Getting a home loan is a life-changing decision. It’s a huge step and commitment towards your growth. If you’ve been thinking about getting this loan, you are at the right place.
Saving to purchase a home may take a long time. Sometimes even if you’ve saved, the money may not be enough to get yourself the home that you want. Hence, most people resort to home loans.
Taking a loan to get yourself a home has several advantages, as you will read later in this article. But first, you have to understand what a home loan is.
Let’s dive in.
What is a Home Loan?
A home loan is the amount of money you borrow from a bank or a financial institution to own a home. It has a specific interest that is paid back bits by bits every month until its clearance. The property acts as the collateral for the loan.
The property could either be personal or commercial.
Here are some of the types of home loans that exist.
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Home purchase loan – This is the loan an individual takes to buy a home. It’s mostly for individuals who don’t qualify for a traditional mortgage loan from the bank.
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Home improvement loan – Home improvement loans majorly cover expenditures related to renovations or repairs in a home. Many people choose to use a low-interest home improvement loan to finance their improvements, which can save them from financial hardship in the long run.
To find the ideal choice of institutions for your needs, look for the ones near you. For example, if you are in Florida, scour for nearby banks and finance groups where you can take a home renovation loan in Florida. Compare and weigh the differences of the different home improvement loans in Florida. You don’t want to stay in a substandard home, yet you can get yourself cash to repair it.
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House construction loan – If you have a vacant lot and want to build residential property, you can apply for this loan. You can also take a house construction loan for remodeling.
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Joint home loans – These are loans taken by two individuals or more. Examples include spouses, friends, and family.
What You Should Know Before Taking a Home Loan
Before taking a home loan, know that you are making a lifetime commitment. Unlike personal loans, which you might repay in a period of 1 or 2 years, home loans are long-term. It might take 10 years or 20 years to pay the entire amount. Thus, you need to be disciplined when paying these loans.
Unfortunately, home loans aren’t a guarantee that you will own the home. If you fail to make your regular payment, the bank or the financial institution can take a form of legal action. In worst cases, you can be evicted from the house, and the bank takes back the possession of the place.
Here are some factors to consider when taking a home loan
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Principal – This is the amount you borrow from the financial institution or bank.
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Duration – Duration is the period you plan to pay back the loan. It’s all dependent on your source of income.
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Interest – The interest depends on the principal and the duration you plan to repay the loan.
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EMI amount – EMI is the combination of principal and interest. It’s a fixed amount made by a borrower to a lender at a specific date each month.
Now let’s look at the positives of taking a home loan
Advantages of Taking a Home Loan
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Sense of Accomplishment
Houses are costly. It’s nearly impossible for most people to own their homes with their funds. Even with saving, a problem may erupt, and it might force you to use the cash.
Fortunately, home loans exist to make you a proud homeowner. If you’ve been dreaming of getting your dream house, this is the perfect path to take.
A home gives you the satisfaction that renting won’t give you. It’s the confidence of owning your space. No matter how small or big the space, it gives you a sense of accomplishment.
Home loans allow you to realize your dream of owning a home
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Adds to a Good Credit Mix
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Several things contribute to a good credit score. Here are some of the aspects that contribute to this.
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Payment history
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Amounts owed
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New credit enquiries
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Length of credit history
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Mixture of credit types
For instance, if you have a credit card, a personal loan, and a car loan under your name, a home loan will add to your credit mix. It doesn’t matter whether it’s a home renovation loan, a home construction loan, or a home remodel loan. Any home loan will do.
The result is a significant rise in your credit score. Nonetheless, you will have to pay your EMI on time, without fail, to maintain your credit score.
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Low-Interest Rates
House loans are subject to low-interest rates. They are long-term decisions that, at least, take 10 years. The interest rates will go through several up and down cycles, and you are likely to benefit from the fluctuations. Also, it’s easy to get to repay the amount. The monthly installment payment is usually lower than your income.
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Appreciation of Capital
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Property prices surge over time. Thus, it’s better to purchase a home now with a loan rather than saving and acquiring it later. Taking this bold step will save you the cost of acquiring the same home at a higher price later.
Also, you will save on rent. Having your own home means that you don’t pay rent. Instead, you’ll channel the rent money towards your home loan EMI, which is a perfect return on investment.
Additionally, it will save you the constant rise of construction costs if you decide to build your home later to avoid the loan.
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Tax Benefit
When you become a homeowner, you get to deduct your home loan interest (up to $1 million) and property taxes from the annual income taxes.
For instance, if you fall in the top tax bracket (37 percent), every dollar you pay in your home loan interest saves you 37 cents in federal income taxes. You also save on the state income.
Wrapping Up
If you’ve wanted to own a home for the longest time, home loans are the way to go. It comes with a lot of advantages. Different financial institutions exist today. Before settling on any, do your research. Check on their plans and also interests. Once you find the ones that serve your interests perfectly, opt for that.
Remember, owning your home saves you the hassle of living in rented residences.
