Buying your own house not only creates a sense of security but also puts a roof over your head. You can renovate and design your house as per your needs and requirements, making it the house of your dreams.
Owning a house has now become easier and simpler, thanks to home loans. A home loan is used to fund the purchase of a property, whether it is under construction or ready to move in. The repayment period for home loans are usually long and the interest rates are also considerably low.
However, there are a few things to keep in mind before applying for a home loan. These are
Check If You Are Eligible For The Home Loan
Home loans have a specific set of eligibility criteria that the borrower must meet to qualify for the loan so make sure to check the eligibility criteria before you apply. This can include requirements such as age, monthly income, occupation, credit score, documents required for home loan, etc. Your credit score is one of the important parameters that determines the loan amount and whether you qualify for the loan. The borrowers need a score of at least 700 or above to get the loan.
If You Have Enough Contingency Fund
A contingency fund is used to deal with unexpected expenses in case of financial emergencies such as severe illness or sudden job loss.
The size of this contingency fund ideally has to be at least 3 to 6 times of your recurring monthly expenses such as insurance premiums, credit card bills, existing EMIs, etc. Since home loans are one of the biggest financial commitments for most debtors, it is important to have a contingency fund.
Improper planning may force you to get other loans or liquidate long-term investments to fund the emergency requirements. Park your contingency fund in a high-yielding savings account or short-term debt funds.
Know The Hidden Charges
Home loans usually have a few charges associated with them such as processing fees. Try to pick a loan that has a low charge structure in general so that the loan is cost-effective.
Check The LTV Ratio
Although home loans provide you with funds for your house, they do not give you 100% of the amount required. The Loan to Value ratio (LTV) is used to find the loan amount that you can get based on the cost of the house. If the ratio is 75%, it means that the bank or NBFC would give you a loan for 75% of the house’s cost while you have to pay for the other 25% yourself. Kindly check the LTV ratio to find out the total down payment that is needed for the home loan.
Calculate The EMI Before Hand
Lenders often offer loan EMI calculators that let you know the EMI that is payable after entering details such as interest rate, loan amount, repayment tenor, etc. By pre-calculating the EMI, you can know whether the loan is feasible or not. If the calculated EMI is too high, you increase the repayment tenor or decrease the loan amount.
Find Out The Documents That Are Required
You are required to submit a few documents along with the application for a home loan. The lending bank or NBFC uses these documents required for a home loan to find out if you are eligible and for identity verification. The documents pertaining to the property are also required to authenticate and verify the house that is financed by the home loan. Kindly keep all the documents required for a home loan to ensure the smooth processing of the home loan application.
Check Your FOIR
A debtor’s debt to income ratio (DTI), that is also called as FOIR (Fixed Obligation to Income Ratio), is another important factor to consider that affects your loan eligibility.
It is calculated as the proportion of your current income being used for debt payments like loan EMIs and credit card bills.
Compare The Loan Options And Then Apply
Last but not the least, always compare the loan options that are available in the market before you choose one. There are numerous lenders who provide home loans and each lender has a different home loan offer. Check the interest rates, LTV ratios and loan amount provided by different lenders. Pick the lender that best suits your needs and requirements.
Getting a home loan is comparatively easy. There are a lot of lenders in the market offering home loans and it is important to do your own research and take enough time to choose the best option. It is also equally important to make sure you have all the documents required for home loan handy.
Thorough research helps you in getting the best home loan that is right for you and takes you one step closer to buying your dream house.
