Buying a house to call their own is almost every person’s dream, but this dream comes at a steep price. Buying a house is not a long-term investment, it is a lifetime investment. Don’t think of this investment as one that will finish as soon as you have paid off your debts, because the cost of buying and living in your house is pretty much a fixed expense! Buying a new house is always a big step, but it is important to have your finances in order to actually finance this step.
1. Credit score
A good credit score is very important to get a good loan for your new home. Most new home buyers do not put enough emphasis on their credit score, whereas, the reality of the situation is that you need to start looking and (and repairing if required) your credit score 10 to 12 months before you think of applying for a loan. Just because you assure the bank you will make payments on time does not mean that your credit score will not be considered.
Basically, the better your credit score the better your interest rates, and the worse your credit score the worse the interest rates. And when you want to take a house loan, it is best to have a good credit score so you can get a low-interest rate! Usually, a good credit score starts at 700, but again, that depends on your bank. If your credit score is below 700, it is best that you spend 6-8 months working on improving your credit score before you try to secure a loan.
2. Sufficient income
A bank needs to see that you have enough money to pay them back; your word will not suffice. This is the first advice given by estate agents Bicester – always have more than enough money in your bank account! Let’s assume your gross monthly income is £4000. This amount will help you qualify for a mortgage loan which requires a monthly payment of £1200 to £1500. So the higher your income, the more money you can show in your bank account, hence the higher your chances of securing a loan.
Always remember, you do not just have to pay the monthly interest; your bank account needs to reflect that you can comfortably pay the down payment, monthly interest, property tax and even home insurance. After all, a money trail never lies. So, make sure you start saving – that way you will have enough money in the bank to show. This needs to be done at least 8 to 10 months before applying for a loan, however the sooner the better.
3. Overall budget
The rule of thumb when it comes to buying a house is – do not buy a house which costs more than 2.5 times your annual salary. By setting a budget for yourself, you can start getting your finances in order accordingly. If your gross salary is £4000 per month, that makes your annual salary £48000.
By using the rule of thumb, you should look at houses which are around £1200000. Once you have a budget, you can set aside money for the down payment – that is never a small amount! By knowing your budget, you can easily calculate how much of your gross income you should start saving every month for the basic costs such as down payment, legal fees, stamp duty and other such formalities. If you buy a house within your budget, you will easily be able to pay off your mortgage loans and monthly interests without feeling a pinch in your pocket.