Those planning to avail themselves of a home loan must keep in mind that a home loan is a long-term commitment that will have an impact on every facet of your life for the next at least 15 to 20 years. Therefore, every decision pertaining to a home loan must be taken after careful consideration.
This article focuses on sharing with its readers some tips that will help them make smart decisions while taking a home loan.
Shop for Interest Rates
When borrowers decide to buy a home, often in their hurry to become homeowners, they go ahead and accept a loan offer from the first lender that makes an offer, often showing no inclination towards figuring out what other lenders may have to offer. This is the first mistake borrowers should avoid making — not shopping for interest rates. Borrowers should talk to as many lenders as they can, negotiate with each of them for a good home loan deal and in the end, go with the lender offering you the best terms and conditions on your loan.
Save Up Enough for Down Payment
In the case of home loans, lenders ask borrowers to pay down payment, which is a small portion of the total value of the home they are buying. Borrowers must at least pay 15% to 20% of a home’s value as down payment. Before applying for a home loan, borrowers must make sure they have saved up enough money to clear their down payment.
Check Your Credit Report At least Six Months Before Beginning the Application Process
Your lender will decide the home loan interest rate to be offered to you as well as the terms and conditions of the loan based on your repayment capacity and creditworthiness. They will assess these two based on your credit score. A credit score of 750 or above will help you get yourself the most favourable loan terms. Borrowers should pull out their credit report at least 6 months in advance so that they have ample time to work on it and improve it in case their credit score is below what it should be and they also have enough time to report errors and get them rectified if their score has dragged down owing to an error in the report.
Use a Home Loan Eligibility Calculator
Before beginning the home loan application process, use a home loan eligibility calculator to figure out the loan amount you qualify for. Apply for an amount equal to or less than what you are eligible for. Doing so will help in getting your loan application approved. Applying for a loan amount higher than what you qualify for will certainly lead to loan rejection, which is something borrowers must avoid as too many rejections dampen an individual’s credit score, reducing their eligibility for a loan in future.
Use a Home Loan EMI Calculator
Other than making use of a home loan eligibility calculator, borrowers must also use a home loan EMI calculator to get an idea of their monthly EMIs with respect to a specific loan amount. This helps with financial planning. Once you know your EMIs, you can make adjustments in your monthly budget in such a way that clearing EMIs does not become burdensome for you in any way. Further, you can also use the home loan EMI calculator to figure out the right loan tenor for you.
Make Sure You Have All the Documents Ready with You
To experience a truly hassle-free loan journey, go to your lender’s website and go through the list of documents they will need to process your home loan. Make sure to keep these documents ready with you, this will help you experience quick approval. Incomplete documentation can lead to application rejection, so be wary.
Read the Loan Agreement Properly
Here’s the most important tip: before signing on the dotted line, make sure you have read and understood every line of the home loan agreement. If there are words and phrases that are too technical for you, hire a legal expert and pay them to explain to you everything written within the agreement. Look for hidden clauses and terms and conditions that can prove harmful in the long run. If there is something that you do not agree to, do not feel pressured into signing the agreement. Instead, send the agreement back to your lender and renegotiate the whole deal with them — sign only when you are comfortable with every term and condition mentioned in the offer.
Home loans are a huge financial responsibility. A small mistake made during the application procedure can compel people to pay for years. Keeping the above-mentioned tips in mind will help you get yourself the best home loan deal as well as protect yourself from unfavourable home loan clauses.