Top 5 Factors to Consider When Selecting Home Loans
The housing market is currently booming! If you’re ready to buy a house, then it’s time for you to consider your home loan options.
Selecting home loans can be daunting; it’s a big decision and a major long-term commitment. The good news is that comparing loan costs doesn’t have to be difficult.
Here are five simple factors to keep in mind when selecting your loan.
1. Budget First
Before you can pick a loan, you need to know what you can afford. Look at your monthly income and expenses to see if the time is right to add a new loan payment, and to see how much you can afford.
When making your budget, also keep in mind that you will have to pay a deposit. This will likely be about 20% of the loan.
2. Fees and Interest Rates
The principal loan amount is not the only cost of a home loan. You will be responsible for fees and interest as well.
Some fees include application fees, inspection fees, and even insurance. You could end up paying about 5% of the property value in fees alone.
Interest rates usually hover between 2% and 5%.
3. Term of the Loan
Most homebuyers choose a 30-year loan, but when analyzing your needs and budget, you may find that a 15-year loan is the better option for you. Some loans even have 40-year options.
The rule of thumb is that the longer the loan, the smaller the monthly payments. However, a longer loan also means you will be paying more in total interest, even if the rate is the same.
4. Selecting Home Loans by Type
Whether you choose a fixed or variable rate loan is one of the most important decisions you can make.
A fixed rate means your interest will stay the same for the length of the loan, which is great for planning and budgeting. However, more than just the interest rates are fixed—you may not be able to pay off your loan early.
Variable rates fluctuate with the current market, which may be a better or worse value over the years. You risk having your rates rise higher than you can afford, but you’ll begin with much lower interest and you have more freedom about changing the term.
You can also get an FHA loan, which is insured by the government. One benefit of these is the generally low or absent down payment. With this option, you can buy a house even on a tight budget.
5. Loan Terms and Conditions
Carefully consider the terms and conditions of home loans. These will outline not only your rights and commitments but the responsibilities of the bank as well.
The terms and conditions will also inform you about any penalties for not meeting the loan requirements. This is where you will find information about what happens if you miss a payment or you would like to refinance.
Pick What Works for You!
There’s a lot to consider when selecting home loans. By keeping these simple factors in mind, you can be confident that you’re picking the right one for you.
Learn more about property, investments, and homeownership by checking out more of this blog. There are plenty more helpful tips and tricks for property owners.