How to Get a Mortgage: 5 Critical Tips

So you've saved a bunch of money, and you're tired of spending a lot of money on rent with little to show for it. You want to buy a home. The big question, then, is how to get a mortgage. It's not as complicated as it may seem, but there are some tips you can heed in order to spend less and save more.

1. Establish a good credit score
If you want to get a mortgage, having a good credit score will definitely work in your favor. The better your score, the better the interest rates lenders will offer you -- and a seemingly small difference in an interest rate can cost you many thousands of dollars over the life of your loan.

The table below shows the recent national average interest rates for a 30-year fixed-rate $160,000 mortgage for different credit score ranges -- along with the monthly payments and total interest one would pay for each rate:

Source: MyFICO.com.

The difference between a good and bad credit score can mean more than a whole percentage point in your interest rate; a poor credit score can cost you $150 more per month and more than $50,000 in extra interest paid. Getting the best mortgage terms possible can mean delaying your home purchase in order to beef up your credit score -- by paying down outstanding debt, paying bills on time, and so on.

2. Choose the right kind of mortgage
Focus not only on how to get a good mortgage, but also on which mortgage to get. You want one that will serve your needs best, so you need to decide, for example, between a 15-year or 30-year loan (other time frames are also available) and between a fixed-rate mortgage or an adjustable-rate mortgage (ARM). Longer terms will give you lower payments, but you'll pay much more in interest over the life of the loan. If you're not comfortable with the steeper payments a 15-year loan would demand, then consider getting a 30-year loan that permits prepayments and then aim to pay much more than you need to each month in order to shorten the life of the loan.

If you're not planning to be in the home long, an ARM could serve you best in today's low-interest-rate environment, as it can lock in low rates for a few years. If you think you'll be in the home for decades, though, it can be better to lock in a low rate for the expected long life of the loan -- especially because it looks like interest rates will start rising soon.

3. Shop around
Being smart about how to get a mortgage means shopping around. Don't just accept the first mortgage you're offered, assuming that they will all be roughly the same. They won't. Do check with your own bank(s) first, as they may give you a bit of a discount on the interest rate because you're a customer. But check with other banks, too -- and with credit unions, which often offer lower interest rates.

Exploring options with a mortgage broker can be smart, too. He or she will likely offer a wide range of loans, and may be especially helpful if you have an underwhelming credit record. Visit Bankrate.com, too, where you can look up the best rates in your area and beyond.

4. Get pre-approved, not pre-qualified
Once you know which loan you want from which lender, don't wait until you find the home of your dreams to start the paperwork. Get pre-approved for the loan before you go shopping. This has several advantages. First, while working with a loan officer, you can determine just how much home you can afford to buy. You can also work this out on your own, and it's a vital first step, lest you start looking at homes out of your reach and end up with a mortgage payment that strains your finances.

Second, being pre-approved for a loan makes you a stronger buyer. If you're competing with anyone else for a home, then being pre-approved for a mortgage may give you an edge. Another contender, after all, may not end up getting approved. Pre-approval means the lender will have looked at your credit score, your employment, your financial health, and perhaps some tax returns -- and found you creditworthy.

Don't buy more house than you can afford.

5. Put down 20% or more
Finally, aim to put down 20% or more on your new home. Putting down less means you'll have to take on an extra loan in the form of private mortgage insurance, which will increase your monthly payment. A low down payment might also result in a higher interest rate, too.

And if home values drop during your ownership period, it could leave you with an "underwater" mortgage, meaning that you owe more than the home is worth. That's not good, especially if you need to sell the home at such a time.

There's a lot to learn when it comes to how to get a mortgage and buy a home. These are five critical tips, but if you read up more on the topic, then you may save yourself even more.