For most of us, a home loan is the biggest loan we will ever take. The moment we sign, we incur a debt that sticks around for the next 15 to 30 years. And it’ll remain a major concern, right up till we’re thrilled with comfortable dentures and starting sentences with “In my time”. On top of that, convincing the bank to buy you a house isn’t all that easy either. To wit, MoneySmart presents 9 Tips on Getting the Best Home Loan:
1. Choose a floating rate for an above-budget home
It’s not a good idea to buy a home that’s above budget (i.e. not something you would normally be able to afford). But if you must, don’t pick a floating rate. A rise in the interest rate can lead to significant increases in your monthly bills. Pretty soon that Sunny Came Home song will start to make a lot of sense, and you’ll have your insurance company on the line while you fidget with matches.
Also, if the value of the home drops during the mortgage period, it can lower your equity. That restricts refinancing options.
2. Get pre-approved
Getting pre-approved means the bank has already committed to loaning you a certain amount, if and when you buy a house. This should be sought from the bank before shopping around. Between someone with pre-approval and someone mumbling that Bob still owes him ten bucks, agents will pick the former. This can result in the agent choosing a lower bid, just because it’s pre-approved.
Also, getting pre-approved gives you a better idea of what’s “in your range”.
3. Minimize debt before applying for a Home Loan
Minimize your outstanding debts before applying for a mortgage. Don’t take out a car loan and then approach the bank for a housing loan a week later. The lower your existing debt, the easier it is to negotiate, and get, the home loan package that you want.
Likewise, clean up that credit card bill before approaching the bank. If you have rollover debt, the loan officer will look at you like some kind of diseased leper he just wants to steer clear of.
4. Look beyond the interest rate
Don’t just pick the lowest interest rate. In fact, you should be viewing the lowest interest rate with all the suspicion of a canary at a cat convention. Why is it so low in the first place? Is there a premium you haven’t spotted? Drastic late payment charges? Clawback issues?
Take a holistic view of the package, and work out how much you expect it to cost you each month. Verify your calculations with the bank.
5. Brace yourself for the legal fees
Buying a home involves a lot of legal paperwork, and an attorney is required. And ever since new MAS measures, banks are no longer allowed to subsidise such costs. When closing the deal, you will be expected to write a check for the legal fees, which can be 2 to 5 thousand dollars.
6. Ask about the pre-payment penalty
If you pay off your loan before the due date, there’s a penalty involved. In the world of mortgages, the early bird doesn’t get the worm; it just gets shotgunned. Ask the bank what the pre-payment penalty is. It’s something you’ll have consider if you ever want to accelerate your repayment or sell the property.
No, you don’t have to take a day off to call up banks one by one. Instead, you can use a service like MoneySmart to compare home loans, and get all the information you need in just a few minutes. Sites like MoneySmart have done the hard work of getting all the latest rates from the bank and comparing it for you so make use of it. They also have dedicated mortgage specialists to advise you on the best home loan based on your needs.
8. Do the paperwork on time
Remember in school, when homework could be perpetually late? The most you could get was detention, while Ms. Chia the math teacher wept heart-rending tears of frustration. When it comes to mortgages, the situation is reversed. Hand in your documents late, and you may have cost yourself an extra thousand dollars.
Whatever documents you need to submit, be sure you submit them early.
9. Don’t sign documents without understanding them
Note I don’t say read. I say understand. Whenever you are asked to sign something, make it a point to ask what the document is about. You don’t have to run out and get a law degree, or understand every little byline. Just ask what each document is meant for. If you’re worried or unsure, don’t sign it; find a lawyer or a friend in the know.
Have you got any tips for dealing with mortgages? Comment and let us know. You may be saving a life. Or someone a couple of bucks.
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Tags: Home Loans