There is nothing the people work so much for like owning a home. The problem is that it can actually distort your credit score. After all, buying a home is one of the biggest investments you will enter into. Your mortgage repayments are bound to put a huge dent in your finances, which you should think carefully before signing that contract.
The following are some of the things you should be aware of before you blindly buy a home:
Getting ready for the unknown
It is possible that you will fall in love with your new home at first sight. You want to be able to grow old in it. What about the money pit you are likely to be trapped in? With time, the condition of your home will deteriorate. What do you do with a weakened structure, leaky roofs, and burst pipes when you are so much in debt? That is one thing you ought to be prepared for.
Your repayment history
Banks always try to evaluate your history of repayments when considering the mortgage applications. What the bank wants to find out is that you can be responsible with their money. The bank will consider you riskier if you have credit but no repayment history. Put in place a plan for how you will make the payments if you run out of your regular income. Another Kitchen related my post: 5 Common Plumbing Issues in the Kitchen
The effect of home equity debt on your credit score
As a homeowner, you might end up taking a second loan on your home to finance college tuition, for example. The problem with the housing market is that it is prone to regular unmitigated bursts that can lead to huge losses in the value of homes. So what will happen to the second mortgage if the first mortgage is foreclosed on? It can be a messy affair that will involve extra expenses in terms of hiring lawyers for you to get a solution.
The effect of credit report inquiries
In fact, every time a lender inquires about your credit report, you end up losing up to 7 points. What that means is that starting out to buy a new home can greatly diminish your credit score. That’s is because the lender has to make an inquiry. That can lead to a great decline in your credit score, especially if the inquiries follow each other after a very short period of time.
Being in perpetual debt
Your lender expects you to make regular payments on your mortgage on time. That should be able to reduce your debt in the end. The monthly repayments are, however, going to be a standing liability for as long as you have a mortgage to repay. It is also likely that the monthly mortgage installments will end up costing you too much than you can handle. In the end, you may find it difficult to make any payments. That will mean you cannot qualify for any other kind of loan, no matter how good your credit score is.
Before you buy a home, take all that into consideration.