Shrewd Living

Last Updated: 06/09/2014 14:36 PST

How to tell if you are ready for a home loan

Few purchases that an individual will make within their lifetimes will rival that of buying their first home. When making the move from being a renter to being a homeowner, there are a few things you may want to consider before taking the step into home ownership, some of which may not come to mind until after the process of purchasing your home has begun.

The first thing you should keep in mind is whether or not you can actually afford to purchase a home. Home ownership brings with it expenses which you may not have considered previously.

Homeowners are required to have homeowners insurance and they must pay taxes on their property on a yearly basis. Depending upon where the home would be located, you could be looking at paying both city and county taxes on your home each year.

Homeowner taxes are calculated based on the appraised value of the home, and since most homes appreciate in value, you're looking at an increased cost of homeownership over time.

When you go to secure a home loan, the lender is going to look at your credit history as well as your employment history. If either of these two happens to be in less than perfect condition, it's going to be more difficult to secure a home loan than it would if you had perfect credit and a long employment history at the same job.

The lender looks at your employment history as a security factor. The longer you've worked at the same job, the more stable they consider your income, which makes you less of a risk.

Your credit history is going to play a big role in whether or not you qualify for a home loan, as well as what type of terms you'll get as far as interest rates. Again, the lender is looking for stability in your life, but this time he's looking at how well you've paid your debts in the past. If you have a blemished credit history, you're at best looking at higher interest rates, and at worst not qualifying for the home loan.

Most lenders are going to require you to come up with 15 to 20% of the purchase price of the home as a down payment. If you don't have this much cash on hand, then you're going to find it much more difficult to secure a mortgage for the home you have in mind.

If you have no problems in your employment or credit history, you may be able to find financing for your home for as little as three to 5% as a down payment. As you can see, it's important that you have your credit history in good condition before attempting to secure a home loan. It also helps if you have a good track record of staying employed.

Purchasing a home is a big step in an individual's life. Being a homeowner is also one of the most rewarding experiences you can have. If your employment or credit history isn't perfect, then you'll need to put off homeownership until you've taken care of past bad debts or have established more time at your current place of employment. You may have to put off getting your home for a year or two, but you can get a home loan once you've established yourself as a good candidate for homeownership.


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