Buying a home is not a cinch. Although you have an option of taking out a mortgage, you still need to have money to pay down the debt and deposit. You need to do a lot of research at the time of buying your house. Everyone dreams of making a house, but the cost involved in it is so overwhelming that you take a backstep.
Everyone cannot have an understanding of the housing market. Prices vary by location and facilities available. You may decide to own a home in a posh area, but the cost could be a lot higher. Different factors come into play when you are to buy a house.
For instance, how much money you need to be saved how much money you will need every month to meet all of your expenses, including your mortgage payments. This article will discuss and throw light on how much money you should have at the time of buying a house.
Assess prices of houses
First off, you need to choose a location where you want to have your house. Choosing a location for your house may not be easy because houses in a posh area with all facilities may be out of the question, and those that fall in your budget may not be in a good location.
Try to target multiple locations so you can decide later which one falls in your budget. Assess the prices of houses in your location. Even if you need a 2 bedroom house, try to know the prices of 3 bedroom houses because sometimes, by paying a little more money on top of the cost of a two-bedroom house, you can secure a three-bedroom house, of course, in a mediocre location.
At the time of buying a house, you should see the location you have picked has everything you need to live smoothly. Although it is not a posh area, it must be connected with all facilities like public transport, medical facilities, educational institutes, grocery stores, drug stores, and the like. By assessing the prices of houses in different locations, you can easily determine which one fits your budget.
Determine how much money you want to put down
Next step is to determine the value of your house, so you can see if you are able to put down 10% of its value as a down payment. You need at least a 10% deposit size to take out a mortgage. However, you can put down a bigger amount because this will reduce the loan-to-value ratio.
One of the benefits of a bigger deposit size is that you can save a lot of money In interest. Once you know the market value of the house, you are expecting to buy it. You know how much amount you need as a down payment.
Looking over the savings you have already built, you can see how much amount of additional money you need to have successfully managed to build a down payment. You can use this money to secure a mortgage deal. 10% is the minimum amount to be deposited.
You can save a lot of money. You should arrange a deposit of up to 20% of the market value. However, if you have a bad credit rating, the size of the deposit will be up to 40%, and if you want to take advantage of lower interest despite a bad credit rating, you will have to have a deposit size of up to 60%.
Consider your credit score
Mortgage is a long-term debt; you are going to be tied with a long repayment plan, probably up to 10, 20, 30 or more, depending on the amount you borrow. Mortgage loans do not act like small instant loans that you borrow to fund your small emergency loans.
At the time of applying for a mortgage, your credit score must be good. You are borrowing a large sum of money to buy your house, so no lender will be able to lend you money if your credit rating is horribly bad. A good credit score is essential to get money at lower interest rates.
Further, if you are trying to get at a bad credit rating, it must be as nearly a fair credit score range. Although some lenders claim to sign off on a mortgage despite a bad credit rating, you will be charged a higher interest rate.
Therefore, it is suggested that you improve your credit history at the time before putting in the application. Instalment loans can help improve your credit rating, provided you pay off the entire debt on time. However, at the same time, you should take care of your current debts. Pay them off on time. Do not forget to pay your utility bills and rent on time as well, as they may affect your credit rating.
The status of existing debt
Your existing debt and other financial responsibilities will also be taken into account by a lender at the time of deciding if you deserve to borrow money. A lender would like to peruse your income records and bank statement to get an idea of if you can manage your mortgage payments along with other recurring expenses, including debt instalments.
If so, you may still be refused to borrow money despite a bad credit rating because a lender would like to see a credit utilisation ratio. If it is more than 30%, they will likely hesitate to approve your mortgage application. However, they will charge a higher interest rate if they do so. You should try to keep it up to 25%. This is the optimal credit-utilisation ratio.
This is not just recommended for credit cards but for all types of debts. For instance, if you have credit card bills, loans for bad credit from a direct lender, emergency loans, etc., the collective ratio of the whole debt should not be more than 25% if you want to avail of lower interest rates. Try not to close all of your unused credit cards, of course, if they do not charge you hefty fees, because otherwise, the debt-to-income ratio will shoot up, and your lender will straightaway turn you down.
If you are unable to decide what you can do to lower this ratio, you should talk to a financial consultant or mortgage counsellor who can help you know what steps you can take to lower it.
The final word
In order to decide how much money you should borrow to own a house, you must know your credit rating because it has a direct impact on your borrowing ability.
Apart from that, you must know the location of your house where you want to buy it. Make sure the house prices are not out of your budget reach. Do not forget to look at your existing debt, as they can affect the size of the amount you borrow for a mortgage.