Buying a new home is a long term commitment and one that comes with many financial commitments. While the idea of becoming a homeowner sounds fantastic, the process of becoming a homeowner isn’t an easy one. Buying a new home requires research, an in-depth understanding of the real estate market and strong financial resources. If you’re thinking about buying a new home in 2021, here are the three main financial things that you need to check before you even start the process of house hunting.
How much can you afford to spend on your new home?
The Covid-19 pandemic has a devastating impact on employment rates and wages. Many professionals faced salary cuts while some were temporarily laid off. So, keeping the uncertainty of the pandemic in mind, you need to figure out exactly how much you can afford to spend on your new home. You need to decide on a budget! This budget needs to include the initial down payment, the value of the new property, and associated costs such as the fees of the real estate agent, buying home insurance, paying land and property taxes and so on. If you’re looking for properties in Telford, first and foremost, you need to sit down and figure out your finances before you even start getting in touch with estate agents in Telford. When you start looking at properties, make sure that you only look at properties within your budget. It is straightforward to look at properties that are way beyond your budget and fall in love with them, but paying off the enormous mortgage for all those years to come isn’t going to be as easy!
What type of loans is available for you to buy your new home?
Don’t just speak to one or two lenders and apply for a mortgage. You need to talk to as many lenders as you can so that you can find the best mortgage and lowest rate of interest. Also, you need to find out about the different types of loans that are available to you. For instance, the UK government has announced a mortgage guarantee scheme that will launch in April 2021. Under this scheme, buyers will only have to pay 5 per cent of the deposit for the mortgage instead of a whopping 20 per cent down payment. Also, if you are a first-time buyer, you can use government schemes such as the Help to Buy scheme and the Shared Ownership scheme. Make sure that you do your due research about the types of loans and schemes that are available in the market today. After all, money saved is money earned! Also, try to make the most of the stamp duty holiday as that will allow you to save a few thousand pounds on your new purchase. So, you need to find the loan that is the most beneficial for you while timing your purchase correctly so that you can save as much money as possible.
Have you started working on your credit score?
You need to start working on your credit score months before you even think of applying for pre-approval for a mortgage. That means you need to start working towards improving your credit score at least 8 to 10 months before you start looking at potential properties. Start by paying off all your debts and clearing your credit card payments. Ensure that all your bills are paid on time and that you do not have any outstanding credit card bills. If you are thinking of taking a car loan or any other major loan, hold that off till you get pre-approved for your home mortgage. You need to try to be as debt-free as possible. The higher your credit score, the better your chances of getting pre-approved for a mortgage, especially since banks and lenders have become very strict about their lending criteria during the Covid-19 pandemic. If your credit score is not up to the mark, the chances are that you might be rejected for the loan, or you might get a mortgage at a very high rate of interest. You should also lower your debt to income ratio, which is your monthly payments divided by your gross monthly income.
In conclusion, before you start dreaming about buying your new home, you need to be financially ready to buy your new home; hence your finances need to be in order.