Buying a new house is a massive financial investment. It requires proper planning, ample amount of savings, and sound research. If your savings are not enough to buy a house of your choice, you can go for a Home Loan. Affordable and easy home loans have made buying houses a lot easier. However, there are a few important factors that you should know before applying. These factors can play a crucial role in the approval or rejection of your Home Loan application.
In this article, we will discuss in detail all the crucial points of a Home Loan. By the end, you will be well acquainted with every essential point. Let’s dive into this:
Eight Important Points for a Home Loan:
1. Credit Score: This is one of the most important factors when it comes to a Home Loan application. A credit score is a numerical value of your borrowing credibility. A good credit score indicates that in the past you have cleared bills and made all payments on time. It is essential for getting a home loan on favourable terms. Reputed lending institutions expect you to maintain a credit score of 750 or above. Before you apply, check your credit score and take steps to improve it, if necessary.
Do not worry if you are new to credit and do not have a credit score. Banks consider you eligible for a home loan and you can apply for one without a credit score!
2. Down Payment: You can play smartly with down payments. The simple trick is putting a larger percentage of the total cost of the house down upfront. A larger down payment can reduce the amount you need to borrow and lower your monthly payments. Consider how much you can afford before applying for a Home Loan.
3. Income and Employment: Lenders look for a stable source of income and a good employment history when evaluating Home Loan applications. It increases your credibility as a borrower. Consider your income and job stability before applying. Also, it is advisable to avoid frequent job changes. Many lenders even have this criterion as one of the minimum eligibility requirements.
4. Debt-to-Income (DTI) Ratio: This ratio compares your monthly expenses payments to your monthly income. Ideally, this ratio should be as low as possible, meaning a low percentage of your salary is getting used in paying monthly bills. A high ratio can make it difficult to get your application approved for a Home Loan.
5. Loan Term: The loan term refers to the number of years you have to pay off the loan. Shorter terms usually mean higher monthly payments but lower interest costs over the life of the loan. Longer terms mean lower monthly payments but higher interest costs. It solely depends on your repayment capacity and financial situation. If you are capable of paying higher EMIs, choosing for shorter tenure is beneficial, as you would pay a lower total amount.
6. Interest Rate: The interest rate determines how much you pay in interest over the life of the loan. Different lenders offer different interest rates. Compare all to get the best deal. Look around for the best rates and consider locking in a fixed rate if it looks like the rates could increase in the future.
7. Closing Costs: Closing costs include fees for services such as appraisals, title searches, and home loan process. Consider these costs when determining your budget and compare offers from multiple lenders.
8. Prepayment Penalty: Home loans have a prepayment penalty, which charges a fee if you pay off the loan early. Consider this when planning to pay off your loan early or refinancing. It is important to know loan preclosure charges. It will help you make a strategy to buy your dream home.
Conclusion:
By keeping these things in mind, you can plan the purchase of your house. Buying a house requires a massive financial commitment which cannot happen without proper strategy and planning. Evaluate your financial health, identify your liabilities and responsibilities, and understand your requirements. This way, you will make the right decision and manage the loan well.