Buying a home is one of the most crucial decisions we can make in our lives. It brings a sense of identity, peace, and status with it. Some of us work all our lives to own a house. However, with the home loan options available, owning a house has become more affordable.
Before getting a home loan from your preferred lender, it is crucial to assess your needs and consider several factors such as determining your affordability, meeting the eligibility criteria, and preparing documents. You must know beforehand how much you can afford to take a loan. You can use an online house loan calculator to figure out a suitable EMI for yourself. Here are some of the Do’s and Don’ts you must know before applying for a home loan:
Do’s and Don’ts Before Applying for a Home Loan:
- Check loan affordability
The first thing you need to focus on while applying for a housing loan is checking its affordability. Besides considering the interest rate and the EMIs you will have to pay, you must factor in several other factors. For instance, you must know whether you will have to pay the downpayment all at once, or you can pay it in smaller amounts over a period. You must ensure that your EMIs (existing + the new one from the loan you are planning to take) are not exceeding over 60-70% of your total income.
Furthermore, your EMIs can drop significantly if you choose a lower interest rate and longer loan tenure. But, the total cost of the loan will increase due to longer loan tenure. So, plan your loan choosing a tenure that suits you the best.
- Know your eligibility
You will need to assess your needs and determine how much you need as a loan. The first thing you can do is determine your ability to pay the down payment. It enables you to figure out the loan amount you will need to borrow. Next, factor in your monthly expenses and other financial obligations to understand how much you can pay as EMIs. You can also use an online house loan calculator to figure out a suitable EMI based on three components – loan amount, interest rate, and loan tenure.
- Maintain a good credit score
Your credit score is one of the crucial parameters lenders consider before approving your loan application. It can help you get a housing loan quickly and avail of a competitive interest rate. Your credit score indicates your creditworthiness through your credit history and credit behavior. Having a higher credit score means that you are creditworthy. Lenders may consider offering a great deal, provided you have a minimum CIBIL score of 700 or more.
Don’t forget to read the agreement
It is observed that borrowers usually miss reading their housing loan agreement and miss vital details such as tenure, interest rate, fees and charges, etc.So, it is imperative to read the fine print of the agreement and clarify all doubts before signing those documents. The charges that involve a home loan agreement are processing fees, insurance and administrative charges. Additional charges may also be applied in case of delayed payment / non-payment, or part-payments / foreclosures, etc. Some lenders may offer adjustable or floating interest rates which require no prepayment charges. Hence, you must read your agreement and understand all the terms and conditions to avoid surprises later.
- Don’t change jobs or become self-employed
While applying for a housing loan, make sure not to quit your job or become self-employed by opening a new business. It can harm your home loan application, as lenders only offer loans to borrowers who can prove that they have the means to repay the loan amount without any delays or defaults. You will have to establish that you have a stable source of income. If you are planning to change your job or are already in notice period, it is advised to wait for at least 6-12 months at your new job before applying for a loan.
- Do not make large purchases
Avoid making unusual or large purchases right before applying for a home loan. When you apply for a loan, your preferred lender will check your financial history and financial transactions before approving your loan application. If you make big-ticket purchases, such as buying a new car or going on an international trip, your chances of securing a home loan will significantly decrease.
- Don’t apply for other loans
Lenders determine your ability to repay the required loan amount before approving your home loan application. Applying for a new credit card or other loans before or during your home loan application may hinder your chances of getting it.
- Don’t take financial risks
Your financial stability is a must for any lender to offer you a housing loan amount that you need. Avoid activities like cosigning a high purchase for someone in your family or making a large deposit into your bank account, as these can jeopardize your plans of securing a home loan.