Buying a new home is a major decision that should not be taken lightly. As you already know, purchasing a house can be a lifelong investment that requires a lot of discipline. That’s why making sure you are ready for this step is highly important. Below are some key things to consider before jumping into a home loan.
Are You Financially Ready?
Before looking for home loans, you have to ask yourself first; are you financially ready? Start by checking the amount of debt you currently have. Add up all your current debt, including credit cards and other loans. Then compare that debt to the amount of income you have. If your debt to income ratio is more than 28%, you should rethink buying a home. However, if it is lower than 28%, it might be the right time to purchase a new home. This ratio is helpful when determining how much you can afford.
To learn more about debt to income ratio, please check out this helpful link.
Know Your Credit Score
Now that you have calculated your debt, you should check on your credit score. Having a healthy credit will help you not only get the loan you want, but will reduce your APR at the same time. Poor credit, on the other hand, can prevent you from getting the home or cause your APR to be much higher. So, before you apply for a mortgage, check your credit history and see how high or low your score is. If you find that you have a low score, you can always work to bring it back up. There are many things that you can do to improve your standings. For more information on repairing your credit, make sure to check out this website. Here you will find wonderful information that will help you get started.
Try to Avoid Adjustable Rate Loans
When choosing a home loan, make sure you know what you are getting into. There are several different types of loans and things can get a bit confusing. If possible, go with a fixed rate loan and try to avoid loans with adjustable rates. While the APR of adjustable loans might be better at the current moment, that may change over time. Years down the road, interest rates can go up on your mortgage and payment might become too much for you to handle. Going up just a few percentage rates may bring your payment up to hundreds of dollars. This can really affect you negatively if you are living on a tight budget. So instead, go with a fixed rate loan and you will never have to worry about your APR going up unexpectedly.
These tips are just a few things that you should consider before buying a home. Remember that making a home purchase is one of the biggest things you will ever do, so take your time. Going into this purchase with the right knowledge will save you lots of money over the years.
Images from Floating House by Hyunjoon Yoo Architects