Who wouldn’t want to have their own house? There’s nothing nicer than having a roof over your head and a place you can call home, after all. But buying a house is not as easy as shopping for clothes — and it is best for anyone interested in a home purchase to be fully prepared. Now, sure, any person with internet access can look up a quick guide to housing loans, but these articles may miss out on typical mistakes people commit. So, here, that’s what we will focus on: making sure that you avoid these pitfalls. Here are four of them:
Mistake #1: Committing Too Much Money
The desire of wanting to be a homeowner can get in the way of being realistic about your finances. Keep in mind that if you’re applying for a home loan, chances are you will have to pay 20-30% of the property’s price as a downpayment. Be careful not to blow all your savings here, as there are other expenses that will come up moving forward.
There’s also the issue of saying yes to overly high monthly repayments. Just because the bank has approved your loan does not mean that you should commit, say, P45,000 a month out of your P60,000 salary. Leave enough income to pay for other expenses, investments, and emergencies while you’re paying off a home loan.
Commit a sustainable percentage of your income for the mortgage vis-a-vis your financial capacity.
Mistake #2: Downplaying Interest Rate Percentage Points
It’s easy for homebuyers to think that the 0.5% difference in the interest rate is negligible, but that is not the case. A house purchase amounts to millions and the “small” number of 0.2 or 0.4% could mean thousands of pesos paid in interest. Crunch the numbers yourself and be sure that your calculations are correct before committing to anything.
Mistake #3: Keeping a Bad Credit Score
The concept of a credit score isn’t for homebuyers in the West only. Remember that this is a numerical representation of your capability and history of paying off debts in a timely manner. A low credit score would reduce your chances of getting a home loan approved, not to mention increase the interest on any other loans you may qualify for. A year before you apply for your loan, look up your credit report and try to improve on it.
Mistake #4: Neglecting Other Costs
It’s not just the home loan that you will have to pay for. Interest rates aside, there are also insurance premiums, registration fees, mortgage redemption, and other costs that you would have to shoulder. Of course, once you’ve actually purchased the property, you have to factor in the cost of living there as well, from increased usage in electricity to homeowners’ association dues. All these things should be part of your budget before you even fill out a home loan application form.
It is easy to feel excited and get carried away by the prospect of finally buying a house, but expectations should be managed accordingly. The home loan is just the first step of many. Go about your home purchase the smart way and avoid making mistakes from this starting point and beyond.