4 Steps to Consider Before Taking a Home Loan

The housing downturn has shown that getting yourself on the property ladder is the just the start. More than simply getting a mortgage, you have to be able to keep your home over the long-term. Making sure you are ready to take the step to owning your own home is of the up most importance. Consider the following four points carefully and you’ll be on your way to affordable financing and a bright future as a home-owner:

Sort Out Your Finances

These days, lenders are more reluctant than ever to issue mortgages, thus lending guidelines have become more restrictive. So it pays to do as much as possible to get your finances into shape before making an application. The first step should always be to order a credit report so that you can check your credit rating. Many credit reporting bureaus offer a free credit report and others offer low-price yearly costs so you can continue to keep an eye on it. Lenders will typically look for consistent on-time bill payment so any missed payments can harm you as well as defaulting on previous loans. If your score is low, work at improving it as a better score can give you a lower rate on your loan.  

Do Your Homework

A solid knowledge of the mortgage market can only help you in getting a better mortgage rate. Look into the loan process including what lenders look for and the criteria you have to meet. You’ll want look at different loan types – from fixed-rate to adjustable-rate mortgages – and check out all the various mortgage provides. You aren't committed to using a bank; you can go for a non bank lender instead. Some will be more willing to lend to first-time buyers and you can use a mortgage broker to get free advice.

Start Saving

To afford the up-front costs of a home ownership  you’ll need a decent amount of savings. Costs include: the down payment, which can range from around 3% to 20% of the purchase price; the deposit, which is typically 2% of the purchase price and will contribute towards the down payment if your offer is accepted; closing costs, which are usually the agents fees for executing the sale, legal fees, appraisals and so on. The lower the amount of down payment you can afford the larger your mortgage and the monthly repayments will be.

Establish a Budget

This is an important thing to do in all aspects of life, but more so when it comes to buying a house. Work out how expensive a property you can afford and make sure you can make any repayments on your current income and if rates increase substantially. As a rough guideline, makes sure your mortgage repayments are no more than a third of your monthly gross income; and that all debt including credit card payments, car financing does not exceed 40%  of your monthly income. Create a budget which takes into account all outgoings so you can work out how much mortgage repayment you would potentially be able to afford.