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Owning a home is the ultimate dream of almost every Indian today. Owning an asset like a home confers a sense of stability as well, provided you have got your finances planned well in advance.
While buying a home, many people need some extra help, as not everyone has the financial wherewithal to buy a home. That’s where a home loan can help you. The fierce competition amongst lenders has led the market getting flooded with a multitude of home loan offers. It could be very easy to get confused.
Taking a home loan means committing a significant chunk of your income towards paying off your loan – principal amount and interest included, month after month, for a substantial number of years which could run into decades.
Are you ready for what could be the biggest financial commitment of your life? Keep in mind that paying off a home loan requires meticulous planning of your finances. Before applying for a home loan, there are few things you must be very careful about. Read on to know more about the process of applying for a home loan.
What Do I Do Before Applying for a Home Loan?
Here is what you need to do once you decide to apply for a home loan:
Search for a property that is within your budget. Shop around for the property that fits your pocket and lifestyle needs. If you choose a home that is very expensive, lenders might not be confident about your ability to pay back your home loan and may reject your application.
Home loan runs for a long period of time as it is a big-ticket loan. Ensure that your finances will be stable over the entire period of the loan and that you will be able to service the loan promptly.
The Finance Check
Once you have shortlisted the property that you intend to buy and have an idea of the cost that you would need to incur, it is the right time to look into your finances. As per the mandate of RBI, Banks and Housing Finance Companies can lend up to 90% of the property cost if the loan is up to Rs 30 lakhs. The ratio for loans between Rs 30 and Rs 75 lakhs is 80% and for loans beyond Rs 75 lakhs, a maximum of 75% is allowed.
This, however, is the maximum allowed in the best case scenario. Your existing loans, income, and your credit score are the other factors that will decide your loan eligibility.
You should be ready to fund the rest 10%, 20 %, 25% or any other percentage as decided by the lender with your own funds. This is called the down payment.
As you get ready to apply for a loan, there is another important factor that you should look into.
Credit Score Check
The importance of credit score cannot be undermined in any process involving a credit product. Knowing where you stand on the Credit Score range is extremely important before applying for a home loan.
- You can improve the score if need be
- You can negotiate with your lenders for better offers if you have a good credit score
How Can You Ensure That You Have A Good Credit Score Before Applying For A Loan?
- Obtain a copy of your credit report from the Credit Bureaus. Check your credit score—generally, you need to have a credit score of 750 and above to qualify for a home loan. A credit score of 750 or above is considered healthy, although you may be accepted for a loan below that score too, albeit at very unattractive terms like a huge interest rate and other unfavorable terms and conditions.
Additional Reading: Side effects of a bad credit score
- Rectify any errors in your report. Checking your credit report also helps to find out any inconsistencies that might be unnecessarily dragging your credit score down. It is important to thoroughly check your credit report for errors. if you find one, immediately file a dispute and get it corrected.
Additional Reading: Read more on how you file a dispute and get errors on your credit report corrected easily
- Take steps to improve your credit score to 750, if required. If your credit score is low due to your delayed repayments or over utilization of your credit card, make a commitment to improve it. It can take anywhere from a couple of months to a year to improve your credit score, depending on the severity of your credit situation.
Look For The Best Home Loan Offer
Tip #1: Once you have zeroed in on your budget, have your down payment in place, your credit score is up to the mark, look around for the best home loan offer. The rate of interest is a key determinant of your home loan, ensure you get the best rates. You could do this by comparing the interest rates of home loans from different lenders online or personally visiting the branches.
Tip #2: Use online EMI calculator tools to learn what your home loan will cost in terms of interest charges. This is vital, as even a 0.05% reduction in the interest rate could mean savings of a significant amount of money over the entire loan period. In addition to the interest rates, it is also good to learn about other charges you will be bearing while applying for a home loan. Read more about them here.
Tip #3: Be sure of all the fees and charges involved with the home loan, as that might, and will put a considerable dent in your pocket. Compare the features and benefits to determine which home loan offer best fits your budget, income and credit profile. Also, look for after disbursement service from the bank.
Tip #4: Last but not the least, take an informed decision on if you want to apply for a fixed or floating rate home loan.
Process of applying for Home Loan
If you have zeroed in on a loan offer, then there are a variety of ways in which you can apply for the loan.
You can apply online through the lender’s website
- You can go in person to your nearest branch and apply along with the required documentation
- If you apply online, the lender’s executive will get in touch with you for the further process
- After field and documents verification, your home loan application will be processed by the lender
- Once everything’s done along with the background verification, your loan amount will be sanctioned into your bank account
- If you have any query, you can also call their customer care for help with the process
- If you need help with deciding which home loan offer suits your needs the best, CreditMantri can help you with identifying the most suitable loan and guide you through the application process.