It is normal that when you think about mortgage credit you feel a little anxiety because it is a long-term commitment with a financial institution and it is also one of the most important steps to get closer to your own home. To leave that feeling behind, it is important that you educate yourself on the subject and that you consider your financial situation and the options available in the market.
There is no one perfect home loan for everyone, but don’t worry! It is possible to find the right option for you, considering your finances, the type of property you want to buy and how the credit rates are.
Factors when choosing a mortgage loan
The following four factors will allow you to start the analysis:
1. Ability to pay
Since this is a significant investment, you must be sure that the home you want to buy is really within your reach. Our basic recommendation is that you have clear your income and your expenses, so you will have a starting point of how much you could allocate to pay a mortgage.
If you prefer, our payment calculator will allow you to know how much you could pay per month and what is the total amount of credit that you could obtain.
2. Savings for upfront and closing costs
Although the objective of the mortgage loan is to cover the largest percentage of the value of the home (70% – 80%), for financial entities it is not only important that you have how to respond for it, they also take into consideration your ability to make the payment initial and closing costs, those that we often forget, such as payment of deed and notary.
It’s a great advantage if you can cushion your purchase with a little home equity at the start of the acquisition.
3. Duration of the loan
The duration of a mortgage loan varies according to the financial institution and your payment capacity; there are loans for 10, 15, 20, or even 30 years.
If your budget allows you to make a higher payment, having a shorter loan could generate two benefits: a significant reduction in total interest expense during the life of the mortgage and a better mortgage rate.
4. Mortgage interest rates
The interest rate is the extra price you will pay to borrow money to buy your house and it is a key factor in choosing the loan, mortgage rates vary a lot! At this point you have two options:
- Fixed rate: pay the same percentage during the entire term of the credit
- Variable rate: let it move with the market and adjust annually
Errors when applying for a mortgage loan
Joy, fear, enthusiasm, satisfaction and uncertainty. Buying a home is a roller coaster of emotions, where a bad decision or a small mistake can turn it into a real headache.
1. Not having economic stability
We do not recommend buying a home if you are one of those who like to constantly change jobs. A mortgage loan is a long-term commitment, so it is important that you have job stability and good income to cope with the debt.
2. Don’t compare credits
Each banking entity handles different interest rates, terms, modalities, financing percentages, conditions and/or requirements. Although we cannot tell you which bank is better than another, there will surely be one that best suits your needs and payment facilities.
Visit at least three banks and compare the credits they offer you, so you will be clearer about which one is the best for you.
3. Request an inappropriate term or value
The idea is that the monthly instalments and the term granted are the most comfortable to pay. We know that you want to get out of credit as soon as possible, but asking for a lower amount than you need or requesting a short term can cause problems in your pocket when paying the instalments.
In the same way, applying for a mortgage loan for a higher value or with a long term, you will end up paying more money in interest to the bank.
4. Ask for it with your partner
Applying for a mortgage loan with your partner is not a mistake, the problem is that many couples rush to buy a home without being emotionally and financially prepared.
Before making the decision, they must question how they see themselves in the future, if they have enough stability and if it is the right time to do it together.
5. Sign the sales contract without the approved credit
For nothing in the world do you sign a sales contract without having the credit approved? You must first check with the financial institution the status of your application and then sign.
6. Not knowing your credit history
Before applying for credit, it is recommended that you check your credit bureau to make sure that everything is in order and that your credit history is clean.
Remember that if you have been defaulted on your debts in the past or have a pending payment, there will be a greater possibility that your application will be rejected.
7. Don’t seek professional help
The home buying process can become complex and exhausting, even more so when you are inexperienced in the field. That is why an excellent idea is to consult with a real estate specialist to guide and accompany you throughout the process.
Do not make hasty decisions, analyze all the available options and if you have doubts, learn in detail how to select a good mortgage loan or receive free advice from one of our specialists.