Buying a home today can be a confusing—and risky—business. On top of researching the house itself, the neighborhood, market, and so on, you also have to consider how you will pay off this investment for the next 30 odd years. However, if you have a solid base of knowledge about the different factors of the house buying process, you’ll find that taking out a home loan becomes much easier. Home loan comparison sites can help sift through the kinds of mortgages you want, but what does it all mean? Here are some things to consider when you are choosing a home loan.
Your Credit Score
Your credit score can greatly affect the amount of money you receive in a loan. Make sure you get all your payments in on time to keep that credit score up, as any late payments can make your credit score drop. When you receive your home loan, you should also be sure to continue to maintain your credit score, in case you need to apply for more loans in the future.
Your Employment History
Generally, lenders will consider your employment history from two years ago or more. They look at this history to determine whether or not you will actually be able to pay back the loan. Having a salaried job is often the best, no matter how long you have spent in the salaried job.
Your lender will determine what is and is not an acceptable form of income when applying for a loan. They may ask for any or all of your employment history, as well as your yearly income.
Are You a First-Time Buyer?
If you are buying a house for the first time, you may be able to qualify for special home loans. These types of loans may grant you money to pay for the down payment or closing costs when buying a house. The catch, however, is that if you sell the house, you will often have to repay the grants.
Should Your Mortgage Have a Fixed or Variable Interest Rate?
Choosing a type of interest rate is an important factor when considering a home loan. There are two types of interest rates: fixed and variable. These interest rates can be renegotiated in time, but it is best to consider what your preferable interest rate is from the beginning as well.
Fixed interest rates are interest rates that remain the same percentage over a certain period of time. If you believe an interest rate has the possibility of rising, a fixed rate is the best choice. A fixed rate is also easiest when planning your finances, such as your budget.
Variable interest rates are interest rates that fluctuate over time. If you’re thinking these interest rates will drop, a variable interest rate is the best option.
Should You Get an Interest Only Loan?
There are certain home loans that allow you to pay only the interest on your loan, rather than pay off the loan with the interest. This can be a good option if you are unable to pay the loan for the first 5-7 years after receiving it. It is also more preferable for those who want to flip houses, since you would be able to have more money for renovations rather than have to pay for something you will sell in a few months’ time anyway.
How Much Can You Spend on a Down Payment?
Some lenders allow you to receive a loan and not have to pay a 10% to 20% down payment on the house. Not all lenders do this, however. Make sure you have a lender with this option if you do not wish to pay money upfront for your home loan.