The total amount of home loans in the US is at $14.5 billion by the end of 2020. Despite the increase, the delinquency rate for paying off mortgages decreased by 5.47% by the end of the second quarter in 2021. If you’re looking into applying for a home loan, you wouldn’t want to default on repaying.
When you’re seriously delinquent on monthly payments, the lender can demand you to pay the outstanding balance. If you can’t pay it, the lender can foreclose. It can also lead to lowering your credit score, decreased chance of securing a loan in the future, and a rise in interest on your current loan.
Of course, you don’t intend to default on a loan. There are tips and ways on how to handle and how to save on your mortgage to make sure that you can make the monthly payments.
Before You Even Apply For A Loan
Study loan offers from different lenders carefully. Take special note of interest rates, if they have early repayment and exit fees, closing costs, and other fees. Big and well-known banks may not have the best rates and may even have numerous fees.
Be sure to check on smaller financial institutions as well. Figure out how much you can afford for your dream house. Ideally, only 36% of your gross monthly income should go towards the mortgage and other debts. If you can afford it, you may want to consider making a large downpayment so that your monthly payments are reduced.
Making It Easier
Set aside the amount you need to pay for the mortgage each payday. Make it your priority so you’re aware of how much is left that you can use each day. It may be necessary for you to do away or reduce some luxuries such as eating out, getting expensive coffee, online shopping, or ordering in before applying for a home loan.
These may not seem a lot individually, but these all add up and maybe a cause for straining your monthly budget. Opt to pay in lump sum towards your loan when you receive Christmas bonuses, unexpected windfalls, or payoffs from investments.
This will help reduce the principal, which in turn decreases the interest. If you have room to spare, you could lease it and put the rent money towards the mortgage.
Short and Sweet
If you were initially paying for a 25-year loan and would like to pay off your mortgage sooner, you may consider refinancing your mortgage. You may end up paying more monthly, but you’ll be out of debt sooner.
It’s a misconception that payments on a 15-year loan will be double that of a 30-year loan. For instance, the monthly payment on a 30-year mortgage for $200,000 at 4% interest would be roughly $955. A 15-year mortgage under the same terms would have a $1,479 monthly payment. That’s a difference of only $524. Everyone would like to be out of debt sooner than later.
With due diligence, discipline, and awareness of options, repaying a mortgage will not be a nightmare for you. Your home is your most valuable asset and with these tips on applying for a home loan, you can keep it that way.