Mortgages: The Essentials To Consider Before Signing On The Dotted Line

If you are in the process of buying your first house, congratulations are in order. The first home will live long in the memory because it is the sign that you left the nest and finally ascended into adulthood. Hopefully, you will have many happy times and create a home for your family.

However, before you can get to that point, you need to find the money to finance the move. The conventional option is to purchase a mortgage loan, which is a wise move. It is a large sum of money that you wouldn’t be able to find anywhere else from a reputable source. What could go wrong? Actually, there is a lot that could go wrong if you are not careful.

As you may know, mortgages are complex, and the banks are not the most trustworthy people, so they might not make you aware of every small detail. Therefore, it is up to you to comb over the agreement in fine detail and make sure you can afford the repayments. If you can’t, you might not have the time to fall in love with your new house before they take it away.

Here are a few things to consider before you make it official.

Your Budget

For starters, how much can you afford to repay overall? Mortgages are not small sums of money, and you should play around if you cannot afford to pay it back at the end of each month. But, you will need to account for more than the monthly repayments in your budget as you will also need to consider the deposit. As a general rule, lenders will subsidize up to ninety percent of the money, which means you will have to find ten percent. If the house is going to cost you $200,000, you will need to find $40,000 to out down as a deposit. Obviously, $40,000 is not easy to come across, so factor in the deposit when it comes time to make your budget.

The Monthly Repayments

On the whole, it is the monthly repayments that most homeowners find difficult to keep up with over an extended period. It is not the initial loan that is the problem – it is the interest on top of the loan. The interest bumps up the price by a large amount, and that can make keeping up with the repayments hard. Okay, you might be able to make the minimum payment, but that leaves you in lots of danger. Before long, you will owe the bank more money than you can afford, even while you have been paying off the loan. To ensure that you keep the bank off your back, pay back the full amount on time every month.

What Type Of Mortgage Do You Prefer?

There is not a one size fits all when it comes to mortgages as there is more than one type. The two main types are fixed rate and variable rate mortgages, which are pretty self-explanatory. Quite simply, a fixed rate mortgage is where the amount owed every month is fixed at a certain amount for the duration of the loan. Alternatively, the cost of a variable rate mortgage can fluctuate depending on varying factors. Now, fixed rate mortgages are clearly safer and more secure – you know what you have to pay and that never changes. However, variable rate mortgages can be cheaper. If the interest rates start to fall, you will pay less because the amount paid is dependent on the rates at the time. So, are you ready to take a risk, or do you prefer more security?

How Trustworthy Is The Lender?

Never purchase a mortgage from someone that you cannot trust. If they are not a reputable body, they will not play by the same rules as everyone else. That means they could use strong-arm tactics to get their money if you cannot pay, which could out your life at risk. In other words, avoid loan sharks like they are the plague. No matter how bleak your situation seems, it is not that bleak as there is always another option. If a bank doesn’t lend you the money, a credit union, a specialist credit lender, or a family member might step up. With loan sharks, you can lose more than your house if you default on the loan.

Consider Your Credit Score

The reason that wannabe homeowners turn to loan sharks is because of the credit score. If you have a poor credit score, it will limit how much money a bank will offer. The result might mean that you cannot afford your home because you cannot make up the difference. Alternatively, you might not have any money at all because they might refuse you altogether. As you can see, your credit score plays a big part in your mortgage. If it is not good, try and fix it with these tips. By paying off existing debts and starting to pay your bills on time, you can improve your credit score and your chances of securing a deal.

What Is The Length Of The Mortgage?

Remember that this is not a loan that you can opt out of anytime soon. A mortgage is a loan that is going to be around for twenty to thirty years. If you feel that you cannot keep up with the repayments over this length of time, say or forever hold your peace. At the moment, you might be very secure, and the future may look bright. But, you need to look into the future and consider the impacts that any decisions could have on your life. For example, if you have kids it is going to make repaying the money ten times harder because kids are incredibly expensive. When you apply for a mortgage, it is not enough to think about the present.

Do You Have Job Security?

What you cannot afford to do when you purchase a mortgage is to lose your job. If you do, you won’t have the money to pay back the loan. So, how is your job at the moment? If you can see yourself working there for the considerable future, then there isn’t a problem. But, if your job is in doubt, you will want to hold off for the time being. It may be that the firm is looking to make cuts, or that the industry is suffering, and you could lose your job as a result. Again, try and look at the future of the industry and predict the problems before they arise.

The Length Of The Process

Mortgages do not go through overnight because they are lengthy and complex procedures. As a result, you need to make sure you have somewhere to stay while it goes through. If you are selling an existing house to fund a new one, you might not have a home. No one wants to live in a hotel for a couple of weeks or months, so ensure that you have a backup plan. If you have a considerate family or group of friends, they may be able to put you up until the deal is completed.

Shop Around For The Best Deal

Mortgages are like any other purchase – you should shop around for a good deal. Banks will offer different deals and promotions to tempt you in because they are a business after all. They still have to compete with their rivals for customers, so you might be able to find a bargain. Even if you do find a low price first up, always carry on until you have exhausted every avenue. It is the responsible and adult thing to do because you should look at a sample size before you come to your conclusions. To help you out, go online and look at comparison sites or search mortgage rates here to find the best deals. All you have to do is type in your preferences, hit enter and wait.

Consider Legal Help

Due to the complexity of a mortgage, you shouldn’t attempt to understand it if you have no experience of the process. If you do, you will make the situation worse, and you could get yourself into lots of trouble. To avoid trouble, you want to hire legal help. Yes, the initial cost may be expensive, but they will save you a fortune in the long-term. When you use a law professional, you be certain that the deal you get is the deal that is the best for you and your family. Thanks to their skill and experience, they will thrash out the negotiation process so that you don’t have to. Frankly, it makes sense to put your trust in a person that is highly skilled and experienced in this particular arena.

Summary

As you can see, there is a lot to consider before putting pen to paper. However, all of the above are necessary factors that you need to analyze if you want the best possible deal. If you just walk into a bank and sign for the first loan you find, you will risk your future.

About Peter Christopher

Peter Christopher is the Editor to Finance care Guide and a guest columnist for many blogs that deals with financial issues. He has devoted himself to full time speaking, writing and consulting on personal finance management. Visit him on Google Plus and Twitter.