Before applying for a home loan for the first time, it is important for borrowers to think about what they need and what will best fit their financial situation. Every borrower is different, and there are a variety of loans to choose from. Taking the time to learn about the options can make it easier for first-time buyers to find the right home loan for their needs.
Figure Out the Length of the Loan
The length of a standard loan is 30 years, but home buyers don’t have to spend that long paying off their loans. Those who may be willing to pay a little bit more each month may opt for a 15-year loan, as this will allow them to own the home in full much faster. Before making a decision, talk to a broker about comparing 15 and 30 year loans to learn more about the differences and to figure out what might be the better option.
Fixed-Rate or Variable-Rate Loan?
The next consideration is whether to get a fixed-rate or variable-rate mortgage. With a fixed-rate mortgage, the interest rate is the same for the life of the loan. The payments will be more consistent in this case, but homeowners can end up spending more for the home if interest rates drop. Variable-rate loans have an interest rate that can change, so it is possible to lower if the interest rates drop. However, if interest rates increase, it can go up, too.
The Down Payment Needed
Borrowers will want to make sure they have enough money saved to cover the down payment. The amount of money needed will depend on the total amount of the house being purchased, the type of loan, and other factors. Buyers will want to determine the type of loan first to make sure they know how much they need for a down payment.
Credit Scores Required
Buyers will want to have a good credit score for most types of loans. If a borrower has a lower credit score, they may want to work on improving it before applying for a loan. Though this can take time to do, it does make a difference. Even if a lower credit score is accepted for the loan, borrowers can get better interest rates, lower down payments, and other benefits if they have a higher score. The first step is to check the debts listed on the credit history to make sure it’s accurate. Anything that should not be on there can be removed.
Paying Off Debt Before Applying
Another consideration before applying for a loan is whether to pay off some debts. A lower debt-to-income ratio can help improve a borrower’s credit score. Additionally, some loans do have maximum amounts for the debt-to-income ratio, so if the borrower has too much debt, even if they’re able to repay it easily, they may not be approved. Taking steps to minimize the debt can help increase the chances of approval.
If you’re ready to buy a home, start by finding the right mortgage for your needs. There are plenty of options available, so take the time to consider the different requirements for the loans, how long of a repayment plan is preferred, and other details to make it easier to find the right one. Schedule a consultation with a broker to learn more.
