One of the most important decisions you'll ever make would be purchasing a home and applying for a home loan. Perhaps some have this notion that taking a home loan is a simple matter of going to the bank and getting one.

In a sense, this is true. But there are different types of loans, and they will be discussed here.

There are a few things to consider in home loan pre approval. The basic things you have to know are the amount of deposit required and the loan term. You'll also have to know about the different kinds of home loan interest because this will affect the payments you'll have to make for quite a good number of years.

Three Things To Consider Before Taking A Home Loan

Before you rush to the bank to take out a home loan, you might want to study these things to consider so you can make a smart decision about your home purchase:

The first thing you could consider in taking a home loan is whether you have the money needed for the deposit. Some housing loans require very little deposit, while others require quite a substantial sum of money. Most loans require a deposit equivalent to 20 per cent of the home purchase.

If you're on a tight budget, you might find yourself better off with a low deposit loan. There are lenders willing to lend up to 95% of the price tag to first-time home buyers. But you'll incur the added cost of paying for lenders' mortgage insurance. This is protection for the lender if you ever default on your loan.

Another option is to lower your monthly payments by extending your mortgage. Most home loans have a life of 25 years, but there are home loan providers who allow first-time home buyers to stretch their home mortgage up to 30 years. If you won't be able to squeeze the repayments into your monthly budget, you might want to consider extending the life of your loan. But this means you'll have to pay for a few more years and end up paying more interest.

The next thing to consider in taking a home loan is the interest rate. Your choice basically boils down to fixed rate and variable rate. A fixed rate kind of home loan lets you know ahead of time the payments you have to make for a certain number of years. This is also called a repayment schedule and is quite useful if you're thinking of planning payments while your budget is tight.

On the other hand, a variable rate home loan gives you more options. As you might figure from the name, a variable rate home loan means the interest on your loan can change any time, depending on the economic situation. There is indeed a possibility that interest rates of home mortgages may skyrocket. But the advantage with variable rate home loans is they normally have lower interest rates than fixed rate home loans.

There's also what's called a split. With a split loan, you'd be allowed to fix a portion of the loan and put the rest in variable rate. This would give you the certainty of a fixed rate home loan while making the most of the benefits of a variable rate for the rest of your loans.

You also need to know about other features and options for home loans. Some lenders give their borrowers a redraw facility. A redraw facility is sort of an emergency fund that you can tap if you need to pay for things like weddings, children's expenses, or renovation. They'll let you access any extra payments you've made as your redraw option. This is free for most loans, but there's usually a minimum amount.

Another feature of home loans is the top up. This basically means you can draw some more funds from your loan if you've already paid up a substantial amount as home loan equity. You can use top up to fund projects like renovation or other home construction expenses.

Buying Your Home

Being a first-time home buyer can be scary, especially if you're not familiar with home loans. Many first home buyers end up not getting the best loan package for their mortgage.

You don't have to go through the same experience. It helps to do your research. Look for ways to get a loan with a lower deposit requirement. Find one which allows you to extend your loan term. Learn more about interest rates and other features of home loans, such as redraw and top up. Being prepared this way will help you in the long run.