Acquiring home loans is not only difficult but it is a never-ending process. A middle-class person can’t afford to attain a house without home loans.
It takes years to collect a big amount out of your hard-earned money. Although, home loans are a satisfactory answer to people still there are some issues regarding these home loans. The home mortgages are not as easy as they seem to.
There are many obstacles which are we are going to discuss in this article. The article clears the picture of some major issues which one can find during the home loan sanction. The problems related to home loans differ from their types and the below list throw some light on the issues related to home loans so that you can make sure to consider them at once.
At the time of acquiring home loan:
The home mortgages are really time-consuming tasks and this is the major issue related to home loans and also they are a never-ending process. To acquire the possession of home loans one needs to be very much patient since there are some legal responsibilities for which people are not eligible for the particular criteria. The criteria could be related to their bad previous experiences or financial situation.
Change in Rate of Interest:
Due to the rise in inflation, the rate of interest also increases and it severely affects people with home loans. These home mortgages are very much flexible and they vary according to the increasing prices in the economy. People find it very difficult to pay the expenses for such mortgages when the rate of interest goes high.
Balloon payments create mess:
Balloon payments are also the biggest problem while making payments for home loans. There are some basic funds at the end of the loan period which remain unpaid and these payments can result further in a handsome amount of fees and expenses which put a common man into a debt therefore ensure that you are making proper payments and taking proactive measures while making payments.
Written agreement problems
Keep an eye on escrow problems. These issues must be on your fingertips to avoid hassles in your home mortgage and also check upon the tax increment and your written statement agreements which are of utmost importance to do so.
Out of the blue costs
Be alert and ready for the upholding cost when you are going to buy a home loan. If you want the complete details and information regarding home loans then do proper research and acquire knowledge from the internet and read out the reviews and interest rate of every bank and financing firm. Compare all the prices and update them with the most suitable one. Also, completely check the written agreements and documents properly. Make sure that you have read this article once to clear all the issues and now you need to keep your eyes closed for all types of financial issues to apply for home loans.
Factors That Affect Your Home Loan Application
Buying a home is the single biggest purchasing decision that you’ll ever make. It’s an enormous, long-term financial responsibility, which means that you have to make your choice very carefully. Not many people can buy their dream homes, at least not as first-time buyers. Typically, people start small, with what they can afford and upgrade as their careers blossom. Even when starting small, very few people can afford to pay for their new homes with cash upfront. Home loans are the easiest and most common way to enter the property market.
Just as the size and location of your new home are dictated by what you can afford, so is your home loan. Before granting a loan of any kind, be it a personal loan or a much larger home loan, providers need to know about your current financial status. They also need to find out about your financial history, especially your credit history and will make projections as to your future financial stability.
Many countries have tightened the requirements that need to be met before loans can be approved. The obvious result is that banks grant fewer loans because more people qualify as credit risks. The thinking behind this is to protect banks from defaulters and to protect people from themselves.
The property market has been particularly hard hit by these measures as fewer people qualify for home loans.
Let’s look at the most important factors that determine your eligibility for a home loan:
1) Income. It’s not only the size of your paycheque that matters. Banks also have to consider your expenses. As a rule of thumb, home loans will only be granted if you have about 30% of your salary to spare on monthly repayments. For most middle-income earners, this represents a significant chunk of change.
2) Interest rates. Many European countries have tried to cut interest rates as low as possible; but other countries, like South Africa, have relatively high-interest rates. A high-interest rate eats into your spending power and means that you qualify for a much lower home loan than you probably expect.
3) Repayment rate. Typically, home loans have a repayment rate of 20 years (the faster you can repay it the more interest you save). But with the global economy being what it is, some home loan providers will extend that period to 30 years.
4) Credit history. First off, you need to have a credit history. You may think you’ve been doing the smart thing by avoiding all possible debt and not having any accounts that need monthly payments, but you’ve actually been doing yourself a disservice. It’s counter-intuitive but if you can prove that you have been able to consistently pay off any kind you debt you prove that you are likely to pay off all future debt. Not missing car and credit card payments will be in your favor. That’s not to say that missing a payment or two will disqualify you for a loan, but it will be cause for some investigation and deeper questioning.
5) Deposit. The bigger the deposit you’ve managed to save the better your chances of securing a favorable home loan. A big deposit will also help you get a bigger home loan if you want a bigger house or want to live in a specific area. What’s more, it goes some way to proving you are financially responsible, which always looks good. Some home loan providers don’t require a deposit at all. It may seem like an amazing offer but consider it very carefully before you sign on the dotted line. No deposit means that you’ll have to repay a larger sum or repay the loan over an extended period of time.
We all dream of having a home of our own – no one likes the idea of repaying someone else’s home loan (i.e. paying rent). But entering into home loan agreements without careful consideration is unwise. A good financial advisor will help you determine the size home loan you qualify for, as well as help you secure the best loan on favorable terms.
Don’t Let Being Self-Employed Get In The Way Of Your Home Loan
The odds seem to be stacked against small business owners and self-employed entrepreneurs. It’s been found that small business owners and those who are self-employed, including freelancers and contract workers, struggle to get business loans. To add insult to injury, it appears that they also struggle to get home loans. This is according to ooba, a South African-based home financial services specialist.
The decision to buy a home is usually the result of the debate, research, desire, and, in some cases, a necessity. However the decision is reached, it takes a lot of courage to approach a bank or credit provider and actually ask for a home loan.
Picture this: You’ve been a successful freelancer for five years. You’ve never missed car payment or an installment on your credit card, you pay your bills on time, and you keep all of your receipts so that you’re never in trouble with the taxman. In short, you are a model financial citizen; the epitome of economic responsibility. Your partner, who runs his own business, is equally successful. You’re more than financially sound enough to afford a modest home, which is all you want.
You walk into the bank brimming with confidence and leave with your eyes brimming with tears.
What on Earth went wrong?
According to representatives from Aoba and First National Bank’s home loans department, self-employed people are not only subjected to greater scrutiny than those who work a regular nine-to-five job, but they are also assessed differently.
Quite simply, they are deemed high-risk and so credit providers need more evidence of their ability to repay a mortgage.
One of the problems, according to a home loan expert from Standard Bank South Africa, is that freelancers don’t have a regular income. They might consistently earn over 20k per month, but creditors still get nervous when the amount fluctuates too much (between 20k and 35k, for instance).
Some contract workers are even worse off because their income might be based on seasonable demand. They could make money hand over fist for six months of the year, consistently accumulating more than enough to see them through the other six months (while saving up for a sizeable deposit), and still not impress home loan providers.
You don’t have to join the rat race
All you have to do is take a look around you to see the hordes of self-employed, small business owners living the good life in homes of their own to see that it’s not impossible to get a bond. It’s also not necessary to earn the kind of money that should, technically, negate the need for a mortgage. Here are some tips to help you convince your bank that you’re not as flaky and high-risk as they might think:
- Keep your business finances separate from your personal finances, and keep them both in good order.
- Consider opening a transactional account. You won’t get any interest but it’s a great way to show that you have a regular stream of money flowing in and out (more in than out), which you manage responsibly.
- Steven Barker (Standard Bank South Africa) says that you’ll do yourself an enormous favor if you can provide creditors with proof of future contracts.
- The standard advice regarding deposits applies – the bigger the deposit, the lower the risk for the bank, and the more likely you are to walk away smiling.
- Yvonne Keane-Viljoen (ooba), says that comparative financial records (for at least two years), will stand you in good stead.
- You can’t go wrong with a favorable letter from your auditor, which is possibly the only time you’ll really value her.
It sounds like an awful lot of effort, but don’t let it put you off so much that you rush off to arrange a meeting with your landlord so you can sign a 15-year lease. Your accountant or financial advisor (or auditor) can help you with most of the paperwork. And then there are bond originators, who specialize in helping people get home loans, whether they’re self-employed or not.
The bottom line: with the right preparation – and immaculate paperwork – you can get a home loan.
5 Ways to Finance a New Home Without a Home Loan
When you are looking to become a homeowner and don’t have the traditional financing, it can be a lot of work. When you choose other options than financing, you will own your home and not ever have to worry about a mortgage payment or foreclosure when times may get tough. Also, financing can come with large interest rates. A couple of financing options some people go for are bank loans and payday loans to get the ball rolling.
If you don’t mind starting as a renter and taking a percentage of your payments towards the principle of the house, a lands contract is a good option. Land contracts are a way to find a home and making it your own, without having to be approved for a mortgage. The contract will be set between the current homeowner and you. You will have a contract that will determine the length of time you have to pay on the house and how much it will be. Also, it is important to state if the current homeowner will warranty the house for a certain amount of time.
Buy It Out Right
Saving up the cash and purchasing a new home is the best option if you want to just move in and be done. Depending on the purchase amount on the house, your income, and how well you can save that amount will determine how long it will take you. This is a great option to keep you debt-free and have a house bought right out.
Sometimes you may be able to find a fixer-upper house for a steal of a price. This is great if you are willing to put a little sweat and time and fix it up. Many people will buy the house and work on it over a few months before they move in. This is also a great way to remodel the house and make it your own personality.
Pay As You Go
If you prefer to build your house completely yourself, then you could pay as you go. Many people will buy the land and then build the house as they have the funds to do so. Depending on your budget and work availability, this option could take a few years. There have many people who have bought their land, moved a trailer on the property, and took up to 10 years to build their dream home.
Start Small And Flip
Buying a home that is less expensive and putting a little bit of time and money into it can be flipped for something bigger. There are many houses in large areas that can be flipped and sold for a profit. The profit can then be used to purchase a bigger house in a better location. Also, many people will rent out the house and then take the money they profit from their rental house to purchase other homes. This a great option if you are looking to have a couple of houses at a time to rent out or looking to make a large profit off of one house in the right housing market.