6 Things To Know Before Applying For A Home Loan
Owning a house is one of the biggest financial decisions of anyone’s life. It takes a lot of time and money to purchase a house. Therefore, a considerable amount of thought needs to go into various factors before you actually take a home loan.
Even though banks have now started giving out loans at very affordable interest rates, there are still other important things you need to take care of. After the pandemic struck, many countries in Europe have mortgage rates as low as 1%.
So what are the things you need to know before applying for a home loan? Our list here will give you an idea.
1. Eligibility
The first thing you should be sure about is whether you’re actually eligible to apply for a home loan or not. The lender or the bank will first assess your income and credit score, among other things, to check if you are eligible to repay the loan.
Other important considerations are your age, qualifications, financial standings, and job stability. Once the lender has verified these details and given you the green signal, you can go ahead and prepare for the application.
2. Know the types of home loans
Next, you should be aware of the different kinds of home loans that are provided to borrowers. We have listed three major types of home loans here.
Adjustable or floating rate loans: Here, the rate of interest is linked to the benchmark rate set by the lender. If the benchmark rate changes, the rate of interest also changes proportionally.
Fixed-rate loans: Here, the rate of interest is fixed when you apply for the loan. This means that this interest rate will be applicable throughout the tenure of your loan.
Combination loans: As the name suggests, this is a combination of adjustable and fixed-rate loans. One part of the loan will have a fixed rate of interest, while the other part will be adjustable.
3. Pre-approving
It is always a good idea to get the home loan pre-approved before you start selecting the house. If you pre-approve the loan, it will help you to set a fixed budget and choose a home according to it.
If the budget isn’t fixed, you might have to borrow huge sums of money later and refinance your home loan. Pre-approval also helps to close deals much faster and keeps the process going smoothly.
If you wish, you can sit down and discuss with the lender the availability of any good plots in your preferred locality. If you’re lucky, the lender will show you special schemes that not only relax the number of property documents required but also make sure the projects are of good quality.
4. Loan amount
Now comes the tough part: what should be the loan amount? As defined by the regulator, many lenders tend to provide home loans that are between 75% to 90% of the property cost, depending on your loan value.
For example, if the property cost is $5000 as availed by the lender, your maximum loan amount will be $4000. This also depends on your home loan eligibility criteria.
If you have a co-applicant, their income can also be shown to increase the loan amount slightly. However, the balance payment that may be required to buy the house will be provided by you.
5. Cost of home loans
The cost of the housing loan is also a crucial factor when you apply for a loan. This cost takes into consideration the interest payments, administrative fees, processing fees, penalties, etc. If you have taken a floating loan, the cost of prepayment charges should ideally be zero.
Sometimes, if you pay a small amount of money, you’ll be able to convert the loan rate into a lower one. For this speak to the lender regarding the available options.
6. Documents
You need to carry proper verification proof in order to obtain the home loan. Depending on where you live and the laws surrounding that area, you might have to provide citizenship proof, proof of your income, and documents related to the property.
Property documents include the title deeds, seller agreement, or any other important papers.
Over to you…
Applying for a home loan can take a lot of paperwork as well as time. But if your documents are clear and the lender sees that you are trustworthy, the process shouldn’t take more than a couple of weeks.
