a $400,000 loan. (In some cases, lenders offer no-cost/no-fee loans but charge a higher interest rate for the privilege.)
To make apples-to-apples comparisons when you're getting apples-to-oranges offers, use the monthly payment calculator at MortgageGrader.com, adding the fees (if any) to your loan balance.
For instance, Lender A offers a no-cost loan at 5.25 percent. Lender B offers a 5 percent rate but will charge $6,000 in fees. Which is the better deal?
You'd plug in the loan balance of $400,000 at 5.25 percent at the Mortgage Grader site to find that your monthly payment would be $2,208.81 with Lender A's offer.
To compare the offer from Lender B, you'd plug in a loan balance of $406,000 (the loan amount plus fees) at 5 percent to find that your monthly payment would be $2,179.50. Lender B's deal would save you nearly $30 a month, or $10,500 over the 360-month life of the loan.
It's also worth mentioning that some fees are negotiable. The most significant among those is for title insurance. How much of a difference can shopping for title insurance make? A recent good-faith estimate from Wells Fargo Bank quoted $930 for a title insurance policy for a $380,000 loan and estimated additional fees of $650. The borrower found EasyTitleQuote.com through a Google search and filled out a short form. The resulting bid: $357 for insurance, plus $500 for other fees.
The borrower saved $723.