Choosing the perfect home loan is like buying a pair of shoes: no single size fits all. This is why it is important that, before you get a mortgage, you must first check all your available options to find the best fit for an agreeable price.
To pick the right one for you, there are several things you must do first. Aside from looking at the best mortgage rates for a home loan, you should also learn about the different factors you must consider to ensure a positive outcome for your loan application.
5 Considerations Before Taking Up a Home Loan
Once you’ve made up your mind about taking up a loan to buy your first house, the next step you need to take is to ponder upon your readiness for this major move. In doing so, you must think about the five C’s of credit: condition, capacity, credit history, capital, and collateral.
These things are what lenders look at when assessing a person’s worthiness, which is why knowing where you stand under these considerations is crucial for your home loan.
1. Conditions
The first thing you should think about before you take a look at your home loan options is your “condition.” This entails your unique and specific circumstances which would greatly determine the best fit for your home financing needs. The factors assessed under this include:
- The possible cost of the house – The monthly mortgage payments depend on the price of the property you’re procuring. This amount will be based on the type of structure you want to purchase and the area where you plan to buy. You might also need to consider the cost of any repairs you might need to perform before moving into your new house.
- Your financial status – This is mainly based on your credit history as well as the amount you can spare for the down payment of your home. If you have a good credit score, you also have a high chance of getting approved for a mortgage loan. Alternatively, a significant down payment will reduce your monthly mortgage and overall loan interest.
- Your life plans – Last but certainly not the least of your considerations are your plans for the future. Your choice on a home mortgage loan will depend on the path your career is taking and life in general.
2. Capacity to Pay
The next “C” you must think about before taking up any loan is your capacity to pay. As the name suggests, this covers your financial capability in repaying the money you will owe to the lenders for your mortgage.
Capacity is typically measured using two things: employment and income. During credit assessment, lenders will check your employment status, bank statements, and the most recent taxes you have filed.
Aside from that, you should also expect them to look into your stability, financially speaking. Although this might seem irrelevant, some lenders want to be sure that your income is consistent and stable before they let you borrow their money to achieve a sense of security, so to speak.
3. Credit History
Another vital factor you might want to improve before applying for a home loan is your credit history. This historical data tracks all your credit movements in the past. It determines your credibility as a borrower based on the way you manage credit and whether you make timely payments.
Your credit history will also include detailed information from lenders who have granted you credit. Below is a list of the types of information you can expect to see in your credit history, regardless of credit agency:
- Name of the lenders
- Type of credit
- Your payment history
4. Capital
Your household income will serve as your primary source of payment, but your capital will be your investment, savings, and other assets that can aid you in repaying your loan. This is why it is recommended that you build a bountiful savings account first to serve as your capital before applying for mortgage loans.
5. Collateral
Although not all loans require collateral, many mortgage loans oblige loan applicants to provide one. As a form of secured loan, home loans require borrowers to pledge a property with a higher value than the amount of loan they are applying for. This will ensure lenders that they can get their money back even in case the borrower fails to repay what he owes.
A Worry-Free Home
Before you can pick a housing loan product for your very first home purchase, you must first make sure that you get the best deal that fits your unique circumstances. This will help you avoid regretting your decision and, ultimately, enjoy your dream home without any worries of the foreseeable future.