Taking a home loan, also known as a mortgage, is the biggest financial decision you’ll ever make. Buying a house is usually the most expensive purchase in your lifetime. And it’s not something you should take on lightly. Taking out a loan this large requires extensive planning and researching. There are hundreds of mortgage lenders out there, and their rates vary wildly. You should also know that lenders take into account your personal circumstances and lifestyle.
It’s a long and tricky process, but fear not. We’re here to help you through. In this post, we’ll talk you through the basics of your home loan. Most importantly, we’ll tell you what to expect when you begin to enquire about a mortgage. Let’s take a look, shall we?
- Your income
The most important consideration for mortgage lenders is your household income. How much money are you bringing home every month? It’s important to lenders because they need to know that you can afford the monthly repayments. Home loans are calculated as a percentage of income. Typically, you can borrow three or four times your annual income to fund a house. Of course, this varies between lenders.
- Job stability
In addition to your annual income, mortgage lenders are keen to know how stable your job is. Remember, you’ll typically pay your mortgage back over twenty years. So, your bank needs to know you can keep up with those payments over the next two decades. For this reason, self employed applicants often have a more difficult time getting a mortgage.
- Credit rating
Before granting you a home loan, lenders will look back through your credit history. This tells them everything they need to know about your ability to make repayments. If you have always paid your rent on time and kept up with credit card payments, your lenders will be happy. If there are any discrepancies, debts, or black marks, they’ll act with suspicion.
- Savings and deposit
Unfortunately, you can no longer get a home loan without a significant deposit. It’s often 5%-10% of the house value. With that in mind, lenders are interested in your current savings situation. How much do you have set aside for a potential deposit? If you can secure at least 10%, you’re in a much better position to buy.
- Rates and lenders
Next, you need to start researching what’s out there. If you’ve gathered the information above, you can begin to use mortgage calculators online. They’ll give you a rough idea of how much you could borrow. Having said that, you should then go and speak to the potential lenders directly. So, what are the best home loans? Well, each are tailored to your present situation, so speak to at least five brokers and banks. Analyse the different rates, and assess the level of service you get from each.
The banks or brokers will then make you an offer with a particular repayment rate. Make sure you can keep up with these payments, and the recurring interest. Congratulations, you’re finally ready to become a homeowner!