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Finding the perfect home is important, but so is finding the perfect home loan. The home loan that you choose will be your commitment for a long time, so make sure that you read through the following tips to get a home loan that is just right for you:
Planning your financials is crucial when you are in the process of buying a home. Your monthly budget should be established to accommodate a certain amount of money being put away. This amount will go towards your down payment. The down payment may range from 2.25% to 20% of the purchase price of the home depending on the type of loan you choose and your lender.
A great way to easily put away money monthly is to have it automatically deposited from your bank account/ paycheck to a savings account. This way you will not be tempted to touch the amount that you have decided to keep aside for your down payment.
If your budget does not allow you to put down a large sum as down payment, a good alternative is to go for a FHA loan which is ideal for home buyers who can afford only a small amount as down payment.
The best deals on home loans are offered to those with the good credit scores. A good credit score promises the lender that you are a good candidate as a borrower because your financial history suggests that you are responsible. So what should you do to make sure that you have a good credit score and thus options when it comes to great deals? First of all get a copy of your credit report so that you know what your credit profile looks like to potential lenders. If you know this you can take measures to try and improve your credit score. There are various portals where you can pay to find your credit score.
Ideally your CIBIL Score should be more than 750 so that you are offered attractive rate of interest on your Home loan. According to CIBIL data, those with credit score of 750 and above receive 80% of the home loan approvals. Having a low CIBIL score could mean that your Home loan application will be rejected, or if it is accepted, it may be offered with a high interest rate.
There are a number of financial documents that you need to get hold of and provide while applying for a loan. Having these documents ready and in order will help with the speed of processing. Most importantly you must have a least last few months’ pay slips, tax returns and bank statements among others.
A loan calculator can be very useful to figure out how much you can afford. These simple calculators are easily available online. They show you how much your monthly payment would be in different scenarios (with different home price, interest rate, down payments etc.). Potential borrowers can use them to figure out how much they should be borrowing with the salary that they are earning.
Don’t be fooled by loans with the same interest rates. There are other factors that can make one loan more expensive than another. For example the points, fees etc. You must understand all of the different factors which determine the price of the loan.
Pre-qualification is a smart way to see where you stand in terms of how much you can borrow and what the range of houses that you should be looking out for. You will need minimal financial information such as how much savings you have, your income etc. Real estate agents may ask you for pre-qualification so that they have an idea what to look out for as well.
Just because your best friend went for a fixed-rate loan does not mean that it is the right option for you. He may find that fixed rates are better for him because of its predictability. Your neighbor may prefer a Floating interest rate. This is linked to market and moves in relation with a base rate. It doesn’t necessarily mean that you should go for this either. The type of loan that you pick should depend on your unique financial situation.
Once you have applied for a home loan don’t assume your job is done. Your lender may ask you for additional information which you must produce promptly. If you take too much time to respond to the lender, the closing of the loan could be delayed, which in turn could create issues with the home you have planned to purchase. To avoid losing out on the home of your dreams and the deposit you have put down, make sure that you respond to lenders immediately.
Don’t assume that once the lenders have checked your credits before accepting your application, that they wont do it again. Lenders may pull your credit report again before your loan closes to see if anything has changed. So make sure that you maintain your credit throughout the loan processing period. To do this you must avoid taking out new credit cards, applying for additional loans etc. You must also continue paying all your bills on time to keep your credit in check.
Make sure that you have read and understood everything written in the loan agreement before you go ahead and sign it. All the terms and conditions should be looked into.
As a borrower you are required to pay a certain amount of the total price from your own pocket. It is wise to pay as much as you can as down payment so that the interest paid on the principal is reduced.
RBI has banned foreclosure penalties recently. It is important that you know this while foreclosing your loan so that you do not end up paying extra.