Taking out a home loan is not as simple as it sounds. It’s a major decision that has to be carefully thought out. To avoid problems, it would help getting acquainted with the different issues or mistakes you may encounter as you try to avail of a home loan for the first time. It’s not just about finding the best mortgage lenders. You also have to take a number of other factors into account.
Not doing enough research
Before taking a loan from a lender, it’s important to make sure that you have chosen the best possible lender. Search and compare the best loan options for first time home buyers. The best choice is the one with low interest rates and the best overall terms. There’s just no excuse not to do your research. You can use the internet to find information about the different home loan options available in your area. However, don’t rely entirely on the internet. It is recommended complementing internet research with insights from people in the know. Often, people who have actually tried availing of loans provide better information and insights.
Not paying enough attention to prequalification
Not many people bother about getting prequalified. Most of the time, first time home loan borrowers focus more on getting the loan and not on making sure that they have the financial capacity for it. Even if you appear on paper to be qualified or capable of meeting the financial responsibilities that come with a loan, you also have to evaluate other possible concerns that may affect your payments.
The fixed and floating dilemma
Home loans can be with a fixed or floating (variable) interest rate. A fixed interest rate, as the phrase implies, is one that remains unchanged throughout the term of the loan. A floating interest rate, on the other hand, can change. For short-term loans (5-7 years), it is preferable to have a fixed interest rate. For long terms loans, on the other hand (20 years or more), a floating interest rate can be better.
Hesitating to negotiate
It is possible to negotiate the terms of a home loan with a lender. Some companies may provide only fixed terms but there are those that are willing to compromise. You can use your long and consistent work history or good credit score to negotiate a lower interest rate. You can also check if putting more money down or shortening the loan term can significantly reduce the total cost of your loan.
Not getting a home loan insurance
A home loan insurance policy basically ensures your family that they will inherit a home without the remainder of a home loan. A home loan insurance is particularly advisable for those who only have one member of the family making an income. In case something untoward happens, the loan payment will be taken care of so that surviving family members will no longer be burdened by the home loan obligation.
Disregarding additional costs
When estimating your financial capacity to meet a home loan obligation, it’s vital to include all possible costs that will be incurred as you get a new home. These include the property tax, home maintenance costs, or additions and renovations that may not be covered by the loan.
If you are new to home loans, be mindful of the points briefly discussed above. These should help you avoid getting yourself a disadvantageous loan or being unable to pay for the financial obligations that come with a home loan.