The Best Time to Buy a House: Today
There are a number of well-reasoned arguments out there for purchasing a home, and today’s market, in particular, is extremely buyer-friendly. The buying of a house is a milestone of sorts in a person’s life and it brings with it a certain degree of security. Despite the unpredictability that prevails in the housing market today, people who are wiling to take the risk can potentially reap heavy dividends from favorable market conditions in the future. Whatever your reasons are for buying a house, financing the purchase using a mortgage is probably an option you have begun to consider.
Home Loan and Mortgage Basics
A home loan is essentially credit that helps you buy a house and house mortgages are one of the most popular forms of these types of loans. When you take out a loan for just about anything, the lending financial institution will often demand a guarantee, something or someone it can fall back on should you fail to repay the loan amount. When you mortgage your house, you are essentially giving your house as a guarantee. If you default on your loan, the bank has the right to seize your house. Before you settle on a home mortgaging plan, therefore, it is important to be sufficiently armed with research and planning to ensure that you do not dig yourself into a financial grave. Research the many different types of home loans available to you as a consumer. Find the one that fits your needs the best. Take into account the length of the loan and factor in your family plans and other investments. As a rule of thumb, it is a good idea to begin preparing to apply for a home mortgage at least six months in advance.
Getting Started
Preparing to apply for a home loan is no easy task but with concerted planning and adequate time it is unlikely to be a hassle. Begin by getting all your documents in order. The most relevant documents are those that verify your income and exhibit to the lending financial institution that you are in a position to repay the loan. Pay stubs, invoices and tax returns are examples of such documents. Banks will often consider your credit history and current debt load when considering you for a mortgage so adequate proof of the same will be necessary. Things like credit card debts, car loans and personal loans are likely to be factored in during the application process. Lastly, evaluate how much money you have in savings for a down payment. The ideal percentage you should be able to put down for a house is 20% although there are home mortgage schemes out there that accept as low as 5% down payment. Keep in mind that you will need to set aside money for incidental expenses like fees for the broker and inspector, closing costs and insurance. Getting all these things in order takes time so it would do you good to get started on the process as early as possible.
Loan-To-Value Ratio and Credit
The LVR, or loan-to-value ratio, determines the percentage rate you will be required to pay from year to year. One of the biggest influences on this ratio during your loan application process is your credit score. It is for this reason that careful planning and control of your credit score is essential in order to get a good deal on your mortgage. To improve your credit score, start by getting a credit card with a low balance. This will ensure that you do not spend more than you have and that you pay your bills on time. Make it a point to pay all your bills ahead of time for at least six months prior to applying for a home loan. Banks will often look at your job stability during the application process so try and stick to a single job for at least a couple of years before approaching a lender for credit. If you are diligent with your debt and manage to hit and maintain a good credit score, you stand a good chance of borrowing at between 90% and 100% LVR. There are, however, situations where homebuyers can avail of loans with much higher LVR.
A Special Case: 125% Mortgage
A special type of secured home loans is 125 home mortgage, which basically means that the bank gives you a loan at an LVR of 125%. Only homebuyers with impeccable credit histories and provably steady incomes are considered for this kind of home financing scheme. A 125 home mortgage is a good option should you be thinking of refinancing or consolidating an existing debt. The extra money from the loan can be used to add value to your new house. For example, you could buy additional furniture or manicure the front yard. Although the bank usually does not place any restrictions on what you use the extra credit for, it is in your best interests to invest it into ventures or assets that strengthen your financial position. A clever, albeit relatively unknown, use of 125 home mortgage is to clear high interest credit card debt, essentially replacing it with low interest, tax deductible mortgage debt.
Home Mortgage Weak Credit-Score
Careful planning and prompt credit card payments can sometimes be ineffective against particularly bad credit scores. While it is next to impossible to get a standard home loan with this kind of credit history, there are other options that can help you finance your house, one of which is sub-par credit. Be warned, however, that sub-par credit often costs a considerable amount more than regular credit because of its high interest rates. Shop around a little bit and do a fair amount of research to find a loan that gives you the best deal. People generally think of bad credit loans as an undesirable and unwise home financing option but the reality is that, with careful planning and a fair amount of discretion when it comes to picking a scheme, sub-par credit can actually help you clean up your credit history. Always keep in mind, however, that defaulting on sub-par loan can be disastrous for your already bad credit score. Weigh out your options before settling on this particular form of house financing.
Refinancing your Home Mortgage
The recent real estate bubble sent house cost plummeting and the people that bore the brunt of this pricing free-fall were those that took out a mortgage prior to the crisis and were in the middle of repaying their debt when it happened. A fair number of people, therefore, are looking to sell rather than then buy in the current economic climate. Before you think about selling your house for a loss, consider refinancing your mortgage as a possible way of saving some of the money you may have lost. To refinance your house, however, there are certain criteria you will be required to meet. To begin with, refinancing agents will ascertain your debt-to-value ratio and your income. Both will need to be adequately verified. Financial institutions will often insist on credit scores of 740 or above so impeccable credit history is a must. Although, there are schemes that have laxer requirements, always remember that the easier it is to get a loan, the more expensive it is likely to be in the long run. Also, before you decide on refinancing, consider the fact that you will have to pay auxiliary fees like brokerage and closing costs all over again.
A house mortgage is probably one of the biggest financial decisions you will make in your entire life so make it a point to be well-prepared and well-researched before you even think of applying. After you have done your research, narrow down your list of potential financiers to two or three banks that have the best rates. Scrutinize each scheme, comparing and contrasting each minute detail. If you go through this process diligently, you stand a good chance of getting the best deal out there. The current economic climate is the best time to buy houses and the real estate bubble has led to some of lowest mortgage rates in recent history to the extent that in some places renting a house is more expensive than owning one. This is the best time to make an investment on a house but do so with care and with a lot of wisdom. Credit and debt are risky business and one wrong decision can result in years of misery.