Owning a home is an exciting financial milestone, and now that you’re close to reaching that stage, don’t fall into the trap of buying a house without doing your homework. This can save you from committing real estate investment mistakes that may lessen the value of your property in the long run.
Without further ado, here are some tips to guide you as you try to get a loan for your new home:
- Have yourself prequalified
This is the process of determining if your financial status makes you eligible for a credit. Banks or financial institutions where you intend to take out a loan will sit down and discuss your capacity to pay the monthly mortgage by asking you questions about your salary, assets, and liabilities.
With the financial information you’ve provided, the lender will try to give you an estimate of how much money you can borrow to finance your house purchase. This is to ensure that you’ll be able to make monthly mortgage payments for the duration of your loan.
- Get a preapproval
Borrowing money for major purchases requires that you get preapproved. Prepare all the documents that you need to submit, such as your updated bank statements, details of your employment, proof of income, income tax return, birth certificate, marriage certificate, and so on. Once you have the complete requirements, background checks and verification will start.
If everything is fine, the bank or property developer will provide you with the so-called Good Faith Estimate (GFE). It’s a form or document that specifies the amount of the loan, applicable home loan interest rates, and the costs that you’ll need to settle at the closing of the mortgage.
Go over the GFE thoroughly to give you a clear picture of the actual cost of getting a loan. You can also use the GFE to compare offers from various lenders.
- Weigh your options
Lenders will try to give you the best offer so they can attract and encourage you to avail of their loan. Use it as an opportunity to look at all the aspects of taking out a loan. For example, one lender may charge lower interest rates, but the loan amount may not be enough for the property you wish to buy.
In this scenario, you’ll have to consider whether you have enough financial resources to come up with the extra amount that you need.
Another thing that can help you choose the best offer is the type of interest rate that comes with a loan: is it fixed or variable rate?
In the first option, your monthly payments are the same for the entire loan period. In the second option, the interest rate may fluctuate depending on market conditions, so you can expect your monthly payments to either go up or down at any given time.
Your decision will depend on whether you want to take the risk of anticipating favorable changes on interest rates, or you would rather lock in a fixed interest rate to ensure the same amount of monthly payments.
- Keep a good credit history. Your credit history refers to how responsible you’ve been in paying previous or existing loans. Private and government financial institutions keep a record of your repayments, and any negative record to your name can affect your eligibility to get a housing loan.
In case you haven’t built a credit history, such as when it’s your first time to take out a loan, what you can do is to apply for a credit card first from the same bank that you plan to borrow from. Use your credit card for your shopping needs and pay your monthly dues on time.
This will enable you to build a good credit history, which signifies that you have a stable source of income, you’re able to manage your expenses, and you’re capable of getting a higher amount of credit.
- Be ready with a contingency plan in case your housing loan is rejected. Your loan may not materialize due to several reasons, including not meeting the age, income, or documentation requirements of lenders. If this is the case, you may want to consider looking for a more affordable property, finding a finance broker to assist you in your financial needs, or getting someone with the financial capability to be your co-borrower.
By now, you have a good head start on what it entails to get a loan, which can help you turn your dream house into a reality. Use this advantage to build the kind of life you want for yourself and your family.