The best time to buy a house is when you have enough money to make payment for the house. You should have the ability to pay for the down payment and also towards the monthly installments. You should have enough money so that you will not suffer a financial burden after making the payment.
Another very important aspect is to have a very good credit score. If you have a lower credit score you will have lesser chances of getting finance for your house. The property condition in the area will reflect the price of the house. You should also consider how you are going to live in the house and arrange your finances towards it.
What credit score is good to buy a house?
Generally, for most loans, the credit score required to purchase a house is at least 620. The higher the credit score, the better the chances of approval. The credit score users with a score of 740 or higher will get credit facilities with lesser interest facilities.
The rule of thumb is that if you have a credit score of under 400 any bank will not come forward to issue loans based on the credit score. Some banks will not accept applications from borrowers who have credit scores less than 500. If you are planning to buy a house then you should ensure that you must have a good credit score. Everyone is aware that buying a house is a bigger financial commitment that you have to stay with for a long time, though it is difficult to deal with.
There are many other focal points that you should consider when buying a house and most of them deal with personal finance rather than market value of property. If you can arrange for finance then you can easily buy property.
How much savings should you have?
If you cannot afford to arrange for 10 percent or 20 percent of home worth finances then it is suggested that you should not go for buying a house. The more money you have the better chances of loan approval. If you have a lesser loan amount then you can easily overcome the challenge of repayment.
The first time buyers are not aware of the additional cost associated with owning a house. It is important to find out the costs and insurance associated with the house. The repairs and maintenance expenses associated with a house are different from house to house, they sometimes depend on the location and usage of the house.
Many financial experts suggest that when you buy a house it will take at least five years or more to achieve break-even for closing all the loans and clearing all the debts. It moreover depends on the income proportion of the individual and the size of the loan amount.
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When you are buying a home follow the below steps
Find out how much debt you currently have and calculate the outstanding amount of loans that you have which include car loans, personal loans, credit cards payments, and any other form of loans. Remember the 28/36 rule which the financial experts talk about.
28/36 rule
Financial institutions look into the debt rule debt to income ratio which is about how your mortgage payments and other debt amounts would frame your payments.
The financial lenders would use the 28/36 rule to find out whether to issue a loan or not. Your loan related monthly payments include mortgage payments, insurance payments and other payments which should not increase 28% of your monthly income. The other total debts should not increase 36 percent of your monthly income.
Pre-approval
When you get pre-approval from the bank then you are having higher chances of getting the loan. Pre-approval does not mean that you should accept the loan, if you are willing to accept the interest rates and other terms and conditions then you can accept the pre-approved loans. The seller of the house will first ask you whether you have a pre approved loan or not. It will show that you are serious about the investment.
Find out the available cash reserves
Find out the available cash reserves that you have which include the down payment and the closing costs. The amounts you have will cover the payments for the down payment and the monthly income you get can be used towards monthly payments. Also, arrange funds towards meeting your emergency needs.
Down payment and monthly payments
Arrange funds towards down payment and monthly installment. Traditionally the financial lenders require a down payment which is equal to 20% of house purchase price. If you are putting 20% down payment on AED 300,000 home then it requires AED 60,000 amount to be paid to the lender and additionally AED 9,000 or more towards the closing expenses.
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Take away
Before issuing a loan the lender would like to know if you have enough money for repayment of the loan. Lenders will look into the future loan payment capacity of the borrower and they will consider issuing the loan. The lenders will check the employment history of the borrower and they will decide based on the document.
The lenders will check the debt to income ratio, this ratio will tell how much the borrower has debt and how income is sufficient to repay the loan. It will tell the lender how possibly the loan can be repaid and how much money will be towards the repayment. The lender will consider the present loan, credit card payments and other debt obligations and then decide upon issuing the loan.
A less Debt to income ratio is good to get loans from the lenders, anything more than 50% means that you are not able to get any future credit. As a general rule, you should keep it around the 30% mark. The lender will want to verify that you have enough money to pay the loan.
About the author
Vinay Kumar Goguru is a finance professional with more than 8 years of diverse experience as a researcher, instructor and Industry work experience with both public and private entities. Prior to MyMoneySouq, he spent 6 years in Berkadia, It's a commercial mortgage banking company. He has a "Doctoral Degree in Commerce" and two master's degrees with a specialization in Finance, one as Master of Commerce and other as Master of Business Administration. He has written several articles on personal finance, published by different International journals. He loves traveling, reading and writing is his passion. He has a dream of writing a book on his favorite finance topics.
