Home prices continue to climb higher than in previous years. Thus, a home that would’ve been $300,000 in the past could now be close to $500,00 or more. Thus, you need to maximize your loan capabilities.
Personal Loan and Home Loan
Previously, a home loan was sufficient to cover the initial purchase and closing costs. However, today’s consumers look for additional funds to help with renovations and general maintenance. For this, they look into personal loans.
The question here is if you can take out a personal loan and home loan together. The short answer is yes.
What is a Personal Loan?
According to Lantern Credit, a personal loan is “a fixed-amount loan that’s distributed as a lump sum.” Unlike a mortgage, the personal version is unsecured. This means it’s provided without the need for collateral. Thus, you have increased flexibility on how it’s used.
Another difference between personal loan rates and those of a mortgage is how they’re calculated. Normally, the former’s annual percentage rates (APRs) are mostly determined by your current credit score. A home loan’s base rate is determined by what the Federal Reserve Bank does.
How to Take a Personal and Home Loan Together.
There are a few factors to consider if you wish to take a personal and home loan together. Generally, the better your financials are at application time, the greater the chance of obtaining both loans. So, perform a thorough examination of the below items.
Your debt-to-income ratio (DTI) is your total income (salary plus other liquid assets) versus the volume of debt (credit cards, other loans, etc.) Normally, it’s best to have two to three times more income than debt. If this is the case, then the ability to get both a personal and home loan is greater.
Conversely, if your debt is equal to or more than your income, there are fewer opportunities to get both loans. If you do, then they could have higher interest rates or smaller available amounts. Hence, make sure you address as many of these debts as possible before you apply for loans.
Your credit score is both a boon and a burden. On the one hand, providers are more willing to offer better personal loan rates if your rating is 650 or higher. On the other hand, scores lower than that generate more reluctance.
So, the best thing to do is fix your credit score if it’s low. Consider the debt snowball method. List all of your debts from lowest to highest. Next, focus your extra income on paying off the first one. When this is done, apply the available money to the next debt, and so on.
As you knock out each debt, it gets removed from your credit score. File a complaint with credit reporters if you believe certain items shouldn’t be listed.
In the end, simultaneously applying for both a personal and home loan is doable. Once you have secured your finances, you can start on the next chapter of your life with financial security.