Planning on buying a house? That’s great! But are your wallet and bank account ready?
A lot of people think they’re prepared to buy a house, but when it’s time to apply for a mortgage or home loan to help pay for their dream homes, they find out that they aren’t quite ready yet. And sometimes, they find this out only when the bank rejects their loan application.
If you want to make sure of your financial capacity to buy that perfect house, just follow these five simple steps to get your finances in order.
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Know What You Can Afford
How much are you currently earning every year? Multiply that by 2.5, and that is how much you should be aiming for when looking for a house. If you have debts or other financial obligations, like currently paying off your car, or having credit card debt, you might want to set that new house budget a little lower. This is because you won’t want to be overwhelmed by too many financial obligations and end up in debt.
"It's nice – but I should come back after I invade an oil-producing nation or two." Photo by Michael D Beckwith on Unsplash.
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Start Saving
The down payment for the home you want can go from 10% (if you’re lucky) up to 30% of the total costs — and it all depends on your income and how much you can afford. Now, if the average home in Petaling Jaya costs RM750,000 and your down payment is at 20%, you’ll have to fork out RM150,000 upfront. Yes, you could use your EPF money to offset that amount. But what if it’s not enough? You might want to start saving up for your dream house at least a few years in advance!
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Improve Your Credit Score
Ask for a copy of your credit score and review it. Are you in the red? If you are, you might want to start working on clearing up your credit score and improving it. If there are errors on your credit report, contact the reporting agency as soon as possible!
Pay off all your debts and other financial obligations to start improving your credit rating. This is because a bad credit score will likely affect your ability to get approved for a home loan. You might get higher interest rates from banks due to your bad credit, or worse: they might not let you borrow money for your mortgage at all!
Don’t just stop there. Go the extra mile by maintaining a good credit score before, during, and after buying a house and getting your mortgage. Lending agencies may sometimes look at your credit score halfway through your mortgage period to determine if you are liable to be at risk and see if they need to increase your interest.
Read: 5 Tips for better debt management here.
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Compare Housing Loans
Mortgage plans are not created equal. Even if two mortgage loans have the same interest rate, one mortgage loan might have a longer loan tenure than the other. Because no two mortgage loans are the same, you have to compare the various mortgages available to you. You should look into many things when comparing loan offers. Interest rates, loan tenures, benefits, and the loan premium are just some of the things you want to compare.
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Get Pre-approval
Getting pre-approval for a home loan means that you will have a better sense of how much you can borrow, as well as the price range of the houses you can buy. Pre-approval of a mortgage gets you a step ahead at a competitive real estate market.
Just take note that pre-approval for a mortgage is based on your actual income, your credit score, and your credit history. There might also be other requirements for a mortgage pre-approval, so make sure to check with the bank what you are looking to apply for. This is why it is important to compare the loans before getting pre-approval.
When finally applying for your home loan, make sure all your financial records, requirements, and other papers have been prepared so your application process is smooth and hassle-free! Once you’ve made that down payment, you’re one step closer to living in the house of your dreams.
The original version of this article was published by CompareHero.my, a site dedicated to increasing financial literacy and helping you save time and money by comparing credit cards and personal loans in Malaysia.
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