Before buying a home, coming up with a financial plan is one of the first crucial steps. With factors to consider such as mortgage and home loan plans, getting preapproval, and putting down a deposit, it can be overwhelming especially for first-time homebuyers. Making time to research and have a financial plan for your home buying journey is essential. Learning about financing basics lets you plan your steps properly and can help you save time and money.
Here are four financing tips for first-time homebuyers:
1. Build a strong credit score
Before you even start looking for your dream home, build a strong credit score first. This means clearing your debts, increasing your credit limit, and paying your bills on time. A credit score is a crucial factor that lenders look at when deciding whether or not a borrower is qualified for a loan. It directly affects the mortgage deal that your lender will offer.
Borrowers with high credit scores are considered by lenders to be of lesser risk as they appear to be more credible in paying loans on time. This results in the lender offering a lower interest rate. Hence, you’ll be paying a lesser amount of money in total throughout the loan period. On the other hand, if you have a low credit score, the lender might not approve your application or give you a higher interest rate to compensate for the risk of the mortgage loan.
2. Choose between a fixed-rate or variable-rate mortgage
Another financing basic that you should know about is what type of mortgage is right for you. You’ll most likely be choosing between a fixed-rate mortgage or a variable-rate mortgage. In a fixed-rate mortgage, the rate does not change throughout the entire period of the loan. This is beneficial as you get to plan and stick to your monthly budget as you know how much you need to pay per month for the loan period of the fixed loan.
A variable-rate mortgage, on the other hand, is for buyers who expect to have an increase in their income throughout the course of the loan period. In a variable-rate mortgage, they may provide you with a lower introductory rate for the first few years of your loan. However, this type of mortgage is highly dependent on market interest rates. Hence, it can be risky if your income doesn’t grow along with the growth of your loan’s interest rate.
3. Choose the right type of loan
There are different types of mortgage loans in Australia to choose from depending on what type of property you want to acquire and on your financial needs as a home buyer. It is important to take your time in researching the different types of loans that you can apply for and to carefully weigh which one will benefit you more.
For home loans based on property type, the most basic mortgage is the owner-occupier home loans for homebuyers who intend to live in the home that they are purchasing. If you are selling a home while looking to buy one to move in, the bridging loan might be right for you. Meanwhile, a construction loan is for those who opt to buy land and construct a new home from scratch. Investment home loans, on the other hand, are for buyers who intend to rent out their property.
There are more types of home loans to choose from depending on your situation. Each type of home loan provides special conditions for each situation, so it’s best to know the best mortgage loan. An experienced buyer’s agent can help you choose a reliable mortgage broker that can help you meet all your needs and financial capacity.
4. Prepare for the deposit
Before you decide to buy a house, it is important that you save up enough money for a deposit. A deposit is one of the first things that you need to pay for once you secure your mortgage. While saving up for a deposit, you also need to make sure that you have a secure source of income and enough emergency funds after you’ve paid the deposit.
Make sure that you do thorough financial planning before purchasing a house to avoid straining your future finances. The buyer’s agent at Buying Perth Real Estate has the expertise and experience to help you get started in your home buying journey. Contact us at (08) 6215 0200 or 0412 926 190 or send an email to firstname.lastname@example.org for enquiries.