The journey to buying a house for first-time buyers is long and hectic. There are so many jargons, actors, and properties to consider. The minute you understand the terminologies, get a good realtor, and identify a property, you have to secure financing. Understanding what lenders look for when giving loans and financing increases your chances of securing finances as a first-time homebuyer.
Sources of Loans and Financing
Sources of loans and financing for first-time homebuyers include banks, government agencies, private lenders, and credit unions. The difference is the terms, amount, and cost of financing. Financing may take the form of regular loans or mortgages. A first-time homebuyer should consider the loan terms and the interest rate before signing for a loan. For example, a mortgage offers a long repayment period with fixed or adjustable interest rates.
How to find sources of loans and financing as a first time home buyer:
- Conduct an internet-based search
- Approach real estate companies
- Contact your bank
- Visit the Housing Department
- Attend home exhibition
- Get referrals through your social network and trade unions
What do Lenders Look for?
The Ability to Repay
Financial lenders provide loans and financing as an investment strategy. Therefore, they are concerned about the client's ability to pay. This concern is serious for first-time homebuyers since they have no previous real estate purchase history. In assessing the capacity to repay, the lenders rely on credit history and clients' income. The credit history is available through reference bureaus. A higher credit score increases the chance of getting a loan and financing for a first-time homebuyer. Besides, the client's income history through bank statements and payslip show the capacity to repay.
Collateral
A first-time homebuyer may get a secured or unsecured loan. However, most financial lenders offer secured loans against a valuable asset of the same or higher value. For example, the lender owns a mortgage-financed home to act as collateral until the borrower repays the loan in full. Collateral acts as security in case of loan defaulting. Thus, financial lenders use collateral as a tactic to avoid bad debt.
Down payment
A first-time homebuyer is expected to make a down payment for the property to qualify for a loan. The down payment is a fixed percentage of the total loan value, and it varies across lenders and jurisdictions. Practically, the lenders require the borrower to pay an upfront sum of a few months of the principal, interest, and tax charges. The down payment acts as a reserve and commitment.
A first-time home buyer should understand the loans and financing available in the market. The buyer must demonstrate the capacity to repay, provide collateral, and make a down payment to qualify for credit financing.
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