- 08
- Dec
Buying a home is one of the most important financial decisions someone can make. After many years of keeping their credit score up to par, many can qualify for a loan to purchase the house. There are many different types of home loans, so it is very smart to do a little research before committing one.
Before going to a bank or mortgage broker, it is very important that you know your credit score. The better the score, the greater your chances are to not just getting a loan, but for getting a loan with a lower interest rate. In the end, when you keep your credit score in tip top shape, you can actually save money when you purchase a home.
Besides the credit score, having a steady job will also influence the type of loan you receive. Most banks and lenders will want to see copies of your W-2s, your tax papers and possibly your pay check stubs. Having a steady job shows you not only have a sense of responsibility, it shows you can pay back the loan.
Having a down payment would also be ideal. A large down payment could keep you from paying PMI, or private mortgage insurance. It can mean a lower house payment. However, if your credit score is high enough and you have steady employment there might be other ways to buy a home without having to pay PMI.
If there is no down payment, sometimes banks will allow borrowers to secure two different loans to cover the principal amount that is needed. The second mortgage will generally have a higher interest rate than the first mortgage and the terms for the second mortgage will be shorter than the standard 30 year time span. Many people will owe what is called a balloon payment at the end of the second mortgage’s term, and most lenders will let borrowers refinance the remaining amount.
There are a couple other types of loans that are frequently offered to buyers. One of them is known as an Adjustable rate mortgage which has an interest rate that fluctuates with the market. It causes the mortgage payment to vary each month. Another offer that most banks and lenders are known as an interest only loans. This is when the buyer pays only on the interest for a contracted amount of time. After that period of time, they are paying on the home.
Obtaining the best deal on home loans is something that homebuyers should strive for. Keeping track of your credit score and current financial situation can put you in a favorable position with lenders. Be sure to compare rates and products from various lenders before you sign any paperwork, because one lender might be able to get you a better deal in the long run.
Graham McKenzie is the content coordinator for a leading South African leading Homeloans and Bond Origination portal which provides access to ABSA Homeloans.
