While in the process of purchasing your first house, one of the most common pieces of advice you will hear from people is to try and stay away from debt as much as you can. This is one reason why individuals, especially first-time applicants, are so afraid of loans.
People have been made to believe that paying in cash is always the most ideal thing to do. However, it is not possible at all times. Naturally, when you’re buying your first house, it’s a given fact that your bank account is still slim in terms of savings.
Truth be told, a home loan isn’t always bad. When you have the right financial objectives and strategies in place, taking out a home loan from commonareacredit.ai can actually work to your advantage, especially when you’re still young and you have a steady income or cash flow coming in every month.
There are many reasons why you should apply for a home loan. Here are some of those:
1. It’s Easy and Straightforward
Of the many types of loans that banks offer today, home loans are some of the easiest for you to apply for. If you’re a first-time borrower, it’s normal to feel anxious or confused as to how to go about with the loan approval process. While the lending process may differ from one person to another, generally, signing up for a home loan is quite straightforward.
That said, here’s a walk-through of the step by step home loan process:
- Submit your home loan application. The mortgage process begins once you’ve already found a home that you wish to buy, and a lending institution that can provide you with the loan that you need. This is when you start to submit your home loan application not just by completing the form, but also by supplying the right documents related to your income, debts, and assets.
- Schedule a home inspection. Once you’ve submitted all the necessary documents, this is a step that you also need to undertake as soon as possible. That way, you’ll have more time to negotiate issues you may see in the property during the inspection.
- Be responsive to your lending institution. Now, you’re set to receive conditional approval. Generally, you’ll be asked to provide additional documents. Make sure to respond promptly.
- Buy a homeowner’s insurance. This step is also necessary as lending institutions will require proof of insurance before your loan can finally be approved.
- Go through the home appraisal process. The lender will now order for a home appraisal for them to have the assurance that the house you’re buying has an equal price with that of the home loan that you’re applying for. This is also the time in which the lender will go through the title of the home you’re looking to purchase to make sure that there aren’t any outstanding liens on the property.
- Don’t take out additional debt as of the moment. When you’re still applying for your home loan, avoid taking in another debt, such as a credit card or car loan. Let those wait.
- Arrange to pay down payment costs. If you’ve got savings while taking a home loan, pay as much down payment as you can. That way, you can also save more on the interest rates and monthly mortgage costs.
2. It Has Relatively Low Interest Rates
Another great advantage of applying for a home loan is that it has relatively low interest rates.
Real estate is a hard asset. Thanks to its lucrative market, it’s also generally rising in value. This only means that real estate is a kind of asset that appreciates over time. Now, such a fact is what lenders are taking advantage of–it gives them enough assurance that should you miss your payments, they’ve got an asset to hold on to, something that would never put them at a disadvantage. Simply put, there’s generally less risk associated with home loans, thus paving the way for lower interest rates.
3. It Provides More Eligibility For Lower Monthly Payments
Another great thing about home loans is that they tend to be more generous with the terms. This means that you could enjoy more leeway as far as your eligibility for lower monthly payments is concerned. However, this can differ from one lender to another. Most lenders will consider your salary as the basis for setting the monthly payment amount, while also factoring in the length that your home loan will be in effect.
Here are ways through which lower monthly payments can be given to you:
- Through the option of making one extra payment per year. Because your interest rates are lower, this means that you can now afford to pay one or two extra months per year. In effect, for the succeeding years, this can further reduce the amount of monthly payments. With this kind of payment option, you’ll start to see reductions in the amount payable per month in the fourth and fifth year of your home mortgage.
- Through a more flexible eligibility of federal loan modification programs. Any of these programs comes in handy, especially when you are in a difficult financial season in your life. Remember that home loans will usually last you around thirty years. So, it’s highly unlikely that during this thirty-year period, you’re going to face a financial problem.Out of all types of loans, it’s usually the home loan that provides you with the best form of eligibility for federal loan modification programs. Again, this stems from the basic fact that homes are hard assets, which only continuously rise in value. Should the need arise, you can apply for a federal loan modification program. Then, for the time being (usually two to three years), you can enjoy lower monthly payments for your mortgage.
- Through your ability to make rounded up payments. Because home loans are more flexible with their terms, you’re allowed to make rounded up payments every month. For the first few years, your monthly payments will be higher, but you’ll eventually notice that the bank or the lending institution will be collecting a lesser amount from you monthly.
The whole concept of this is that if you can afford it at the moment, make rounded up payments. Then, should it become difficult for you to comply with the terms, you can meet with your credit institution and ask them if they can lower your monthly payments because, anyway, they’ve accumulated a higher amount from you earlier on.
Compared with other types of loans, it’s also easier to have this kind of arrangement with mortgage lenders. These lenders don’t fear falling on the losing end of the deal as they know that should you fail to pay, they’ve got the land as the collateral, so they still earn and win.
4. It Gives You More Options
If you decide to pay in cash when purchasing your first home, you will have very limited options as your savings may not yet be that much. This shouldn’t be a problem if you’re still single. But, when you’re married and have a family to consider, it’s inevitable that you’re going to need to buy more expensive, bigger homes in the future
With a home loan, however, your options are wider. You don’t have to limit yourself only to a few homes that you can afford. Because you’ve got a home loan to help you finance your purchase, you have a wider selection of properties you can consider.
For instance, with your current budget, perhaps, you can only afford a one-bedroom apartment, or a smaller unit. But, with a home loan, you’re able to afford a much bigger home with more rooms and better features. Your financial capacity is, indeed, stronger than without a home loan.
5. It Offers More Flexible Terms
Lenders providing home loans offer more flexibility in terms of adjusting the length of the loan. This means that, at any time, you can shorten or lengthen your loan duration whenever necessary.
Should an emergency arise that would make it difficult for you to comply with the payment terms, you can easily talk this out with the lending institution.
Here are some situations that could potentially make it difficult for you to comply with the payment terms:
- A medical emergency
- Job termination, or the sudden need to leave your job
- Changes in your financial situation
- Increase of other fixed expenses due to inflation
Conclusion
When you’ve long been dreaming of becoming a homeowner, now’s the time for you to turn that aspiration into a reality. You may be burdened by the fact that you don’t have enough savings on hand to pay for a house in cash, but don’t be dissuaded. You can always sign up for a home loan. While being bound to a loan can create serious fears in your mind, the truth is that home loans actually offer a wide range of advantages. Those enumerated above are only a few, but they should be enough to convince you that taking a home loan is not a bad idea at all.