Top 10 Advice to Consider Before Taking Home Loan
Finding the ideal home is important, but so is finding the perfect home loan. The home loan that you choose will be your commitment for a long time, so make sure that you read through the following information to get a home loan that is just right for you.
1. Start saving for a down payment
The day you begin a home loan, build a plan to prepay the home loan as early as possible. If one takes a loan for 10 years or 15 years, the interest cost becomes a substantial part of the loan amount. Thus, it’s better to start saving to prepay every 6months or every quarter.
The more you prepay in the initial years of the loan, the better it is. One of the public sector banks offers a savings bank-linked home loan scheme in which the bank does not charge interest on the balance amount of the savings bank account and the credit available in the linked savings bank account will be counted for credit in the linked home loan account. Such a clause in the home loan scheme leads to a reduction in the overall interest burden for customers. So it is always advisable to make a higher down payment so as to avoid a higher interest payout.
2. Enhance Your Credit or CIBIL Score
Having a good credit score puts you in standing to attract the most pleasing deal on your home loan. So it’s a good thought to obtain a copy of your credit report before starting the home buying process. You will see what your credit profile looks like to potential lenders and can then take steps to improve your credit score if necessary.
Generally, your CIBIL Score should be more than 750 so that you are offered an attractive rate of interest on your Home loan. According to CIBIL data, those with a credit score of 750 and above receive 80% of the home loan approvals. Having a low CIBIL score could mean that your Home loan application will be rejected, or if it is accepted, it may be offered with a high-interest rate.
3. Make Sure to Choose the Right Lender
If you are new to credit or self-employed you will have better chances of getting a loan from a housing finance company. Most housing finance companies have developed in-house models which help them ascertain repayment capability and creditworthiness of applicants having informal sources of income.
HFCs have developed a niche in this segment along with expertise in affordable home loans and are sometimes a better bet. HFCs also have a presence in micro markets where banks aren’t present. For salaried customers with a high credit score, your options will be private or public sector banks. Constantly opt for lenders which have a strong parentage and track record.
Additionally, lenders usually consider 85% (loan-to-value) for loans. But if it is an approved project by the lender, or if they have a good relationship with the builder, they can consider up to 90% LTV.
4. Understand the various loan options
Don’t be fooled by loans with the same interest rates. There are other factors that can make one loan more expensive than another. For example the points, fees, etc. You must understand all of the different factors which determine the price of the loan.
Maybe your parents had a 30-year fixed-rate loan. Maybe your best friend has an adjustable-rate loan. That doesn’t mean that either of those loans is the right loan for you. Some people might like the predictability of a fixed-rate loan, while others might prefer the lower initial payments of an adjustable-rate loan. Every home buyer has their own unique financial situation and it’s important to understand which type of loan best suits your needs.
5. Make use of a Mortgage Calculator
A loan calculator can be very beneficial to figure out how much you can afford. They are very easy to use and can show you how much your monthly mortgage payment would be under different home prices, down payments, and interest rate scenarios.
Potential borrowers can use them to figure out how much they should be borrowing with the salary that they are earning.
6. Maintain your Credit during the loan Processing
It’s not uncommon for lenders to pull your credit report a second time to see if anything has changed before your loan closes. Be careful not to do anything that would bring down your credit score while your loan is being processed.
So, pay all of your bills on time, don’t apply for any new credit cards, and don’t take out any new car loans until your home loan has closed.
7. Choose Suitable EMIs
Equated Monthly Installments is the payment that a borrower needs to make every month towards repayment of the home loan. The equated monthly installment amount depends on you. EMI amount also depends on the down payment you make at the time of buying your home.
More the down payment you make lesser is the stress of outstanding amount which will convert into EMIs. It is always recommended to ensure that your EMI amount does not exceed 45% of your total income. You can Calculate EMI through Home Loan EMI Calculator.
8. Know Foreclosure Norms
Foreclosure of your home loan means making the repayment of the outstanding amount before your home loan tenure ends. The sooner you repay your home loan, the lesser interest you pay. Banks usually charge a foreclosure penalty for repaying the home loans before the tenure ends. With a floating home loan interest rate, your bank or financial institution will not charge any foreclosure penalty.
9. Additional Charges
Apart from the EMIs, there might be other administrative, processing, or service charges that banks levy upon borrowers at the time of loan application. Make sure that you discuss these with the lender prior to the loan application.
Check whether they are one-time charges or monthly; if they are monthly charges, then they need to be taken into consideration along with your EMIs, and your monthly finances planned accordingly.
10. Read the Home Loan Agreement Carefully
Before availing of a home loan, you need to through the agreement documentation carefully for overall and comprehensive knowledge of the loan application.
you should always read the terms and conditions of your bank or financial institution carefully before signing the documents related to your home loan. You should be aware of the different charges, fees, and penalties mentioned in your home loan document.
If you take the above-mentioned steps to improve and increase your chances of qualifying for a home loan, you can quickly become eligible for a higher loan amount, extended tenure, and better terms and conditions. You should start the process by first improving your credit scores and fixing any errors if needed.