10 Things You Must Know Before You Apply For a Home Loan
A home Loan or Mortgage Loan is a loan offered by banks or mortgage companies for the purchase of a residence which can be either a primary residence, a secondary residence, or an investment residence. The purchase policies offered do not include a commercial or industrial residence. With easy monthly installments and the option to choose the repayment periods according to your convenience, banks thereby help you to purchase a property of your very own. There are several things one should know thoroughly before applying for a home loan.
Ten such points are mentioned below
1. Research multiple loan options. This is the era of the world wide web, so everything one needs to know about home loans, bank policies, eligibility criteria are just a click away. Go through the home loan policies offered by multiple financial institutes to conclude. While surfing, fixate mainly on three factors that act as pivotal points and helps in differentiating between several bank policies. They are down-payment, EMI(Equated Monthly Installment), and repayment tenures. They are the primary factors in any policy as these three are the stepping stones towards the formulation of the loan amount.
2. Affording a loan is very important. Notwithstanding the EMI and down payments- it is very important to evaluate whether one would be able to afford the normal living cost. There must be a steady income flow, so there is not a chance of hitting rock bottom in daily life because of the repayment issues. Being eligible for a loan and being able to afford a loan are two very different factors, and both should be fulfilled accordingly before opting for it. So it is suggested to abide by a strict budget once the loan is processed.
3. It is advised to keep a pretty high credit score. Banking institutes offer loans at comparatively low rates of interest when the credit score is high. A credit score is the record of one’s credit history. A credit score above 750 is considered good. Poor credit scores might be a risk to a lender as the borrower might fail to repay the loan and lag on the monthly payment, and hence the stakes for a loss of money are high in that case.
4. While applying for a loan, make sure the repayment periods are not extremely high. While longer tenures ensure lower EMIs, it considerably increases the rates of interest, and the borrower ends up paying twice or thrice of the original loan amount at the end of the term. Even if the EMI amount seems high, always go for a loan policy that lasts for a comparatively less period.
5. RBI keeps changing the laid-out rules from time to time. Keep an eye on the foreclosure norms and make sure the loan is paid off in due time, preferably before the tenure is about to end. The sooner the loan is paid off, the higher one’s credit score gets, which helps in the future.
6. Check the bank websites to know the eligibility criteria asked by different banks thoroughly.
7. A fund created to come in handy in times of emergency is referred to as a contingency fund. While your current financial condition and job facility seem promising, for the time being, paying off EMI might not be too difficult. But if a situation comes when the flow of income hits a pitfall, the contingency fund comes in handy for the monthly payments and doesn’t stagnate the repayment amounts. So, maintaining a contingency fund throughout the loan tenure is extremely important.
8. The rates of interest at which RBI lends money to banks and other financial institutions are known as REPO rates, where REPO stands for Repurchasing Options. Suppose the repo rate increases at some point in time; the rate of interest at which one took a home loan from a commercial bank would increase proportionally as well. Therefore, it is advised to assess your repayment capability keeping the varying repo rate in mind.
9. Apart from the down payment, EMI, and the repayment, there are several other payments a home loan calls for, viz. administrative, processing, or service charges that banks levy upon borrowers at the time of loan application. Discuss everything with the lender thoroughly and accordingly. One should plan their financial calendar depending on the frequency of the payments, i.e. whether it’s one time or monthly.
10. Finally, read the loan documents issued by the banks very carefully before the bank starts processing the application.
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