Buying a home is one of the most important purchases that most people make. Getting the best deal on financing is something that is imperative in regards to making the most out of a purchase. That’s why researching home loans and finding the one that is best for you should be the one of the first steps that a prospective homeowner takes. There are many different types of home loans and also numerous factors that determine which loan would work in a particular situation.
Knowing your credit score before you even go a bank or mortgage company is imperative. People with high credit scores are most likely to get lower interests rates and to be approved for higher loan amounts.
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 other types of home loans available. Some loans will have variable interest rates that go up and down each month depending on the market trends; therefore your mortgage payment will vary from month to month. There are also interest only loans.
Overall, home loans can be somewhat confusing, especially for first time buyers. It is a good idea to know your credit score and to have a strong grasp of your current financial situation. Talking to a few different lenders and researching your options is a good place to start.
Graham McKenzie is the content coordinator for a leading South African leading Homeloans and Bond Origination portal which provides access to Standard Bank Homeloans.
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