Factors you may consider for a suitable home loan?

Getting a suitable home loan is not a cakewalk. Collecting information from many sources and understating all details, terms and conditions, fees, etc. is equally important than hunting for a lower interest rate. The questions remains, does interest rate should be the only factor while organising a home loan/mortgage? Answer might be ‘NO’.

Deciding your home loan product will vary depending on your individual financial need. Let’s try to understand what are the areas that we need to consider while searching for a suitable home loan.

You might be a first home buyer

To own a house is the most desirable ambition in many of our lives and home loan helps to achieve that goal. There is nothing like owning a property to call it your home. Lots of emotions are involved in the process of buying your first house. You will need a few thousand dollars up to millions to buy a house depending on your preferences and buying capacity. An average earning person can buy a property only with a help of home loans unless he/she has enough back up of savings or inheritance.

So where does the process start to get best and economical deal?

You need to ensure a few things before you start the process. The most important thing is to determine your financial contribution towards the purchase of the house. It is very important start with making a budget of your household income and expenses. Look at your cash savings that you can spend towards your initial deposit/equity. It becomes easier to get the approval when you have enough funds for deposit and also helps to get lower interest rates. Majority of lenders in New Zealand want a minimum deposit of 20% of the total price of the property. More equity also ensures your financial strength in the property.

It’s been observed that first home buyers generally approach the market with a bit tight budget. It’s because they try to maximise their loan capacity based on the deposited amount. Having a required initial deposit doesn’t guarantee your eligibility to get the amount of loan you want. Lenders also assess your credit rating score and your financial stability to ensure the smooth repayments. You should be aware of your regular income, your regular expenses and the impact on your finances due to the future repayments of the home loan before approaching a lender. After considering all these aspects you need to figure out your affordability of repayments of the loan and that determines the amount of loan you could get. Also, don’t forget to calculate an average insurance premium and council rates of the property you wish to buy. The insurance cost and council rates will also be an expense in future along with repayment of the mortgage.

The other thing is to review the cost of the loan by comparing fees and additional expenses in the process of the lender’s approval. It’s advisable to have a more than 20% of initial deposit. Check the loan processing fee and other cost involved. Sometimes lenders lower the interest rate with few decimal points may have increased loan processing fee that might cost you adversely. Also, look at the different offers in the market from several lenders. Some lenders provide cash back offer, etc. In nut shell, compare the interest rate, fees and extra repayment facility, etc. If you have a low initial deposit then look at the options for welcome home loan or other low equity home loans (Strict conditions may apply to these loans and always read all the terms and conditions of the loan carefully before signing up).

Property investor, Consequent buyer or house upgrader

The other category is for investors. This category is a relatively financially comfortable; however all the above written factors in this article for first home buyers also do apply to this category. People in this category want to make investment in property market to gain financial returns or may have other agenda, i.e. upgrading the existing property. Along with lower interest rates you should always look at the expense of the obtaining the loan in this category too, similar to first home buyers. Check for fees and charges, your loan repayment capability, insurance cost, etc. If you’re organising a loan towards an investment property for rental income, you should check the average rentals of the locality you’re trying to buy a house in. Majority of lenders expect minimum 30% equity/initial deposit for home loan on investment property.

Conclusion

Whichever category you belong to, following points are worth considering to get a suitable home loan:

  • Your current budget
  • Your provisional budget for the time of repayments
  • Insurance cost of your future house
  • Council rates of the property
  • Fees and cost of processing the loan
  • Interest rates
  • Keep your credit score good
  • Review terms and conditions of the loan
  • Compare offers from several lenders
  • If in doubt then seek a professional financial advice

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