3 Financial Facts to Know About Home Buying

3 Financial Facts to Know About Home Buying

When shopping for a home, you want to buy it as soon as you come across a good one. However, home buying is not as simple as it might sound. There are a number of financial factors that will determine whether you will buy the home. The terms of the mortgage, for example, will determine your ability to buy the house.

By understanding this information prior to shopping for a great home, you will be better placed to make sound decisions, and your mortgage approval will be smooth and faster. This article highlights 3 of the financial factors to consider before buying a home.

Down Payment

You should make sure that you have enough capital set aside as your down payment for the new home. If you do not offer sufficient liquid cash for the down payment, your dreams of becoming a homeowner can get dashed. If you want to secure Quick Possessions in Edmonton, for example, you will have to pay a handsome down payment.

However, it is important to note that since the 2008 financial crisis, financial lenders have tightened the down payment requirement. Due to this phenomenon, prospective borrowers intending to purchase a house must have sufficient savings to qualify as homeowners. Most mortgage loan programs, including the FHA mortgage program, require 3.5% of the purchase price as the down payment.

In the past, it was possible to purchase a home without offering a down payment, but such a scenario is less likely to happen today. The rationale behind the down payment requirement is that bankers are trying to limit the risks in case the borrower defaulted on loan servicing.

For instance, if the real estate market dropped, a mortgagee who invested their life savings in buying a home is likely to hold on to the property and ride through the storm with the hope that property values will rise in the future. In other words, a borrower who put up a significant sum of money to secure a mortgage is less likely to default loan payment.

Interest Rates

It’s very likely that in the life of your mortgage, you will have paid thousands of dollars in interest. That is why it is very important to secure a mortgage with a low-interest rate, as so doing will save you thousands of dollars in the long run.

You should shop around before making a decision on which lender to sign with. This allows you to collect multiple options and compare them with the intention of picking one with a low-interest rate. You can begin by checking the terms of your banker or financial institution. Your banker is likely to give you a competitive interest rate because you are already in business with them. You can also check out community banks, credit unions, and online lenders. The more financial lenders you check out, the more probable it is that you will get a fair interest rate.

There is a great tool you can use to search and compare interest rates, known as Mortgage Calculator. With this tool, you can tell the potential costs even before meeting the mortgage broker.

The Acceptable Credit Score

The FICO credit score reflects your trustworthiness and ability to repay loans. Late payment of bills and maxing out credit cards are financial stumbling blocks for aspiring homeowners who need to secure a mortgage. You cannot secure a mortgage with a poor credit score or no credit history at all.

Your FICO score tells the lender about your ability to settle monthly bills as well as the overall debt that would impact mortgage payment. You are probably wondering what the acceptable FICO score is, but there is no static answer to that. The acceptable credit score varies from lender to lender. The Federal Housing Administration offers the lowest credit score of 500, but other lenders are less likely to get below 640.

Lenders will not focus on maxed credit cards alone. If you are often one to three months late on paying other bills, your credit score will be low as well, and lenders do not want to lend their funds to someone they might have to follow up on for loan payment.

Summary

Before thinking of buying a home, it is important to ascertain that your finances are in order and that you are well and thoroughly prepared for the mortgage approval process. Proper preparation saves you stress, saves you money, and makes your mortgage process smooth. Becoming a homeowner is a commitment.