Home loans are as large a part of the housing market as houses themselves. The interest rates alone can be enough to influence how many people get onto the market, and when. Because of this, you must do everything you can to get your credit score high and your spending history smoothed out.
If you’re new to home loans and aren’t sure what to expect, here’s everything you need to know about them!
The Fifteen or Thirty-Year Repayment Period
Something that might confuse some people is that the two main options are fifteen and thirty-year repayment periods. This deadline is when you have to pay the loan off, meaning that the fifteen-year one doubles how much you have to pay back every month. The good news is that on the fifteen-year one, you can deal with lower interest rates: but if you get a 30-year mortgage, you can easily refinance it down the line when you find better rates and are getting paid a higher amount.
The Expected Downpayment
The average downpayment for a mortgage is 20%. Unfortunately, most people don’t have $40,000 to $100,000 sitting around in their bank accounts, making it impossible to pay independently. You can check your own numbers on a house payment calculator.
If you can’t pay for it, there are a couple of options available. If you’ve never bought a home or had one in your name, there are multiple grants available by the local and national governments that can help make it more affordable. Otherwise, some lenders will tack it onto your monthly mortgage payment, spreading it out over twelve months.
Credit Scores That Are Required
Everyone who has used a credit card, gotten a loan, or rented a space to live, has a credit score. Unfortunately, your score can be really low if you haven’t managed it. The minimum for a home is around 650, but many lenders actually expect buyers to be closer to the 740 range. Because of this, you must do everything you can to build up your score. This can be done by paying off debt, making payments on time, keeping cards open for as long as possible, and keeping your spending down.
Current Mortgage Interest Rates
Mortgage rates are one of the most confusing things for many people, but thankfully they’re a lot easier to manage than they were in the 1980s. The current interest rates sit below or at 4%, but they’ve gone as high as 18%. This is how much you’re paying your lender to allow you to borrow money.
This means that at 4% if you borrow $500,000 for a home, you’ll be paying your lender $20,000 to be able to pay for your home. This may seem like a lot, but when it’s spread out over fifteen to thirty years, it’s far more manageable.
Home Loans Aren’t As Scary As They Seem!
Some seem to fear home loans because they don’t want to risk major debt, but this is far more affordable than you’d believe! So if you want a home, consider your finances, and start looking at properties!