5 Things to do Before You Apply for a Home Loan
If you’ve reached the end of the article “Signs that Tell You that You Should Rent” and you find yourself unable to relate to most of those signs, then maybe it’s just about time for you to stop sitting on the fence on this one and try going for a home loan, once and for all.
Buying a home is a major financial decision for anyone. Whether you’re getting a home for yourself and your family, or as an investment, there are some things you might want to do before you get to that point where you nail down a “sold” sign on the front lawn.
Before you apply for a mortgage, here are five things you need to do:
1. Build Your Credit History
A good credit history increases your chances of being approved for a housing loan. To build a credit history that would impress lenders, you can get a credit card and pay your bills dutifully. Your payment behavior on your utility bills can reflect in your credit report as well, so remember to always pay on time. Another way to build a good credit history is by taking advantage of in-store financing offered by some retail stores, especially during holidays.
2. Get a Copy of Your Credit Report
When you apply for a mortgage, the bank will request a copy of your credit report from a credit agency. Before you apply for a home loan, you should go ahead and get a copy of your credit report so you can see how banks might assess your mortgage application. This also allows you time to amend any possible errors on your report. If a debt you have previously settled is still showing up on your credit report, you can talk to your credit reporting agency and have it fixed, before the bank could take a look.
3. Calculate How Much You Can Afford
Be realistic about how much you can really afford. While everyone would love to live in a mansion, you don’t want to be evicted out of your dream home if it turns out later on that you cannot afford to pay your mortgage after all. You can try using online housing loan calculators to determine the loan amount you can afford to pay on your total income.
After you determine a realistic budget, it gets much easier to look for a house that fits your price range. Always keep in mind that on top of the actual price of the house, you will also be responsible for paying home ownership fees and other expenses (such as realty taxes, maintenance, and utility bills). Buying a home in locations where taxes are high can end up costing you more in the long run. On the other hand, getting a big house can cost you a lot on heating and cooling expenses.
4. Shop for Home Loans
Don’t be so quick to settle with your existing bank when looking for a home loan. You might be missing out on a good deal if you don’t shop around. Get information on rates offered by other lenders. The Internet has, after all, made life easier. Use it to get your hands on deals and promos. You may even subscribe to lending sites or ask advice or feedback from financial forums or any other online community, if you want information on specific lenders. You can also directly contact them too via their official social network accounts.
Another thing you should look at when shopping around for a loan package is the loan term. You need to make a decision on what would be the most feasible loan term for you. A longer term for your home loan could mean lower monthly payments but having to pay more in interest over the duration of the loan. Choosing a shorter term can mean higher monthly payments but paying a lot less on interest. To help you make a choice, try using loan calculators.
5. Get Pre-Approved
Getting pre-approved for a mortgage will save you from the grief of shopping for a new home that you don’t have the means to pay for. A lender’s pre-approval will typically be based on your credit history, income, and debt record. Getting pre-approved for a housing loan also puts you in a better position when negotiating with the home seller once you have found your dream home.
These five steps are important, especially for first-time home buyers. Building a good credit history will reflect nicely on your credit report and give you a higher chance of being approved for a loan and possibly, a lower interest rate. A lower rate will ultimately keep the cost of your home loan down, enabling you to save a lot of money.