PERSONAL FINANCE

Own your dream home in five quick steps
If you're planning to obtain a mortgage to buy or build your dream home, here are five very important factors of which you need to be aware.

1. The selling price of the property is one of the most important factors to consider when you're planning to obtain a mortgage.

   As you would expect, the higher the selling price, the higher the monthly payments. But as obvious as this is, it is often times lost on prospective home owners who are bent on buying or building their dream homes. If you find that the selling price is reducing your ability to afford a mortgage, then you may want to set your sights a little bit lower and compromise by buying a cheaper home. You can always buy your dream home at a later date when your financial circumstances improve.

2. Most mortgage finance companies require that potential clients make a minimum deposit on the property that they are planning to buy. This causes the buyer to have some financial stake in the property and normally means that the customer would be less willing to default on the loan.

   Outside of this though, the larger the down payment, the smaller the amount that needs to be borrowed and hence the easier it is to afford the mortgage. So think about the two-fold importance of the down payment when you're planning to obtain a mortgage.

3. The so-called closing cost is an issue that is often overlooked. The term really refers to the various Government and Legal fees that you will have to pay in order to finalise the mortgage loan.

   The fees include the cost of preparing Sales Agreement as well as stamp Duty and Transfer Taxes. You be forced to pay some of these costs out your own pockets. At the same time though, your lending institution may actually include some of the closing cost in the mortgage loan. If this happens then your total monthly payment will be increased.

   In other words, it's important to make provision for your closing costs when saving to purchase your home.

4. It's hard to over emphasize the importance of interest rates when you're planning to obtain a home loan.

   Even if you choose to buy an affordable home and you have saved your down payment and closing costs saved, you still need to pay very close attention to the interest rate being charged on home loans.

   The fact is, the lower the interest rate the lower, the lower the monthly mortgage payments.

   Actually, a slight reduction in the interest rate being charged by your finance company can have a big impact on your monthly mortgage payment and as a result your ability to afford the mortgage.

5. Your income is one of the most important factors affecting your ability to afford a home loan. This is one of the factors that finance companies pay a lot of attention to.

   Usually, your ability to afford a home loan is determined by comparing the potential monthly mortgage with your monthly income, with finance companies insisting that the monthly mortgage payment taking up no more than a per established percentage of your income. Usually, this is 25%. Therefore, if your income is too low, you are very likely to be denied the home loan.

   One thing that you can do to increase your chances of affording the home loan is to borrow over a longer period. The longer the term of the loan; the lower the monthly mortgage payment will be. There is a limit however to the term of a mortgage loan.

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