Buying a place to call home is a dream all Indians have. Finding the right home to materialize this dream is just one step of the process. Given the market conditions, choosing the right home loan to finance this dream can be equally important. Here are a few tips to make finding the right home loan easy.
Save for a large down payment
The minimum down payment you need to make will depend on your lender and the type of loan you take. This can vary from 2.25% to 20%. That said, you should make as large a down payment as you can. This will keep the monthly interest burden lower, and you may even have to pay a lower interest rate. Once you have estimated your budgets, consider auto-debit to a savings account from your salary account to make the process of saving the monies easier.
Maintain a good credit score
Whether you get a home loan or not depends on your credit score. It is a good idea to check your credit score and report before you set out on home buying process. If the credit score is low for some reason, work with your lenders to get this fixed. Remember that your credit score is dependent on the reports shared by your lenders – and it is quite possible that they have made an error in their report. Getting this fixed may not be difficult. On the other hand, if you have been late in your payments to lenders/ credit card bills, it will take some time for the credit score reflect your improved credit-worthiness.
Get your documents in order
When you apply for a home loan, you will have to provide your lender a few financial documents. Having these ready beforehand will make the process easier for you. At the very minimum, you will need last 3 months pay slips, last 2 tax returns, current bank statements, and statements of any other loans you may currently have taken on.
This goes without saying. Do not just depend on your agent. Learn to compare offers by yourself, and carry out your own research into available offers. Remember even if two offers have the same interest rate, they are not necessarily equal. There could be a difference in fees and other points – like security requirement – that could make one costlier than the other.
Track interest rates
Interest rate will be the biggest factor in determining the overall cost of your home. The base rates underlying the interest rates change almost everyday. It can be useful to know which way they are trending – and could determine whether you should go for a fixed rate or a variable rate on your loan.
Pre-qualification simply means that a lender has determined that you are credit-worthy and will back you up when you decide on a purchase. Of course, the lender will still have to carry out evaluation of the property to determine the exact amount he can lend to you. But pre-qualification will set the cap on the loan you can afford and the property consultant will be able to show you the right property in your budget.
Understand the loan options
It is quite possible that your parents had got a 30-year tenure with a fixed rate for their home loan, while a friend you look up to has recently got a floating interest loan with a much shorter term. Each has its own advantages – some prefer the predictability of a fixed rate, while others the lower initial payout needed on floating rates.The right choice for you depends on your financial situation, and it is essential that you understand the trade-offs that come with each type of loan.
Once you have applied for a loan, be prompt in responding with any additional information they the lender may request. Waiting too long to respond may cause a delay in the loan approval, which may in turn cause a problem with the purchase you have planned.
Last, but not the least, do not let your credit rating be affected while your loan is being processed. Make sure that you are paying your credit card bills on time and that you do not delay any other payments that may be due. Ensure that you have planned our how you will be paying out EMIs and remember that paying off the loan should typically take precedence over any other expenses you undertake.