The Right Approach for Getting a Mortgage Loan Early in Your Life

  • Making timely monthly payments for a mortgage loan is a long-term commitment that you must work out with a lot of thought.
  • Lower interest with an extended payment period can lower monthly payment, but you must think carefully so that the total payout remains within a reasonable limit. 
  • Lenders attach a lot of importance to credit score and will carefully scrutinize your credit history.

With mortgage loans being readily available, home buying has become quite easy for all. If you are in your early 20s and dream of owning a home, it is now within your reach, courtesy of mortgage loans. Instead of staying in a rented home that simply drains your money, using the monthly rent for making the loan payment is always a good idea. Indeed, you must arrange for cash to make the down payment, but that is all that you must spend to own a home that costs many more times than what you pay. Be ready to pay 10% -20% of the property value as a down payment with the rest coming from the loan.  If you are eligible for FHA loans, the down payment would be as little as 3.5% only.

The benefit of taking a mortgage loan early in life is that although it is a big loan, you get ample time to pay it back. The fixed monthly payment that appears quite high at the beginning would seem quite comfortable after a few years as your income grows as age progresses. Home equity that grows quite fast together with the prospects of building positive credit history and availing tax deductions on interest payable are some of the top attractions of availing mortgage loan that can be tailor-made for you. The flexible nature of the mortgage loan makes it so attractive and popular.

Choose affordable monthly payment

Making timely monthly payments for a mortgage loan is a long-term commitment that you must work out with a lot of thought by taking into account your current repayment capabilities and how you could cope with it in future. This is very important because the inability to make payment could be disastrous as the lender who uses the property as collateral would not only take it back but also all payments that you had made up to the time would be forfeited. Therefore, you must weigh several options of monthly payments before finalizing a value that you would be comfortable within the long term.  

You can create various models of loan payment by using Karl’s mortgage calculator app. The calculator allows you to alter the factors like loan amount, term, down payment and interest rate to arrive at various monthly payment options. Lower interest with an extended payment period can lower monthly payment, but you must think carefully so that the total payout remains within a reasonable limit. 

Mortgage application processing takes time

To make up for the lower down payment that lenders perceive as a risk for them, they would insist borrowers take out Private Mortgage Insurance (PMI) to mitigate the risks.

The processing of a mortgage loan application takes time as it entails detailed scrutiny to assess the viability of lending on the property. Since the property is collateral security for the loan, it requires a thorough evaluation of the property documents like title deed and other related documents to ensure that it is free from all encumbrances and legally safe for investment. In addition, examining the creditworthiness of borrowers and determining the risks in awarding a loan requires checking of several documents of borrowers that takes time.   The lender would ask for the latest pay stub, SSN (Social Security Number), bank account statement of the last three months, documentation of all your debts and any other proof of assets.

Pre-approval of mortgage

Presuming that you have already located a property and made up your mind to buy it, the above set of documents should help you to obtain pre-approval for a mortgage. Pre-approval should help you to know the maximum loan amount and the estimated rate of interest.  You get an idea about where you stand and whether you should look for a property that costs you less. Moreover, pre-approval can make it easier to avail mortgage loan as you know what kind of property would be within your reach.

Credit score may be a problem

Lenders attach a lot of importance to credit score and will carefully scrutinize your credit history, but this can be a problem for young borrowers in their twenties because it is too early to build an impressive credit history.  Unless you have some debts, you cannot start building your credit score, and unless you have a good credit score, your chances of getting a mortgage loan are very bleak. In such cases, youngsters who have a student loan to their name would be at an advantage. The payment history of the student loan generates a credit history and builds the credit score. If you are regular in making a payment, you should have a good credit history that facilitates the process of availing mortgage loan.

Lower interest for better credit score

Besides facilitating your eligibility for a mortgage loan, your credit score is important for another reason too. Having a good credit score means that the lender looks upon you as a borrower with lesser risk and would not mind offering lower interest. Higher is the credit score lower will be the interest, and this is the reason that you should be careful about managing debts responsibly by making timely payments. Making it a habit of making payments on time will improve your accessibility to all kinds of credits and not mortgage loan only.

The down payment is a hurdle

For young home buyers, just as it is difficult to arrange for a credit score, similarly it is not at all easy to arrange for a down payment which might be a small amount as compared to the property value but yet quite big for the individual.  It is possible to seek lower down payment, but then it would end up in raising the outflow of cash every month because there would be some additional expenses in addition to the monthly payment for the loan. To make up for the lower down payment that lenders perceive as a risk for them, they would insist borrowers take a Private Mortgage Insurance (PMI) to mitigate the risks. You must pay for the insurance, but it protects the lender’s investments from risks and not yours. 

Taking a private insurance mortgage can lower the down payment as much as 5% and left to the home buyers to decide how they would like to handle down payment.  But in the end, it helps borrowers to own a home soon.

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trudyseeger

Trudy is a Business Tech Analyst. He is very responsible towards his job. He loves to share his knowledge and experience with his friends and colleagues.

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