How to Get the Best Deal on Your Home Loan

Are you in the housing market yet?  We are interested in buying a house within the next two or three years, but we have already begun laying the groundwork for getting the best deal we can find.  Here are some steps we are taking:

  1. Monitor and improve credit score.  Our credit scores are already strong, but paying off our debt should help make them even higher.  We are taking advantage of annual credit report to monitor our credit for free three times a year.
  2. Lock our credit.  After a scare a few years ago, we froze our credit.  True, we can’t get new credit without thawing our credit score, but that is a relatively painless procedure, and we appreciate not having to worry about someone stealing our identity and financial history.
  3. Save for a 20% down payment.  Now, saving for a 20% down payment seems almost old fashioned, but we want to make sure we can afford a home and we are lucky enough to live in an area of the country (once we move closer to where my family is) where houses are relatively inexpensive.  Our goal is to pay off the rest of our credit card debt and my student loan and then begin to aggressively save for a home.

When we are closer to actually buying a home, there are more steps we plan to take.

  1. Compare rates.  We don’t plan to be loyal to one bank.  We want to find the best deal, period.  We will likely use an online service like bankrate.com; however if you are based in Australia, you can go to iSelect or a similar service to begin your search for best home loan rates.
  2. Consider hiring a mortgage broker.  Rather than doing all of the work ourselves, we plan to look into hiring a mortgage broker to find the best rates for us.
  3. Consider taking out a 15 year mortgage.  For financial security, we will probably take out a 30 year mortgage with the intention of paying it off well before that, but if a 15 year mortgage has a much more attractive interest rate, we don’t have a problem taking that type of mortgage.
  4. Buy a smaller house.  Because we will be entering the housing market when our children are relatively older (they will probably be around 11, 7 and 6), we don’t plan on buying a big house.  The house we buy will probably be the one we stay in after our kids leave the nest.  I have seen many people buy big houses when their kids are in middle school, and then 10 years later when the kids move out, the house is too big for them.

I am hopeful that we can enter the market before interest rates and home prices rise too much.  If you are waiting to enter the housing market, what are a few steps you are taking to try to get the best home loan?

Comments

  1. These are all excellent steps you are taking. No need to rush or think about timing the real estate market.

    A 15 year mortage could mean a higher payment. Consider if you plan on living in the house for more than 5 years or if you think you might rent it out. This plays into the type of mortgage to use. Also, with a 30 years mortgage you could always accelerate payments and place yourself in a better financial position because of flexibility. You could always ask for an amortization schedule on a 30 year mortgage. Use the 15 year mortgage payment (or more)to pay on your 30 year mortgage. If there’s an emergency, you can always fall back to your regular 30 year mortgage payment and later resume with a high mortgage payment. Just a thought!

    • Yes, a 30 year mortgage might offer more safety and we would always have the option to pay more if we wanted to.

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