Buying your first home is one of the biggest and most exciting financial decisions of your life. It also requires a lot of research and preparation to ensure that you make the best monetary decision possible. Here are 4 important things to consider before you buy your first family home.
Is My Financial Position Secure?
The most important thing you can do before you buy your first home is to work on strengthening your financial position. To secure a home loan, you will need to demonstrate to the lender that you have the necessary savings and financial discipline to meet your mortgage repayments. If you currently have a few credit cards and a couple of personal loans, your level of debt might appear too high for some lenders. Work on trying to reduce or eliminate as much of your debt as possible before you apply for a home loan.
One of the simplest and easiest ways to do this is to consider debt consolidation loans. These work by combining all of your unsecured debt into one loan, allowing you to focus on one monthly repayment, often with a much lower interest rate than your existing loans.
How Important is a Good Credit Rating?
A good credit rating is essential, as it proves to your lender that you are capable of repaying your home loan. If you are buying your home with a partner, be aware that their credit rating will also affect the viability of your loan application. To improve your credit rating, focus on paying all of your bills on time, meeting your repayments, and eliminating your level of debt.
How Much is Enough for a Deposit?
It is recommended that you save between 5-20% of the value of your new home as a deposit. The benefit of saving up a good deposit is that you will pay less mortgage insurance the more you put down. Deposits that are 20% or more of the loan amount are free from paying the insurance at all, and can also allow lenders to be more flexible with other areas of your home loan application.
What About No Deposit Loans?
Generally speaking, these are nothing but bad news. If you’re already struggling with your finances and opt for a no deposit loan, you could be hit by cripplingly high interest rates that make it almost impossible to keep up with your repayments. You can also run the risk of owing far more than your property is worth. It is best to wait until you can afford to save at least 5% of your loan before buying your first home.
With careful preparation and planning, anybody can afford their first family home. Doing your research is essential, as is making sure that you are in a strong and secure financial position. Make sure you take the necessary steps to protect your credit rating for the greatest chance of success when applying for a loan. Always keep these important tips in mind, and you’ll find yourself in your dream home sooner than you think!
Written by Emma Jane