5 things to remember before investing in property

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5 things to remember before investing in property
Whether you have your heart set on a modern apartment in the middle of town or something a little grander in the suburbs, it can be necessary to find an institution that is willing to finance your purchase before you strike a deal. There are a number of things to consider before you approach prospective lenders. To make it easier for those who are new to the property market, I have listed what I believe to be the most important ones below.

1) How much can you really afford? This might sound like a silly question, especially to people who are aiming to borrow as much as the bank will let them. However, it is important to answer this question to yourself honestly if you want to avoid big problems in the future. While it is tempting to take out the biggest loan that you are offered, you should think about how you are going to cope with the repayments if you or your partner should be unable to work for a period of time or you have to deal with a family emergency at some point.

2) If you presently own a property, will you be able to sell it before you are due to move into your new home? You may find the perfect apartment but be unable to afford it because your existing property is still unsold. If this is the case, you could think about asking for a bridging loan to meet your funding needs. Some banks are happy to offer this facility whereas others may not be, so it is a good idea to establish your exact requirements before approaching a financial institution. However, if you are unexpectedly in need of such a loan, you can always try a different lender if yours in unwilling or unable to help.

3) Are you in a salaried position, self-employed, or running your own business? This is not a difficult question but the answer could have an influence on the type of loans that are available to you along with the documentation and security that you need to provide. Generally speaking, full-time employees with a regular monthly salary are faced with the least onerous paperwork requirements and often find it relatively easy to apply for credit. Bank statements covering the last six months and some other proof of income are usually all that is required. If you run your own company or are self-employed, you can expect to have to provide income tax returns going back three years as well as profit and loss accounts if relevant.

4) a fixed-rate or variable rate mortgage the best solution? Answering this question can be difficult as it mainly depends on your views regarding near-term economic conditions and how they may influence interest rates. If you believe that rates are likely to rise then it could well be worth negotiating a fixed rate for the first couple of years. However, if you are wrong and interest rates fall, you could end up paying more than is necessary. Unless you are an expert in such matters, it is a good idea to consult a financial advisor before making a decision. However, you should bear in mind that even seasoned professionals cannot predict the future with any degree of certainty so your thoughts on the matter are valid as well.

5) If you have carefully considered all of the above points and feel that you are ready to proceed, you can start to look at different financial mediums by browsing the websites of banks and other financial institutions. Once you have a good idea of the various deals offered, you can decide which one you would like to approach first. There is nothing to stop you from approaching more than one lender in the first instance but when making an actual application for credit, it is usually best to do so with one institution at a time. A large number of searches performed on your credit records can have a negative impact on your ability to borrow money in the future.

Courtesy: www.investmentYogi.com

Read more about: investment, property, interest rates
Story first published: Saturday, December 8, 2012, 11:36 [IST]
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