Buying a house is both exciting and nerve-wracking at the same time. First-time home buyers find it difficult to understand the entire transaction by themselves. The learning curve can be steep and there are so many complicated tasks to do to before closing the sale. One important step is doing a little financial homework.
- Check your credit
To qualify for a mortgage, you must have a good credit score. When you have a good credit score, the lenders might offer you mortgage terms with lower interests. When your credit score is low, you might be given a mortgage term with high interests. This is because sub-standard credit rating possesses more risks that the borrower (you) cannot comply with paying the mortgage as smoothly as possible. Many lenders want to protect their business by making sure that you can pay what you owe them.
- Analyse assets and liabilities
If your debts are not that high and you are making your payments on time, that’s ok. When you apply for a loan, take note if you are handling your money and where does your income go. When you’re spending most of your earnings in paying your debts, it is not a good sign that you are financially sound. The lenders are not expecting for a 0% credit from you. Keeping your credit balance to the minimum, say below 25% of your credit limit, and showing that you are paying diligently can get you approved for a mortgage.
- Organize documents
When you buy a house, it is important that you get financial documents about your credit rating, bank statements, income taxes, and your pay cheque. By reviewing your documents, you can identify the areas that can give you trouble and will give you time to remedy them.
- Check if you are qualified to receive a mortgage
There are so many websites with mortgage calculators which can help you check if you can qualify for a mortgage or not. The mortgage calculators can give you an idea of how much can you borrow and at what interest rate will your repayment be. All you need to do is to input the required data such as your credit score, your monthly/annual income, debt that you incur, among others.
- Prepare enough savings
Check your bank account if you have enough savings for the down payment. In general, most lenders require a 25% of the entire price of the house as a down payment. If your savings is not enough to cover the down payment plus other expenses, you might want to put your plan on hold for a while.