Finding the right home is important, but equally important is finding an ideal home loan. There are more than 50 lenders in the country who would be willing to give you a home loan. But, the important question is, from whom should you take the loan? Remember, the home loan you wish to take will require your financial commitment for a long period of time. Hence, here are some tips to get the right home loan for you
Home Loan Documents
When you apply for a mortgage, you will need to provide a number of financial documents to your lender. Collecting these documents in advance will help expedite the process of your loan application. At a minimum, you should be prepared to provide your last two pay stubs, your most recent W-2, your last two years’ tax returns, and current bank and brokerage statements.
The interest rate will be one of the biggest factors in determining the cost of your mortgage. Interest rates for mortgages change almost every day and it’s helpful to know where they’re headed.
Equated Monthly Installments
Equated Monthly Installment is the payment that a borrower needs to make every month for the repayment of the home loan. The equated monthly installment amount depends on you. The EMI amount also depends on how much down payment you have made while buying the house. The higher the down payment you make, the lesser will be the stress on the outstanding balance which will get converted into EMI. It is always recommended to ensure that your EMI amount does not exceed 45% of your total income. You can calculate EMI through Home Loan EMI Calculator.
Home Loan Tenure
Every person who wants to take a home loan should decide on the tenure of the home loan before taking a home loan. Your home loan EMI directly depends on the tenure of your home loan. Banks prefer home loan applicants with shorter repayment tenures. The shorter repayment tenure is also beneficial as it reduces the home loan interest burden on your EMIs. Your monthly installments will increase with shorter tenure but ultimately, it will help you in reducing the cost of your home loan.
Compare Various Offers
Don’t fall for loans with similar interest rates. There are other factors that make one home loan more expensive than another. Make sure you understand all the various factors like fees, points etc that determine the loan amount for you.
Track Your Credit Score
A good credit score attracts a lot on home loans as it gives a promise about your creditworthiness to the lender. To get a good credit score, you must have a good financial history. To check your credit score, you will need to obtain a copy of your credit report so that you can see what your credit profile looks like to potential lenders. Ideally, your CIBIL score should be over 750 to be offered an attractive home loan interest rate. If your CIBIL score is less than 750, the chances of your home loan getting rejected are high.
Understand Foreclosure Norms
Foreclosure of your home loan means repaying the outstanding amount before your home loan tenure ends. The sooner you repay your home loan, the less interest you will have to pay. Banks usually levy a foreclosure penalty for repaying the home loan before the end of the tenure. With a floating home loan interest rate, your bank or financial institution will not charge any foreclosure penalty.
Saving for Down Payment
Depending on your lender and the type of loan you choose, your required down payment can range from 3% to 20% of the purchase price of the home. Establishing a monthly budget will help you set aside enough money for your down payment.
Once you’ve assessed what your budget will support, consider automatically depositing money from your paycheck or bank account into a savings account to make it easier and more convenient to set aside money each month. An account like Discover Online Savings Account can help you start saving today.
If you can’t come up with a large down payment, you should look into an FHA loan, which helps home buyers who can only make a small down payment.
The processing fee is the fee that the home loan borrower has to pay to the lender after the home loan application is accepted. Generally, individual banks or financial institutions charge a loan processing fee of up to 1% of the home loan that they disburse. You need to look for the right bank that charges low processing fee or negligible processing fee.
Make use of a loan calculator
Home loan calculators are important tools to help you understand how much you can afford. It enables you to calculate how much your monthly payment will be with different home loan rates, down payment, cost of the house etc. You should use this to figure out how much you should be borrowing given your earnings. Use Indiabulls Home Loan Calculator to know more.
Read the documents carefully
When signing the document, make sure you read each and every clause written in the loan agreement. All terms and conditions must be read and understood thoroughly before signing.
As per the recent RBI guidelines, no bank or financial institution should levy pre-payment penalty. With no prepayment penalty, you can freely make any part payment whenever you have extra cash available after taking your home loan.