Buying a home is very common now days but the decision making behind this process is often overlooked. I want to share some thoughts You should bare in mind while applying for a loan.
Should You get a loan at all?
The first thing I want to share is something I have seen many times – Young people are in the process of getting their first home. Salaries are at the level of probably making minimum required levels. They apply for loan in one bank and get
rejected or they are required to provide more collateral. This makes them little frustrated because bank is the bad guy who does not want to give out money. They go to relatives to ask for collateral (have done that in past) and get alternative offers from other banks. What I have learned is if the bank does not approve the loan then there is a good reason for it! Even if 1 bank out of 5 actually approves then think twice because You are at the lowest level of approval at that moment! Instead go over Your finances and see what should be improved and set some goals. If the income has to be 30% higher then spend all the energy in figuring out how can You raise it.
Can You handle the monthly payments?
This one is very easy to test out. Calculate the amount what You would pay every month for the home and start putting it aside! Do this for 3 months or more and see how it feels. Usually the bank does not allow the monthly payment to be over certain percentage, but many times it can be at about 50! So see how can You manage giving away 50% every month. When I decided to close all the credit cards and small loans (read here: bad debt) then we were left with the house loan which is at about 20% or less of my monthly income. This is a nice target to reach for!
Is it the home You really want?
I remember when we started looking for our home. For me many of the places we saw seemed like – this is the one! This was the desire to get my own house so I was not very clear in my thoughts. We saw maybe 10 different places when finally the real thing came out so It was wise thing to wait. I suggest to lay out different options and carefully think what do You see in each one. Also listen to Your wife! We almost bought a home in area that was drowning after every winter. At the day of notary we went to check on the house and my wife said: “This is a bad idea, lets not do this” and I remember wanting to fight this so much but I didn’t and it was a good choice!
These were some of my thoughts on getting a home loan. It is a long term decision so take time and think everything through!