couple taking out a home loan

Money Talk: Should You Get a Home Loan Now?

A residential property is often considered by numerous people as their most expensive purchase. Indeed, a home costs a hefty amount, and to add to that, there are many other expenses to cover for its maintenance and upkeep such as repairs and remodeling. This makes it overwhelming for multitudes to finally decide on buying a home. However, can buying be a better option than renting?

Of course, renting is much cheaper than buying a residential space. The median home price in Arizona amounts to $248,300. In more expensive states like New Jersey, which ranked 10th in CNBC’s list of states with the highest cost of living in 2017, and Massachusetts, which ranked third, the average home price goes up to $555,231 and $604,205 respectively.

However, when you rent in an Arizonian city like Tempe, you’re likely to pay $1,056 per month. As a comparison, the average median monthly cost of an owned home is $1,402 with a mortgage and $449 without. If you assess these numbers, the monthly fees don’t have a gigantic gap like most expect. Thus, purchasing a home is a realistic objective.

Don’t Want to Rent? Get a Mortgage

realtor handing house key to coupleIf you lack the adequate funds to finance your first home, you can opt for a home loan in Tempe from a bank or lender of your choice. Below, we’ll discuss the two common types of home loans:

  • Fixed-rate Mortgages

This type of mortgage gives a set interest rate on the borrowed amount for a specific number of years. Most commonly, the terms range between 15 and 30 years. A fixed-rate loan enables a borrower to set mortgage repayments for a number of years, meaning the installment rates will not change or be affected by inflation during that particular time. Additionally, as the mortgage can be spread out to a prolonged period, the monthly payments are relatively affordable.

  • Adjustable-rate Mortgages

These have lower interest rates than their fixed-rate mortgage counterparts. The monthly payments also tend to be lower. The repayment is set for only a number of years and after that fixed period, the loans will be reset.

The disadvantage, however, is that the interest rate may rise after the set period. Yes, there’s also a chance that you’ll pay a lower interest rate, but the point here is it doesn’t provide the certainty that a fixed-rate mortgage gives to borrowers. Still, it’s a good option for those looking for a home loan with low repayments.

The Dos and Don’ts of Getting a Mortgage

Dos

  • If you plan to stay for long in the home you’ll be purchasing, a fixed-rate mortgage is more advisable.
  • If you plan to move within the next five to seven years, opt for an adjustable-rate mortgage instead. This is because if you sell your house within five years, you’re likely to pay more in interest when you have a fixed-rate mortgage.
  • Have more than just one source of income so you won’t be financially burdened during undesirable situations like getting terminated from a job or generating less profit from your business.
  • Choose a credible bank with an established business history and an excellent reputation.

Don’ts

  • If you’re planning to rent your property, don’t rely fully on rental income to pay your mortgage. According to The Balance, once your occupants move out and your stream of passive income stops, your personal expenses will suffer.
  • Don’t apply for a loan if you don’t have a stable monthly income or are currently unemployed.
  • Don’t get another loan to pay for your mortgage during a financial crisis as this may cause your debts to pile up.

A home loan allows you to bid goodbye to life as a renter. However, it’s important to weigh up all the factors before finalizing your decision. Consulting an expert in the field is also beneficial in selecting the best option for your financial capacity.