When you’re all set to buy your primary home, your first thought would be how to find the money to do so. For someone who’s not well aware of all the bureaucracy involved in getting a loan, it’s worthwhile knowing a few basic facts that would help you. With the economy as it is, people are very cautious about lending money to anyone, and this could make it quite a challenge for a newbie seeking a loan to buy his very first dream home.
As we all know, having a good credit score is one of the fundamentals of being able to obtain a loan easily. The better your score, the higher your chances are. All those applying for a housing loan should know that your income should be at least thirty percent higher than what you hope to spend on your property, and that is before tax. Keep in mind when you apply for a loan, its not just the loan money you have to consider but the additional charges you will be expected to pay when you’re in the market for a property mortgage.
Interest Rate For The Housing Loan
The most important aspect of a housing loan is the rate of interest you have to pay monthly or yearly. Remember that even a reduction of a decimal point in the rate of interest can make a big difference in how much you can save in the long term. Therefore it’s imperative to look for a lender that can give you the best rate in town. Even if you have already acquired the housing loan where the premium gets paid regularly each month, it is to your advantage to be always on the lookout for better deals.
Some borrowers are least bothered about the difference in the rates they are currently paying and the rates prevailing in the market. Once they have obtained the loan, all they do is keep paying the interest every month without checking whether they are getting the best deal in town. If they take a little trouble to check they’ll realize that being first-time buyers, they can make use of early discounts, fixed rates of interest, etc. all of which is to their benefit. If they see that lenders are offering better rates, they can always demand their premiums to be in accordance, and most of the time they are bound to win because no lender likes the idea of losing a good customer.
Check The APR Before Taking A Housing Loan
Before taking a housing loan, it’s recommended that you check the Annual Percentage Rate offered by other lending institutions. This will help check out and compare those of different lenders and will also give you a clear idea of the actual interest rate you will have to pay once the extra fees are added. Some lenders don’t put all their cards on the table in fear of losing a customer after seeing the total payable once the extra fees are added. It is therefore up to you to do your research and know where you stand before signing the agreement.
By resorting to this practice, you will not only know the approximate amount you will be expected to pay for a property mortgage, but it will also be a warning for the lender that you know the subject and he cannot get away with misleading figures. Knowing an approximate amount will also help you to look for property in keeping with your budget so that you don’t have to waste time inspecting the property you would never be able to purchase. Be also mindful of the fact that taking out a housing loan will enable you to get various tax benefits which would be of immense help for the future.
Things To Consider Before Getting A Housing Loan
A home loan is one of the largest financial decisions one will ever make. This makes sense, since most mortgages loans are in the hundreds of thousands of dollars, and last 30 years. However, you must exercise caution, and take your time. It is also necessary to make adequate preparation for the process, both financially and mentally (this generally requires a lot of research). Thankfully, there are lots of topics out there, and here are four things to consider before getting a home loan.
Before one gets a home loan, they need to obtain a copy of their credit reports. There are three credit bureaus, which sometimes have different information. Listed in the credit report will be the entire credit history of the person obtaining the report (likely you, but it might do better to get a spouse to do it). It will list current accounts, current debts, and any past due accounts. It is vital to fix any errors you find because this could ruin everything for you, and the likelihood of an error is high. Also, see if you can pay any long-standing bills or loans off before going any further in the process.
You MUST shop around – not only at different banks but credit unions and other financial institutions. Some locales are more flexible than others, and your chances between two different banks could be night and day. The difference between rates can and will vary widely though, so remember to take the whole cost into account – this includes closing costs and any penalties. Shopping around can really result in significant savings, so never underestimate this.
Private Mortgage Insurance (PMI) can be costly. After all, banks implemented PMI to protect themselves from non-payment. To avoid PMI, put forth at least 20 percent as a down payment. This will save you a LOT of money in the long run. PMI costs vary depending on the size of the loan but usually total tens of thousands of dollars over the life of the loan. There are other ways to avoid PMI, such as getting a second mortgage or private loan to make the down payment, but everything must be carefully considered.
Make sure that any loan is affordable. Many people stretch themselves to the brink of bankruptcy to make payments. This is gonna be a long-term thing, and it doesn’t make sense to spend 20 miserable years scrimping and saving to afford this. Make sure you can still enjoy life in your new home!
This entire process should be taken seriously. Not only is a home loan costly, it truly is a long-term financial decision. Anyone who takes the time to research their wants and needs, while being realistic, will do well when getting a home loan. Remember, do not be afraid to walk away from the table if the terms are not favorable! Everyone forgets this.
Important Clauses To Check While Taking Housing Loan
Before taking a bank housing loan, an individual will need to read all the terms and conditions for the loan before signing the final papers. These documents will include some important clauses that will need to be checked out before finalizing the loan.
Some bank loans include a clause explaining what will happen if the individual chooses to repay the loan early. A few banks feel that if someone chooses to pay back the money early, then the bank will suffer from disturbed cash flow. Therefore, some banks will issue a penalty if the individual chooses to pay off the loan early. The amount is usually more than the outstanding loan balance. However, some banks do not include this clause in their loans. Reading the agreement will determine if this is included in the loan or not.
Transfer Bank Charges Clause
Sometimes an individual will decide to transfer the loan to another bank. Some banks will charge a fee for this transfer.
Late Payment Clause
Banks frown on being late with a payment, and they will penalize the individual with a bank charge. The banks also require the borrower to inform them if any changes occur in his or her income during the time of the bank loan.
Interest Rates Clause
This clause will explain to the individual how much interest he or she will be paying on the loan. It will also explain the type of interest rate applied to the loan such as a fixed rate or some other type. It is important to double-check this clause since it can affect the amount of repayment for the loan. Some loan agreements will include a reset clause, which will allow the banks to change the interest rate at a certain time during the loan. This reset clause offers the bank an escape from the changing interest rates. The borrower will be at a disadvantage if he or she is not aware of this clause. It could make the borrower pay more money for the loan, and sometimes the borrower might even feel the need to get fast cash advance loans to pay the extra charges.
Some banks will declare the loan due in full if certain terms are not met. If the property depreciates, the banks will have the authority to declare all amounts of money due on the loan including the interest, charges, and principal. The value of the property or other security against the loan will need to be in good condition at all times to cover the loan amount.
Borrowers should not make the mistake of assuming that the loan agreement is correct without reading all the fine print before signing. It is important to understand all the clauses to ensure that the financing will meet with an individual’s budget now and in the future. Housing loan clauses are written into an agreement to protect the banks and the borrower. Therefore, read carefully to ensure a good understanding of the agreement.