Buying your first new property is a massive step in the right direction for several reasons. First, it’s your entrance to the world of property ownership and all the responsibility and privileges that go alongside it. Second, it’s a major financial decision, which will require you to develop a whole new understanding of topics such as financing, mortgage, and more. All in all, it’s a massive commitment, and the more you learn about it, the less likely you are to make a mistake that you will come to regret. Seeing as how these two topics are so tightly intertwined (buying property and getting a loan), here are several things you need to know about it.
Hire a financial advisor
The first thing that you need to do when buying a home is to hire a financial advisor. The first thing that this will help you with is to figure out how much house you can truly afford. Buying a more expensive place than that will make your life so much more difficult than it has to be. Sure, there are some decent online calculators that you can check out, however, it’s dubious exactly how accurate they are. This is why it’s for the best to just go to a professional.
There are some other questions worth asking on this topic like what are the maintenance and repair costs that you’re going to face as a homeowner and whether you’re really prepared for this. You should also ask what your mortgage options are. All in all, there’s so much for you to consider out there and with the right help, you’re more likely to make the right choice.
Try combining loans
You need to understand the fact that the majority of people finance the purchase of their first property by going for a long-term loan. This mortgage is usually obtained through banks and credit unions. The number of available lenders is fairly high, seeing as how mortgages are usually seen as the most reliable of the loans. The problem lies in the fact that the loan in question isn’t enough for the entirety of the purchase. What about the down payment and numerous fees involved in the purchase? Well, here you might want to go for a different approach.
Ideally, you would have this money in your savings account, however, if this is not the case, you might want to go for fast cash loans instead. Sure, there are numerous alternatives to this, as well, like borrowing money from parents, checking out government programs or considering 100 per cent financing. Still, by just going for another loan, you’re choosing the most self-reliant method out there, which is a massive help. Provided that you have a great previous credit score, this method is truly an outstanding one.
Alternative mortgage options
Previously, we’ve mentioned the fact that you might have to set aside as much as 20 per cent as a down payment, however, this is just the most common of many options. You see, there are some mortgages where you get to pay as little as 5 per cent down. This will give you more maneuvering space when it comes to various renovations and repairs. With this option, you would be able to consider investing in homes that would otherwise be completely out of question (due to your funds and the state that they are in).
Nonetheless, keep in mind that a lot of these loans come with their own set of terms, some of which may not work to your advantage. Still, in a scenario where you’re dead-set on getting yourself property and are completely aware of the fact that you can’t afford this down payment, this may sound like the best choice. The list of lenders offering these services is also quite high, which allows you to do some shopping around.
Start as soon as possible
One of the biggest misconceptions that a lot of people make, when it comes to buying their first piece of property, is the idea that they should wait until they’re in the more financially stable territory. The problem with this idea lies in the fact that the majority of mortgage loans take 20 to 30 years to pay off. This means that, for your first real estate, it would be ideal if you could start in your 20s. Keep in mind that this is great regardless if you’re planning to get a family home or if you intend to turn a place into a rental property, further down the line. Even if the latter is the case, this way the property will start generating profit a lot sooner, which is also a huge plus.
The benefits of this mindset are quite numerous. First of all, real estate can serve as a hedge against the market. Whenever you’re looking for a way to invest, diversifying your portfolio is definitely a great idea. Second, if you decide to buy and immediately rent out the place, you can substantially bump up your cash flow, which is a considerable plus, especially for a person in their 20s. Not to mention the fact that rental and residential aren’t your only two options. Being a house flipper is a completely legitimate financial strategy that you should consider.
Get in touch with professionals
Previously, we’ve mentioned that you need to get a financial advisor on your side, however, this is not where your expert outreach should end. You see, a financial advisor can only give you a tip on whether you should buy a property and not which property you should buy. This responsibility should fall to someone more familiar with real estate. For this very reason, you need to find yourself a buyer’s agent. This is a person who knows enough about the subject matter and has the necessary connections in the industry in order to unveil whether the property in question is worth your money.
Other than this, you need opinions from numerous experts such as pest inspectors, plumbers, electricians and professional contractors. Don’t get us wrong, the place doesn’t have to be in a completely flawless condition but it does need to show potential. As a layman, as well as someone who has never before owned a property, chances are that you will be unable to recognize this potential. This is why you need the opinions of those who are skilled and experienced enough for such a task.
What you need to keep in mind is the fact that some of these people are going to be involved in these extra works that you intend to make, later on. For instance, for a faulty plumbing system, you’ll need to remodel your home’s plumbing. Who’s better to undertake this work than the plumber/plumbing agency that you’ve taken to inspect the property. For those who intend to fix and flip homes (especially if it’s in the same area) collaborating with the same people over and over again can, indeed, make the difference.
Improve your odds
Getting a great loan is not a simple thing, however, it is something that can be done quite efficiently. Generally speaking, there are two major loan types – secured and unsecured loans. Due to the fact that you have no previous property, you’re most likely to go for an unsecured loan. In fact, even online lenders ask for your credit score before offering you terms.
A credit score is a three-digit number that ranges between 300 and 850. This figure determines how trustworthy you are as a potential borrower. In order to make a profit, lenders are balancing between profit and risks.
In order to improve your odds and provide yourself with superior terms, you might want to start by increasing your credit score. How does this work? Well, you first need to understand what the credit score consists of. In plain numbers, about 35 per cent of your credit score depends on your payment history. Paying in time (or missing your payments) will mostly impact your fiscal trustworthiness in the eyes of lenders. Second, the amount of money that you owe is another 30 per cent of your score.
In order to improve your credit score, you need to try and become more vigilant when it comes to your monthly payments. Alternatively, you could consolidate your loans in order to minimize the chance of missing a payment. A single payment is harder to miss than a plethora of payments. Apart from this, you need to avoid closing credit cards that you’re not using. Why? Well, because it shortens the length of your credit history. It really is that simple.
Not every lender is asking for minimal paperwork, which is why you want to get your documentation in order.
Is this really a priority?
Previously, we’ve discussed the idea of buying property to diversify your investments, and we’ve gone to lengths to explain why this is such an important thing to do as soon as possible. However, is this really a priority? Should you invest in property before you even have an emergency fund or are there better deals that you can access? Well, this is quite a subjective question that you should address to your financial advisor. For instance, if you intend to start your own business, you might want to do so first.
In conclusion
As you can see, the issue of financing your first property is not the only one that you should concern yourself with. The question of should you take this step and when is just as important and it’s your job to make all of these factors align to your benefit.
