Buying a home can be a very complicated financial process with stacks of paperwork and documentation that needs to be meticulously analyzed and executed. Furthermore, several people like registration agents, lawyers, property brokers, and a bank officer or home loan counselor are involved during the entire process.
So, in order to make it a bit easier to understand and less stressful for home buyers, here are some tips to reduce unnecessary complexity in the process of obtaining a home loan.
1. Check your credit rating
It is crucial to have a good credit score in order to obtain a home loan at an attractive rate. By using services like such as EQUIFAX or CIBIL you can easily check your credit rating. An unrated client might have to pay a premium price, therefore it is crucial to maintaining a good credit profile.
So, how do you maintain a good credit score?
- Pay your bills on time
- Keep your credit card balances low
- Limit your application for new credits
- Don’t close old credit cards
- Manage your debt
- Make sure to periodically check your credit reports
2. Plan for costs other than the down payment
While planning for a home loan, you will need to factor in other costs, aside from the normal down payment which usually ranges from 10 – 25 percent of the property cost. In general, home buyers do not get funding for development fees, club charges, stamp duty, society deposit, insurance costs and more. Thus, getting the breakdown of the cost and determining which component funding is available is crucial for the entire process.
3. Obtain a pre-qualified loan or in-principle approval
Before you set out to look for a property or home to buy, you need to know if your purchase price budget matches your loan eligibility and the down payment that comes with it. Most people make the mistake of choosing a property first, then starting the home loan process afterwards, without getting an assessment of their loan eligibility.
4. Don’t get a short-term loan before a home purchase
Some people borrow for a down payment by availing personal or short-term loans that usually come at a higher interest rate and significantly reducing their eligibility for a home loan since personal or short-term loans have a higher monthly repayment obligation. If you really require short-term or personal loans, there are money lending apps, that offers a decent interest rate that is not hard on your credit. Just make sure to understand the terms and conditions with regard to your personal loan, so that you won’t complicate the entire home loan process.
5. Learning how floating rate loans work
The majority of borrowings tenures are of at least 20 – 30 years. There are a variety of choices available for floating rate loans — a reset of interest for monthly, quarterly, or yearly periods.
But, how does a reset period come to effect?
For instance, if a borrower has availed a home loan in October 2018 from a bank or a lender with an annual reset of interest, then their loan rates will be revised once in September 2019. However, if a borrower has obtained a loan from a housing finance company, that usually provides a quarterly reset, it is highly likely that its loan rates will be revised at least 3 times a year.
Thus, in the event of the interest rate rising, the rates will move up around 0.6 – 1 percent.
However, in a public sector bank, one can avail an interest charge on a daily reducing balance method. If a borrower has an EMI date on the 25th every month and choose to deposit the EMI on a much earlier date, for instance on the 5th, then they save interest for 20 days of advance payments of that specific EMI.
6. Be sure to get insurance for a new home loan
Home loans are particularly large loans and can range well above 5 – 10 times of your annual income. Thus, it is advisable and very prudent to cover the any large liability with insurance, to provide your family members with an asset that is liability free should the unthinkable happen.