Human life goes through a few major occasions such as the day when one takes birth, weds, and buys a new home, etc. A task like buying a new home can be quite a hectic piece of work. At the same time, it is also a life-changing decision as it takes an enormous amount of money to buy a home of your dreams. Also, to make the home buying deal cost-effective and delightful, you may have to think deeply and carefully about location, locality, and funds arrangement. There is one more thing that you will require to do. And that is to stay away from the common home loan myth which is present in society. Only then you can buy a sweet home.
As a part of our holy attempt to make sure you never make a mistake that others do while buying a home or property, we are going to reveal some of the common prevailed misconceptions. All these myths and illusions are related to loans only. So, let's move on and get to find out what experts have to say:
Home Loan Myth No.1 Low-interest home loan is the best
Undoubtedly, at first glance, a loan with a low-interest rate appears to be excellent. And especially, when it comes to buying a home, a large number of people prefer to get the lowest interest home loan from banks, credit unions, and any other lender. But, there is a catch. If you get close to the ground level, you will be able to understand the point. And the point is that getting a low-interest home loan means that you would have to pay a big amount in the form of down payment. It further means you have to opt for a lower LTV.
So, as a result, you will miss the opportunity of getting standard funding financing services of 80% offered by many home loan lenders. Also, don't forget that low-interest home loan means you have to pay a premium for a longer time which may hamper your credit score. That's why experts describe it as a home loan myth.
Home Loan Myth No. 2. A short term loan is good for buying a home
The loan is something that we all want to get rid of as soon as possible. There is no doubt that paying EMI every month makes us feel stressed. So, a short term loan seems to be an ideal choice. But, hold for one second. That's not true. There is another way to look into this matter. Be informed that ideally, home loans are supposed to be a long term loan. In fact, lenders and many banks seem to happily agree to wait up to 20 years for repayment. So, the idea here is not to leave room for continuous financial restriction by opting for a short-term home loan.
What you need to understand is the fact paying a high EMI amount can disturb your monthly budget. If you pay almost 50% of your total earnings, your daily expenses may start causing you trouble every now and then. Your situation may be like a soldier fighting at two opposite fronts. Eventually, the purpose of your home loan may be defeated. Hence, the solution is to get along with a mid-term loan.
Home Loan Myth No 3. We need an excellent credit score to get a home loan
There is no doubt that credit score holds significant importance when it comes to availing a broad range of financial services. Yes, the bank considers the credit score before approving a home loan to you. But, as we are talking about the home loan myth, it is worth noting that there are not the only banks that can finance your home. Don't forget that there are many NBFI companies available in the USA who also act as genuine money lenders.
A piece of good news is that NBFI (non-bank financial institutions) can give you loans even if the bank has denied it. Yes, you can get a home loan even if your credit score is not up to the mark. However, we recommend you to take it seriously and work to improve your credit score.
Home loans myth no. 4- Home loan with fixed interest is better than the floating interest rate
One of the false but common considerations is that floating interest rates are risky. But, if you get close to the ground level, you will find the opposite consequences. What may surprise you is that a home loan with floating interest always turns out to be less costly than the fixed interest rate home loan. Now, you may argue that what if the market gets down and interest rate increases. So, the answer to this question is- it happens once in a while. And even if the market gets down, it soon gets restored to the previous position or even may grow better than earlier. Eventually, the ups and downs in the floating interest rate result in no loss.
So, that's the end of today's lesson: Top 4 Home Loan Myth Exposed. We are sure if you disregard all above mentioned myths and misconceptions, you will be able to get a better deal. For more information and any kind of assistance, feel free to get in touch with us.