Thinking of buying a home? You’re definitely on the right track! Home ownership is certainly a step up en route towards building an asset for the future and ensuring the future security of your family. Additionally, you get to finally live in your own home and hearth where you can blissfully spend some of the best years of your life. However, like most things in life, even this one doesn’t come easy. If you’re not in the high net-worth bracket like most of us, then you’ve certainly got to apply for a home loan. Home loans come with a lot of intricacies that you should be aware of.
Many people have difficulties while getting their home loan application processed and eventually sanctioned, particularly in terms of the net approved price for the loan. Most of us do not really want to dip into our savings and yet we want a higher loan amount. Experts state that whenever people are applying for home loans, they usually perceive the same as collateral free which is not really the case. This is because the bank mortgages the papers for registration of properties. As a result, while working out the loan amount that will be sanctioned, banks will be undertaking a property assessment and will then be cutting around 20-30% as depreciation from the amount sanctioned.
This is the amount that the buyer is asked to shell out as the down payment for the property that is going to be purchased. This varies based on repayment abilities for the individual in question. In case there is higher income, more than 70% of the price of the home may be sanctioned as the loan amount. However, home loans are often rejected as well. This may happen due to improper documentation or the mismatch between the eligibility criteria and the income and other factors of the borrower. Whenever the applicant is not salaried, there are higher chances of rejection although this does not mean that self-employed people do not get home loans! Self-employed/salaried borrowers need to have their ITR for the last three years, their loan applications, PAN Card, Aadhar Card, proof of address, bank statement for last 6 months and salary/income slips. Self-employed borrowers need to have company profit and loss statements, audited financials and other documents at hand.
What should you keep in mind while applying for a home loan?
Relax. It’s not an examination that you’ve got to mug up stuff for! It’s only a question of being alert and taking the right steps towards successfully getting your home loan approved.
Here are some of the things to keep in mind:
- Always keep your affordability in mind- Don’t go with a mentality that you will have to squeeze out the maximum loan amount based on your eligibility. Go for an amount which you can easily afford to repay. With several attractive loan offers being provided by financial institutions, many borrowers go for higher amounts, forcing them into a situation that is called house poor, i.e. they live in fancy homes but spend a major chunk of their income on home loan repayments. This leads to compromises on other key financial objectives.
- Take a look at your financial position- Always chalk out where you stand in terms of finances. See the EMI amount that you are comfortable repaying and thereafter, use online calculators to work out the loan amount that you should ideally apply for. The home loan EMI should be a maximum of 25-30% of your monthly take home salary at the most in an ideal scenario.
- Compare and research- Never jump into applying with the first lender that you see! Always compare home loan interest rates, terms and conditions and other parameters before choosing your lender. This is now possible with online research. A little homework will get you far!
- Arrange the down payment- Never leave this bit pending unless you want to be a fish stuck out of water! If you’re thinking of applying for a home loan, you should have at least 20-30% of the price of the property arranged and ready with you as the down payment amount. If you do not have the same right away, save up and wait it out. It will save you a lot of hassles in the long run. You can always build up a corpus over a few years if you want by investing in the right instruments or dip into your savings a bit if you think fit.
- Know your credit score- Knowing your own credit score before applying for a home loan is a must. You should always know whether you have a good enough credit score, i.e. 750 and above to qualify for the home loan. If your credit score is not that impressive, wait it out for some time and make repayments for loans and other payments in a timely manner. You can also clear off unsecured debt like credit card dues in order to boost your credit score.
- You should choose the tenor carefully- Remember that choosing a longer tenor means paying more interest on the home loan. A shorter tenor will naturally lead to a higher monthly EMI but you will be paying lower interest overall. A longer tenor means a lower EMI but the interest costs are substantially higher. Choose carefully and try to keep the tenor as short as possible.
- Read the terms and conditions carefully- Always read the terms and conditions very carefully and if possible, double check the same. This will help you get a clear picture of payment guidelines, processing fees and other charges, prepayment and foreclosure terms and conditions and so on. If you can’t understand complicated terms, take professional assistance for the same from your financial advisor. Sign on the loan agreement once you have understood everything in the terms and conditions.
- Consider a joint home loan application- You can always expect higher home loan eligibility when you apply jointly with your spouse or any other eligible co-applicant. Joint home loan applications may be a good way to increase your home loan amount and buy a bigger home. Additionally, the repayment burden can be split between two family members which is a welcome relief. If the co-applicant is the co-owner, both of you will be getting sizable tax benefits on home loan principal and interest repayments. This will only help you get greater savings over time.
Keep the above mentioned aspects in mind while applying for a home loan. A little preparation on your part is all you need to get the same approved successfully.