When choosing a home loan, it’s obvious that you’ll go for the lowest rate, which is why we’re not bringing it up for discussion in this article. What we’ll give you are 3 more crucial things to consider when choosing the right home loan.
Purchasing a home means that you’re in it for the long haul. You’ll incur a mortgage payment for 15, 20 or 30 years, so it’s best to shop around and choose the best mortgage lenders out there.
- Understand what you need
When applying for a mortgage, lenders will need a standard package of materials. This typically includes a month of your recent pay stubs from any buyers who will be listed on the loan or your most recent two years’ worth of tax filings. Also, you can also expect to provide at least three months of bank account statements, and in addition explain any unusual big deposits or withdrawals.
A good determining factor to know whether you will get approved for a loan and the rate you prefer is your credit score. It’s vital to see your score. You can use paid services that offer a detailed report, plus many credit card companies offer their customers free credit scores.
Lenders also do not want you to have more than 36% of your gross income committed to loan payoff. You can lower this ratio by paying off car loans, credit card debt, or any other loans you have. For car loans, that won’t save you any money, but it can make your financial health look better to the bank or lending institutions.
- Know how much you can spend
Many lenders make use of the 28/36 rule, which means monthly payment on your mortgage must be no more than 28% of your gross income, plus your total revolving debt payments – this includes your potential mortgage, car loans, or any other monthly instalment payments as well must account for no more than 36% of your gross income. In any case, this is not a hard-and-fast rule, and many mortgage lenders tend to be more or less strict than that, but you can use this guideline for figuring out your borrowing limits.
- Understand the market you’re buying in
In many cases, the kinds of loans you can get will be based on the market you’re purchasing in as well as the type of home you want to purchase. For instance, in Australia, a state where many ongoing suburban developments are ongoing, lenders have somewhat lighter standards. Do take note however that they will still examine not only your finances, but also the finances of the building, and they may even require a higher down payment.
Of course, there will be variances from state to state and even region to region. Generally, a real estate professional will be able to help you know the local lending standards and even steer you away from bad types of properties.
There you have it, 3 more things to consider when choosing a home loan besides the interest rate, of course. Now the next step is to actually find a good lender that offers the best features you need at interest rates you can afford. Check out Newcastle Permanent Building Society where you can learn more about managing your home loan and all the things you need to get started on one. Best of luck!