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Steps to know before you apply for a home loan, in fact this is the one of the biggest investment that a person made in his lifetime. So you must be aware with the loan terms, payment option and penalties etc. 1. How long do you plan on living in the new home? The national average for how long people live in their homes is approximately seven to nine years. Reasons for leaving a home can vary widely, but if you purchase a home and decide to move after only a short time, you may end up paying money in order to sell it. Generally, the shorter you?re in your home, the less time your home has to appreciate in value perhaps not enough to recover what it cost to buy and sell the home. The amount of time it takes to recover those costs can depend on various economic factors. In most parts of the country, homes appreciate at an average of five percent per year. If this is the case in the area you are looking to buy a home in, you should stay in your home at least three to four years to recover buying and selling costs. If the area where you buy your home experiences an economic upturn, it may take less time to recover those costs. Conversely, if the local economy is not doing well, it may take longer. The amount of time you plan on living in your home will have an impact on what home loan you choose. If you plan on staying there for more than ten years, a long-term fixed-rate mortgage might be a sensible choice. But if you know you?re going to move within three to five years, an adjustable rate mortgage, with its lower payment options, might be a better choice. 2. How much can you afford The first thing you need to do is decide how much you can afford. You will need to look at how much money you have available yourself and how much you can borrow. There are a number of different financial institutions which offer loans to people buying a property, for example, building societies and banks. You should find out if you are able to borrow money and if so, how much (for information on mortgages, see under heading Mortgages). Some building societies now provide buyers with a certificate that states that a loan will be available provided the property is satisfactory. You may be able to get this certificate before you start looking for a property. Building societies state that this certificate may help you to have your offer accepted by the seller. Before finally deciding how much to spend on a property, you need to be sure you will have enough money to pay for all the additional costs. These include:- - survey fees
- valuation fees
- Stamp Duty Land Tax. This is payable on properties costing more than ?125,000 and is at least 1% of the purchase price (in a limited number of areas, designated as 'disadvantaged', it is only payable on properties costing ?150 000 or more)
- land registry fee
- local authority search
- fees, if any, charged by the mortgage lender or someone who arranges the mortgage, for example, a mortgage broker
- the buyer?s solicitor?s costs
- VAT
- removal expenses
- any final bills, for example, gas and electricity, from your present home which will have to be paid when you move.
You should be aware that if you start the process of buying a property and then the sale falls through you may have already paid for a valuation and/or a survey. If the solicitor has started any legal work you may also have to pay for the work done. You should also take into account the running expenses of the property you wish to buy. These may include:- - heating bills
- community charge/council tax (in England and Wales)
- water rates (in England and Wales)
- ground rent, if the property is leasehold
- service charges, if the property is a leasehold flat
- insurance costs, including life insurance, buildings and contents insurance.
You will also have to pay a deposit on exchange of contracts, up to 10% of the purchase price, a few weeks before the purchase is completed and the money is received from the mortgage lender. 3. Where will the money come from? Typically, home buyers will need money for the down payment and closing costs in order to close the loan. However, you don?t always have to have a lot of money for a down payment, as long as you?re a good financial risk to a lender. Several loan options today offer zero down and low down payment home loans. Even if your credit isn't stellar but you have managed to save 10-20% for a down payment, you will still have some very good mortgage options. 4. Have you considered the ongoing costs of home ownership? Maintenance, improvements, taxes and insurance all add to the costs of owning a home. And if you buy a condominium or a town home, some communities require a monthly home owner's association fee. If you?re concerned about these types of additional costs, you should look for home loan options that minimize fees and lower your mortgage payment relative to other home loan options. Be sure to make your realtor and your lender aware of your concerns. 5. How to choose a property? There are a number of ways in which you could find a property to buy:- - using estate agents
- looking at the property pages in local newspapers
- contacting house building companies for details of new properties being built in the area.
When you find a property you should arrange to look round it to make sure it is what you will need and to get some idea of whether or not you will have to spend any additional money on the property, for example, for repairs or decoration. It is common for a potential buyer to visit a property two or three times before deciding to make an offer.
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