Do you know what you need to do before you buy a house? You may know that you need a down payment and that your credit should be good. But do you really have everything you need right now to buy a house? You might be surprised to find out what it is!
Since buying a home is the biggest investment you can make, it's not surprising that so many people want to get home loans. The tax benefits of owning a home outweigh the tax burdens, and the idea of having a home that will always be yours without having to worry about rent going up, developers buying up apartment buildings to turn them into condos, and the idea of gardening are usually good reasons to buy a home. But before you go to the first mortgage broker you find online to talk about financing your dream home, you should think about what you can really afford.
Also, before you start looking for a house in the hopes that you'll be able to get the home loans you need, keep in mind that you need to consider not only the cost of the house, but also the cost of the taxes and insurance you'll have to pay. When it comes down to cold, hard cash, it will be smart to have about 20% saved up for a down payment. Even though there are a lot of loans that say they require no down payment, the fine print makes it clear that this will cost you in terms of interest rates.
Trustworthy home loan lenders will look at both your long-term and short-term debts. If you can, pay off your smaller debts first and then go back to your bigger debts to see if you can pay them off faster. Student loans can follow you around for ten years or more, but you can pay off a car loan in a year or two. When you add up all of your expenses, excluding rent and your current mortgage, you should have about 30% left over for your next mortgage. Don't forget that you still need money for savings, the occasional emergency, and, of course, a vacation every now and then. It's too easy to make the numbers work so you can get into the house of your dreams, but then you have to put groceries, gas, and vacations on your credit card, which puts you in debt.
Last but not least, avoid home loans with rates that can change. A teaser rate of maybe 1% or 2% is a great way to get you to sign up, but the interest rate will go up soon and your monthly payment will go through the roof. Did you know that many home loans with an adjustable rate have a cap as high as 12 percent? This will quickly make your home unaffordable, so if you plan to stay there for a while, it's better to look into fixed-rate home loans for security.
