Purchasing your first house can be an overwhelming moment as you have waited for this for a long time. However, it requires a lot of capital to buy a house, so you have to explore the various financing options available for first-time home buyers. It is crucial to understand the market where the property or the house is located. The property closest to the market and other amenities will have a higher rate than the similar-sized properties located in less posh areas. Choose the property that best suits your needs but does not cross your budget limit in order to get the loan easily.
What is a home loan?
A home loan is a financial reinforcement taken to fund the construction or purchase of a house. However, in recent times when the economy of the whole world is disturbed, buying a home may not come easy. Being a first-time home buyer, you must be aware of how the home loan works in a current scenario before applying for one. Moreover, a specific set credit score is needed for a first-time home buyer, which shall be met to be eligible for the requested loan amount.
What are the things to remember before applying for a home loan for the first time?
It can be a massive investment to buy a home, but you, as a first time home buyer, are likely to take wrong steps if you do not keep the below listed things in mind before applying for the home loan:
- Borrowing capacity
Before applying for a home loan, you should minutely analyze your borrowing capacity and understand the loan amount you are eligible for. You cannot simply apply for a massive amount of loan just because you draw a handsome amount of salary each month. It is essential to consider other factors such as your monthly expenses associated with your regular household, college or tuition fees of your kid, utility bills, and other miscellaneous expenses. After listing down and deducting the amount of these expenses from your monthly salary, you can now analyze the amount you are eligible for and apply for the loan as it is crucial to repay the loan on time. If you apply for a loan more than your capacity to refund, you may default the loan amount and hamper your credit score significantly.
- Credit score
Buying low-budget items like a cell phone may not hamper your credit score as the EMIs are minimal. However, the monthly EMI of a home loan can be a considerable amount that can hinder your credit score if not repaid. In addition, it is good to have a Credit score of 750 or above to get a loan at a low-interest rate. A fair credit score tells the lenders that you are a responsible buyer and repay your monthly installments on time.
The credit score needed for first-time home buyers is fixed, but the interest rate on the loan amount may vary depending on your credit score. Therefore it is good to always apply for a loan amount that is not beyond your repayment limit.