Financing a home purchase is the biggest hurdle in owning a home. Home buyers can pay cash or seek home loan financing. Paying cash requires one to have substantial savings. Thus, home loan purchases, through mortgages, are a leading option in home financing. For a first-time home buyer, applying for a home loan can be a tedious and confusing process. Therefore, it is important to prepare for the home loan process. Below are some dos and don'ts of a home loan purchase.
Dos of Home Loan Purchases
Understand Your Credit Score
Credit score is a rating system that informs lenders of your ability to repay debt. Typically, it is based on how you service your current debts. This information is available through the credit report bureau. The higher your credit score, the easier it is to receive a loan.
Get Prequalified
Getting prequalified means approaching a mortgage lender to assess how much of a loan you can apply for. In practice, the lender will first consider your credit score. Then, the lender checks your debt-to-income ratio to assess your capability to repay. Getting prequalified helps you to know your credit ceiling while shopping for a home.
Compare Loan Offers
The two main factors to consider when choosing a loan are the repayment durations and interest rates. Home loan purchases through mortgage can be for a 15-year or 30-year repayment period. More so, the interest rate can be a fixed rate or an adjustable rate. Compare the offers and terms, understand your financial situation, and get a home loan that suits your needs.
Have a Savings Plan
The last qualification for a home loan is often a down payment. Most mortgages require borrowers to pay a down payment on the total home purchase price. This amount can be as low as 3% and as high as 20%, though you could make a higher down payment. Typically, the down payment acts as a collateral for the loan and proof of commitment to repay.
Don'ts of Home Loan Purchases
There are a number of things that a borrower should avoid during home loan process. To start with, it is important to avoid changing jobs since it may indicate job insecurity and unpredictable incomes. More so, avoid making huge purchases on credit that may impact on your credit score, such as a new car. This rule applies even after qualifying for loan since the lenders often recheck your credit score. Lastly, avoid delays in communicating with the lender, especially if they ask for additional information.
Purchasing a home through a loan can be a confusing experience. Fortunately, there are professionals who have the expertise and information to navigate through the process. Engaging the services of such professionals will ease the home loan purchase process.
Unfortunately, personal finance is not a subject that is widely taught in schools. And yet, to be a functioning adult in society, you need to know the basics about earning money, saving money, taking out loans, paying interest, and so forth. Money makes the world go 'round, and you won't get very far in the world without a basic money education. There are many ways to learn more about money, from reading books to visiting a personal financial advisor. You can start by reading some of the articles on this blog, which address a wide range of financial topics for people in every situation.