The most intimidating part of your whole journey is going to be buying your first property, but not because it’s complicated or challenging but because it’s going to be the only time where you haven’t done this before but understanding some basics will remove much of your fear on how to buy your first property .
How financing works
There’s two ways you can finance a property either using traditional banking systems or using private lenders and both of them provide capital in exchange for interest overtime.
Key elements of financing include:
Down payment , interest rate, long term and monthly payment.
A down payment is a certain percentage of the total loan that you have to pay upfront in order to be able to secure the much larger some of money either the bank or lender is going to provide you . The amount you pay upfront will be reduced from the total loan. An important tip would be the more down payment you give upfront chances are you’re going to have a lower interest rate.
Interest rate is the percentage of cost that the bank or lender charges you on top of the original number of the loan in order to make profit. Usually the percentage they give us for one year.
Loan term is the length of time you will be paying the loan for.
The monthly payment is the sum of money you pay at the end of every month in order to cover a small percentage of the loan and the monthly interest.
The way a bank or lender will decide to grant you the loan primarily depends on the evaluation of your income stability, previous step and credit history. That’s why it is very important to use a credit card for your daily purchases that you are sure that you can cover with your stable income at the end of every month in order to build good credit which will be very effective in acquiring loan.
Banks Vs Lenders
Traditional banks usually offer a smaller interest rate, which means you pay a total of less money, but they have stricter requirements and can seize assets that they have access to in order to cover the loan if you cannot make payments.
Lenders usually have looser requirements. However their interest rates are usually much higher and borrowing money from a private lender sometimes comes with unmentioned risks. Private lenders usually structure the loan in a way that it takes the customer much longer to get out of the loan than they initially thought would be possible.
The First Deal Mindset
Your first investment in a property is not supposed to be your dream investment or the best one there is. The purpose of your first investment is to teach you the process of acquiring an asset establishing credibility in the market and starting you off on a momentum that you can hopefully continue when making your second and third purchases. Many beginners will often delay their purchase, trying to make the perfect decision however, the chances are you do not have the capital or the experience to make a perfect investment in your first time. And small delays can cost you more overtime than a very minor mistake.
Your first property investment isn’t going to be perfect. It’s going to make sense.
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