Buying a new house, especially for the first time, is as exciting as it is daunting. Finding the right home for you and your family is often just a small part of the whole process. However, most people have to think about their home loan as well.
Getting these loans takes a lot of careful consideration, calculation, and research, as it often carries some financial risks with it.
So, to ensure that your loan is as safe and as advantageous as possible, you should take a look at the following tips that’ll help you get your dream house in no time.
Get a Housing Loan or Home Loan Easily: Tips to Follow
1. Pay Attention to Your Credit Score
A credit score is one of the most important pieces of information that lenders require. While the number isn’t set in stone, and it’s known to change depending on many factors, a score of about 660 can help you qualify for a home loan.
With a bad credit score, the worst that could happen is that you won’t be approved for a loan. However, even if you do get approved, your interest rates would be higher.
So, it’s in your best interest to check your credit score before you apply for a loan, and take steps to improve the score if necessary.
2. Avoid Applying for New Credit
Now that you know how important good credit score is don’t ruin it in the middle of the process. Lenders will not only check your credit score when you apply for a home loan, but they will also often do so before closing the deal.
Cosigning someone else’s loan, getting credit for a new car, or purchasing home appliances with your credit card should be avoided at all costs. All of these will cause your score to initially drop, and this can be a red flag to most lenders.
As a rule, you should try to pay down debt before closing a deal. This way, your debt-to-income ratio will be lower, and you’ll be able to get a better mortgage rate.
3. Start Saving up
To get a home loan, you first need to be prepared to spend some money, since most lenders will ask for a down payment.
A down payment is a portion of the total price of the home that you give to the seller, and lenders often have varying criteria for it, and the amount depends on many factors, one of which is, of course, your credit score.
If possible, try to go for a higher down payment. The more money you spend out of your own pocket, the lower your loan rates will be.
You should also be ready to pay for the home inspection, closing costs, credit report fees, and others, so start saving up as soon as possible.
4. Decide on the Type of Loan Product
There are a few different loan products you can choose from, and you should decide which one works best for you. If you’ve served the military, for example, you could benefit from low VA loan rates, families in rural areas might opt for a USDA loan, etc.
Types of Loan Products:
So, let’s check out the most common types of loan product.
1. Adjustable Vs Fixed Rate
Adjustable rates are typically lower in the first few years, but afterwards, they’re “adjusted” once a year to correspond to the current interest rates. If the interest rates are lower, your monthly payments will be lower, and if they go up, so will your monthly payments. Loans with adjustable rates could be right for those with lower credit scores.
The fixed rate is the more common type. The rate won’t be changed at all during the life of the loan, and this is a better option for those who plan to stay in their new home as long as possible.
If you’re thinking about pre-paying your home loan with a fixed rate, it’s better to do it during the early stages of the loan so that you can save on interest rates.
2. Government Vs. Conventional
There are a few different types of government-insured home loans; the most common ones are FHA and VA loans.
FHA loans require a bit lower down payment, about 3.5%. They’re good for buyers who can’t afford a higher down payment, but they do require you to get mortgage insurance, and they’re limited and with fixed rates.
If you’ve served the US military, a VA loan can get you a nice home without mortgage insurance requirements, and without a down payment. VA loan rates are very low, typically going from 0.25% to 1%, but it’s a requirement that the home you buy is your primary residence.
You may also like: Best Personal Loan Apps in India
Getting a Loan: The Bottom Line
Getting a loan seems like a big deal, but as long as you’ve done your research and know what to expect, there shouldn’t be any unpleasant surprises down the road.
What do you think? Have you applied for a loan yet? Do you wish to share some useful and interesting ideas on housing loan or any other loans? Feel free to add your thoughts in the comments section.