Should you take out a mortgage for your first home?

Should you take out a mortgage for your first home – There are numerous pros and cons of taking out a home loan and purchasing property.The biggest problem is that it is probably the most expensive asset you will buy in your lifetime,and you will be paying back this loan for the larger part of your life.

Factors on which you will be assessed for a mortgage

There are numerous factors for eligibility that will come into play when you go to a lender and ask for a home loan.If you fulfill most of these conditions,you will be granted the funds and in most cases,even if you do not meet the requirements,you will probably be given a smaller loan,higher pay back rate of interest and shorter tenure.

income – the first and biggest factor that you will be evaluated on and on what your repayment capacity will be established is your current income.This is much easier if you have a regular full time job that shows fortnightly income proof.Owning a business is a little harder,as businesses are risks by themselves and does not provide a steady income flow.

debts – A no brainer here,the lesser the debts you have currently will greatly affect the amount of home loan that is sanctioned to you.Having higher debts puts you in a position where you will find it harder to fulfill all your financial obligations and reduce your chances of having enough at the end of the month to pay off your mortgage.Therefore,ensure that you have next to nil debts before applying for a mortgage.The only exception to this is having some credit card debt,because this usually is a small amount and in most cases is easily repayable.

credit history – Your past tells the home loan lender more than the future can – let me tell you something about people and attitudes- They NEVER change.Spending and financial habits seldom change.If you were bad with financial decisions and debts in the past,there is a GOOD chance you will be the same later on.If you have a bad history of debts it will reflect in your credit report.

This may not cancel you out to get a mortgage,BUT it will most definitely limit your chances at securing a larger loan and you will given a sub prime loan.

mortgage amount – What you deserve you may not always get- When you apply for a home loan,this means you are keeping the same house as collateral in lieu of the amount the lender or bank is giving you.If your past repayment capability and history has been weak,it would make sense to apply for a smaller mortgage amount and live within your means.

With this,you will not only be comfortable paying back the monthly payments but this will gradually reflect on your credit standing and will continue to get you higher a few notches on the good credit scale

When is it time to take out a mortgage?

What most people do is try and ask for the maximum possible mortgage amount that the lender will give to them.This is wrong on so many different levels.Not only will you end up in higher debt over the course of the entire 25 or 30 year term but it will cause you financial stress of repaying that huge mortgage EVERY – SINGLE- MONTH.

So what do you do?

You limit your loan.You ask for a smaller loan and put forward a large down payment.This should be your first course of action.Save for a few years as much as you can,pool resources with your partner or spouse,live on rent in a cubbyhole,live like a frugal hermit,borrow a bit some relatives and put it into a downpayment fund.

This fund will give you an immense amount of financial stability when you finally secure your home loan.This in turn will reduce your monthly mortgage payment and give you room to spend on other essentials and live a happy life.

Is taking a mortgage worth it?

For many people there is no other option.The cheapest home in a mid size city is atleast $50,000.Very few people can save upwards of $50,000 and put this entire amount into purchasing property.

Not only is it difficult,but its not wise.There are many reasons why taking a mortgage is actually good.Your timely monthly payments will give you positive points on your credit score and will pave the way for easier future loans if you choose to take another at a later date.

Work the system – Same way like credit cards,the banking system can be utilized to make your life easier.Take advantage of that.Take out a small loan,even if you do not need it and pay it back every month.It keeps your financial health in check and also gives you extra spending power to increase your quality of life

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