What is considered to be a low income to you may not be the same for the lender? But a low income may be a real stumbling block to realising your lifelong dream for a first flat. Have you ever wished for an onset of a housing crisis in your country? If you can save enough for normal expenses, but you cannot afford a mortgage, then no one can blame you for the crisis.
Such a crisis helps you to move within the bracket of those who can manage to pay for a house due to plummeted housing rates and values in the market. Such occurrences can be triggered by the financial crisis that is brought out by economic shocks on the industry. It can also happen globally. Find out below how you can get a house with a low income.
Prove to the lender that you can repay a mortgage
When buying a home, you may consider applying for a home financing loan. However, if your finances are inadequate, you stand a small chance of success. Now, this small opportunity is all you have to explore. Prove to the lender that despite your limited income you are still serviceable.
When the lender performs a loan assessment process through the available underwriting tools, you may be found ineligible for the mortgage. Your income is compared to the expected repayment instalments. If the figures don’t tally, you will not be considered. How do you circumnavigate this? Here are some tips:
- Apply for a loan with lower rates of income.
- Pay all your outstanding loans including credit cards in time.
- Complete your ongoing repayments on domestic expenses. For instance, stop using online purchasing options.
- Find a home with a reasonable market price.
- Demonstrate to the lender a deeply rooted habit to save. This information helps the lender to assess your financial responsibility. Finding out regular savings goes a long way to announce that you can honour your financial obligations in case your financial situation goes awry.
- Practice utmost good faith with the lender. It is in your interest if you divulged all information – even bad to your lender. Not declaring means you are withholding and if it is found out in the process of your assessment, you may be declined even if there was some hope ahead.
Improve Your Credit Score
Struggling with finances and still having a stellar credit score may be a little challenging. However, if you don’t have one requirement, ensure the next is good enough to guarantee you a house. A good score will always boost your chances of being approved for a mortgage.
Here are some tips to improve your ratings prior to applying for a mortgage:
- Make regular and timely credit card instalments and other personal debts you may be having in your credit portfolio.
- Lower your credit card limit
- Keep your net card-spending on the low. Depleting the limit shows bad credit behaviour.
- Avoid applying for too many loans.
- Pay your utility bills such as electricity and water on time.
- Transfer your balances in a consolidation account for easier repayment.
Ideally, you need excellent scores to qualify for a mortgage under these terms. Average or good is not good enough for you; so, strive for more.
Look Within Your Means
Value of life is found everywhere. Cities may have preferable conditions for you. But as long as your income is limited for a housing program, then you may consider areas that have a low housing median that you can qualify for. Houses in the city and its suburban environs are too costly. It would serve you best if you moved out of the city and get a house in a place where you can afford to purchase it with your income in the prevailing market conditions.
Save for a Down Payment
Mortgages require at least 3% in deposit for your home. But, under the current conditions, you may want to enhance your savings so that you can be able to manage at least 20% of the housing cost as the down payment. Usually, this percentage value is reserved for property investments where there aren’t insurance agreements. Also, this value can help you to avoid being charges a lenders mortgage insurance. This is an extra cost lender tap on the total mortgage cost to protect themselves from possible losses emanating from the risk factor that you carry.
Saving up for a 20% deposit can take time. It, therefore, calls for dedication and focus while raising this amount. However, you also run a risk of the property appreciating meaning that the lender will have to increase its overall price. With revised rates, you may get frustrated and opt not to buy that flat after all. Therefore, always be prepared for the possible risks.
Use a Guarantor
A guarantor is an individual who accepts to take the risk and responsibility for your mortgage in case you fall short and you are unable to pay. Guarantors use their assets to secure the loan. Therefore, not only will you receive a lower interest rate on the loan, you may as well have qualified for 100% LVR.
The guarantor should also be having a good credit history and a good regular income. Your spouse or a friend can co-sign for your loan.
Consider Alternative Options
Speak to a mortgage broker and find out the available options that you can engage to finance your house. You can always go for hard money lenders and all other options other than the traditional lenders such as banks and credit unions. The reason people are bound to banks is that they have lower rates on the loan, unlike other viable options you may be having.
You can visit a Loan Advisor if you want to check for HDB eligibility to compare loans for your first flat. Lenders who specialize in helping people who want to use the HBD index to determine their HBD loan eligibility in Singapore will work with you to find the best interest rate for your loans. In most cases, they will be able to help you reduce your interest rate by approximately 40%.
Funding a house on a limited earning is not an easy task. You may have the will but without the finances, the banks may not consider you for financing. To enhance your chances with the lenders, pay your debts in time, improve your credit scores, choose a cheaper establishment and save for down payment. This enhances your creditworthiness.
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