Amidst the excitement of looking for a new home, there are some things you should know. Your mortgage would most likely be your most significant, long-term debt commitment. You should therefore make sure you understand how they work and how to prepare yourself for buying a home.
1. DON’T make late payments on your bills
1.DO cultivate a sound credit history
It is important to ensure that your credit history helps you by boosting your eligibility for mortgage financing, instead of working against you. To develop a good credit profile, make timely payments on your consumer loans and credit card. You may even consider paying off any outstanding balances on your credit card first, since this form of debt carries the highest interest.
We are often not aware of the negative impact that a poor credit history would have on our ability to obtain financing in the future. Missed or late payments on existing and/or previous forms of financing (loans, hire purchase, credit cards etc.), adversely affect your credit history.
2. DON’T fall for low introductory interest rates
2.DO know your loan options
Before you start shopping for a mortgage, learn about the different loan options available to you and what they have to offer. For example, does the mortgage have a fixed or a variable rate?
Many homeowners are attracted to mortgages that offer low mortgage interest rates. However, they realise later that these rates are often variable; they are reviewed annually and may change on the anniversary date of the mortgage. A mortgage is a long-term debt commitment, so you should aim to ensure stability and affordability for the lifetime of the loan.
TTMF is known for the stability of our interest rates. Our rates do not vary based on market conditions, so our customers are never caught off-guard by unplanned increases in their mortgage balances. From now until December 31st, 2020, we are offering persons interested in buying a home the opportunity to lock in a reduced interest rate of 4.75% for the first 5 years. You can learn more about the Word to the Wise offer here.
3. DON’T make a Downpayment before being Prequalified
3.DO know what you can afford
Getting Prequalified helps you understand what you can afford when house hunting. It is especially important to ensure that you are pre-qualified by one of our Customer Service Representatives for the mortgage amount that you are hoping to secure, before signing the agreement for sale and paying your down payment on your new home.
Pre-qualification is very critical where the mortgage to be granted is for construction purposes, as this would guide you in your discussion with your building contractors regarding the size and stature of the home to be constructed. Learn more about our pre-qualification process here
4. DON’T borrow as much as you can
4.DO borrow only what you need
This may sound funny, but many persons mistakenly borrow as much money as possible in a bid to minimise the down payment that they would be required to make. However, this increases the interest costs payable on the mortgage as well as the length of time to build equity on their home.
As a rule of thumb, your maximum mortgage instalment should not exceed 33 1/3% or one third of your gross monthly income. Many financial advisers even suggest that limiting your housing costs (i.e. mortgage payments, property taxes and homeowners’ insurance) to 25% of your gross income is much more sustainable and allows you to better manage your other expenses.
5. DON’T forget the additional fees associated with your mortgage
5.DO budget for closing costs
People often neglect to budget for closing costs when planning to buy a home. These costs typically include legal fees and charges (the most significant of which could be stamp duty in respect of the Deed of Conveyance), prepaid homeowners’ insurance and other property taxes, and where required, mortgage indemnity insurance. You should plan for your closing costs and ensure that you have the cash available for these payments when they become due. We can provide you with an estimate of these costs. Generally, your closing costs range from 5% to 7% of the mortgage amount.
6. DON’T spend all your savings
6.DO cater for additional costs
Many first-time homeowners are unaware of the need to prepare for unforeseen costs. We advise a safety net, the equivalent of three month’s living expenses to cater for things that may arise like the need for added water tanks and pumps or a security system.
TTMF is here to help
You may be overwhelmed by the cost, paperwork, and time that is involved in the mortgage application process but take comfort in knowing that we are here to help. Adhering to these simple, yet critical, guidelines would help you to achieve this significant milestone. Allow us to take you from here…to home.
It’s great to have a place you can call your own! As we explored in our Rent or Own HomeSmart blog, homeownership can open up many possibilities. Beyond allowing wealth to pass down from generation to generation, owning a home can help you achieve other goals through home equity financing.
What is Home Equity?
Simply put, the equity in a home is the difference between the market value of the home and the outstanding balance on the mortgage for the home. For example, if your home is worth $1 million and you still have to pay $400,00 before your mortgage is fully paid off, then you would currently have $600,000 in home equity.
How Home Equity Builds
When some people think of homeownership, all they can envision is the burden of a mortgage. But let’s talk about the value of homeownership in terms that everyone can understand: Money! Every home has a market value i.e. a price that a buyer is willing to pay for it. That could be $1 million, $2 million or even $8 million dollars! There are a variety of factors that can impact the value of a property, including where it is located and how well it is maintained. Over time, the property can become more valuable if, for example, a major shopping centre or highway was constructed nearby or if the owner added improvements to make the home more attractive such as an updated kitchen or if the living space is increased by adding an annex. Therefore, the equity in a home, can increase if the value of the property increases.
Additionally, each time a monthly mortgage instalment is made, the outstanding balance is reduced. Therefore, home equity would gradually increase each time you make your mortgage payment.
How Home Equity can Help You
You can use home equity financing to:
Consolidate debt from high-interest personal loans, credit cards etc
Renovate your home –Remodel or make major improvements to your home to live more comfortably and/or increase the property value
Pay tertiary education for you or your children
Pay medical bills such as major surgeries not covered by insurance
Finance any major expenses g. purchase another property
Here’s how it’s done:
Get a valuation done on your home from a provider on our panel, to determine its market value
Request information on the outstanding balance on your mortgage
Calculate your home equity by subtracting the outstanding balance from the value your home. This is the maximum amount available to you.
Get prequalified to determine how much you can borrow.
Apply for an Equity Loan that does not exceed how much you qualify for or the amount of equity in your home, whichever is lower.
From now until December 31st, 2020, we are offering homeowners a reduced interest rate of 4.75% for 5 years when they access a home equity loan for at least $100,000. Learn more about our Word to the Wise offer here.
Get an Estimate
Our online mortgage calculator gives an estimate of how much you could qualify for, given your income, age and debt, as well as how much your monthly mortgage payment could be. Give it a try!
You may be thinking, “With everything that’s happening in the economy, maybe I should put off buying a home or land for now.” While it is smart to be cautious during challenging times, it may be wise to consider home ownership sooner rather than later. Here’s why:
In today’s market, the general starting price of a home can be upwards of a million dollars. Depending on the area you prefer to live or the amenities you are looking for, the cost could be even more. Additionally, prices tend to increase over time, therefore, waiting longer to buy a home could mean a higher price in the long run. If you can afford it, buy now to take advantage of current prices before they go up.
Manageable Payments over a Longer Time
Younger homeowners will have a longer time to pay off their mortgage before they retire. The longer repayment period means that their monthly instalment would be lower and more manageable as well. If you start your home ownership journey later in your life, you will have a shorter time to repay and your monthly instalment would also be higher. Therefore, an early start will make your installments comfortably smaller and you’ll have a longer time to pay off your mortgage. We offer mortgages with terms up to 30 years.
Building Value over Time
Over time, your property builds equity. What is home equity? Simply put, it is the difference between the market value of your home and the outstanding balance on your mortgage. With each payment of your instalment, your outstanding balance is reduced and the equity in your home increases. You can use home equity to acquire a loan to help pay for important or urgent expenses, such as tertiary education, medical expenses, home repair, once-in-a-lifetime travel etc. The sooner you decide to buy your own home, the longer the term of your mortgage loan and the more home equity you will be able to build up.
Put First Things First
Yes, you deserve to enjoy life – a decent car, your favorite electronics, recreation and so on. Having your own home should be on your list of must-haves. If you keep waiting until you are 100% ready for that step, before you know it, time and opportunity would have passed you by.
Remember, you don’t have to delay your dream of homeownership until you find your dream home or have enough money to build a mansion. You can consider getting a starter home that meets your current needs, a fixer-upper that you can customise or build an extension to existing family’s property. If you delay too much, later on, you may regret not starting earlier when property prices were lower or when interest rates were more favourable.
Limited Time Offer
From now until December 31st, 2020, we are offering persons interested in buying a home the opportunity to lock in a reduced interest rate of 4.75% for 5 years. You can learn more about the Word to the Wise offer here. This is a great offer for those who are ready to become homeowners for the first time, or those who are looking to move on to their second home, upgrade or re-finance their home.
TTMF is here to help. We can guide you from the first day you walk through our doors to the first time you walk through yours, and beyond. The first step to home ownership is getting pre-qualified. Let’s get started!