4 Things You Should Know About House Loans

Buying a house can be a significant life decision. Whether you’re a first-time buyer aka first home buyer (FHB) or not, the entire process requires adequate planning and preparation to have a positive experience. This is especially true if your life savings aren’t enough to cover the purchase price.

Luckily, there are still ways to help you own a house even if you have no cash. One of them is taking out a home loan.

Home Loans Explained

Essentially, a house loan refers to a type of loan provided by a lender or financial institution to allow you to purchase a residential property. So, if you’re buying a home with a home loan, it’s essential to brush up on your knowledge about this financial option. Below are the four things you should know about house loans,

1. You May Need A Good Credit To Qualify

Qualifying for a house loan is never easy. Even if you have a stable job and little debt, you may still not be unable to qualify for a house loan if you have poor credit. Typically, the lending and financial institutions will consider your credit score and history when you apply. Even if you have an idea already of how much you need as you used mortgage calculators, they’ll try to find out whether you can repay your loan within a certain amount of time.

Moreover, having good credit is important because it can significantly impact the interest rate you’ll pay for the loan. For example, if you have a higher credit score, the lender will provide you with a lower interest rate and a lower monthly repayment. That being said, it’s essential to check your credit score before filling out an application form. Remember, you need good credit to boost your chances of getting a home loan and achieve a favorable outcome.

2. House Loans Require Interest Only Repayments Or Principal And Interest Repayments

Generally, repayments refer to the amount of money you need to pay monthly to your lender. When it comes to house loans, you can choose between principal and interest and interest-only mortgages.

Interest-only repayments

Under this repayment plan, the amount of money you should pay each month covers only the interest rates. This means you’re not required to repay a portion of the total loan amount borrowed. However, since you opt to pay only the interest rates every month, your lender will require you to settle the principal amount when your loan term ends.

Principal and interest repayments

Under the principal and interest repayment plan, the amount of money you should pay comprises the interest rate charged on your loan and a portion of the money you borrowed. Therefore you get to repay your house loan in full within a short timeframe or when your loan term ends.

As you can see, there are two types of repayment plans to pick when getting a home loan. However, knowing which one will financially work best for you can be a daunting task. That’s because you need to consider several factors, including the interest rate, loan term, price of the home, and the deposit.

3. There Are Two Types Of Interest Rates To Choose From

Another thing you should know about home loans is you can choose between variable rates and fixed interest rates. These are available for individuals who want to take out a house loan to buy a residential property. However, there are pros and cons for both types of interest rates.

For example, fixed interest rates may be less risky because the rates don’t change throughout the loan term, so your monthly repayments will be the same from start to finish. On the other hand, variable interest rates may be much riskier because they fluctuate based on the market, which means your repayments may be higher or lower depending on the circumstances.

Thus, if you’re planning to apply for a home loan, it’s essential to research the interest rates to make an informed decision. That way, you can get the most out of your loan without having difficulty paying the interest rates.

4. Loan Fees And Other Costs Vary By Lender

There are no rules and regulations requiring lenders and other financial institutions to offer the same fees and other costs for house loans. This means they’re free to charge various amounts in fees for the payment of insurance, appraisals, credit checks, and many more.

Because of this, it’s crucial to conduct comparison shopping, so you’ll obtain the best possible price for your home loan package. By comparing quotes with different lenders, you can find the one who can help you pay as little as possible while making the most out of your loan for your home purchase.

Bottom Line

When it comes to purchasing a home, you should educate yourself with the financial solutions available to your situation, including taking out a home loan. However, you may not know where and how to begin with this financial process with many things to consider.

Therefore, if you decide to apply for a house loan, keep the information mentioned above in mind to help familiarize yourself with the things you’ll deal with when you fill out a loan application to start your home buying journey.