Tips on how to finance a home purchase

Highlights

  • Have six months of savings to cover your monthly expenses.
  • Take the time to know your credit rating.
  • Know what different kinds of loans are available.
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How to find and get the best mortgage possible for your home purchase.

Choosing a mortgage for a home loan may be the biggest financial decision you will make, because a home purchase is probably the biggest investment you will make in your life. You will pay for this debt for a long time, so it is crucial that you find the best mortgage product to fit your needs. With such a large debt, getting the best possible interest rate is extremely important. A seemingly small difference in interest rates can make a huge difference in the monthly payment you will make.

To get the best mortgage for your home loan needs, there are steps you need to take before you even begin to shop for the loan. You need to make a solid budget, so you know how much you have available to spend. A basic rule, that fewer and fewer people follow, should be your guide: have six months of savings to cover your monthly expenses in case there is an illness, job loss, or reduction in hours. The purchase of a home should be a happy event, but if you are not prepared, you can end up sinking your entire financial ship. Don't let your lender tell you what you can afford; their interests are not necessarily the same as yours. Too many people take on loans they cannot afford after the lender assures them that they are well-qualified for the loan.

When you seek a purchase loan mortgage, you will be examined in three main areas: the size of your down payment compared to the value of the property (a larger down-payment is better), your credit rating, and your debt-to-income ratio. Take the time to know your credit rating. View copies of your credit report from the three main credit reporting agencies: Experian, Equifax, and TransUnion. Check the reports for errors. You don't want to be penalized for an incorrect reason. If there is an error on your report, it could damage your credit score and result in a higher interest rate and higher fees for the loan.

There are many different loan products these days, so it pays for you to know what different kinds of loans are available. Before you apply for a loan, here are some important factors for you to consider:

  • How much can you afford to pay each month?
  • Are you in a secure job and a stable financial position, so that you are confident you can meet the serious obligation you are about to enter?
  • How long do you plan to stay in the house you are purchasing?

Most importantly, make sure that your mortgage meets your financial and personal goals.

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