Before financing a house, knowing what you're getting yourself into makes practical sense. It might seem like the right decision at the time, but fast forward a few weeks or months, you might be regretting it as late monthly payments pile up and interest rates accrued get bigger in size. Here are four essential principles to responsible financing.
Gauge Personal Preparedness
Gain an in-depth understanding of your personal finances, right down to the very last monthly magazine subscription. Is your monthly income large enough to handle both monthly payments plus interest and other basic necessities including, but not limited to, groceries, utility bills, and transportation fees. If you are making an annual salary of $60,000, buying a $1.2 million condominium that will cost more money for ongoing maintenance is simply absurd—not to mention being downright bad investing.
Check Your Credit Score
If you've been blessed by the credit rating agencies with a high credit score of at least 750, interest rates are the least of your worries. However, if you are less than 750, the room for haggling gets narrowed down. Request for a free credit report from any of the three agencies - Equifax, TransUnion, and Experian. If you find that your score is unfavorably low, consider making some easy fixes first before applying for a home loan.
Research the Interest Rates
The interest rates will fluctuate wildly depending on a myriad of factors, all of which are different for each borrower. For instance, people with low credit scores usually end up getting less favorable home loan deals than those who do. Back in 2012, the rates for home loans were at an all-time low of 3.35 percent. Today, it's a few decimal points below 4 percent.
Consider Resale Value
If you have yet to decide where you'll be in the next 5 to 10 years, you'll want to know the resale value of the property you are looking to buy. Resale value will depend on the age and condition of the house as well as the current and future economics of the location it's in. If a property is in an area that is undergoing promising landscape changes, resale value is expected to be high.
Financing can work out well for you if you do it right. The four pointers above should be considered before approaching any bank or private lender. Remember, do not get drawn in by alluring promotional offers that shout "cheap" and "zero-interest". Do your own unbiased research about the property being financed and where you stand in the "creditworthiness" curve. The experts at Republic State Mortgage Co recommend looking at all the different classes of home loans available to you to make sure you get the best deal you can.