The Wisest Way to Choose Your Home Loan
Buying a home has a different meaning for everyone. For the middle class, this is a milestone in life, but for the rich, it can mean entry into the social scene.
But whatever the resources available, lenders and housing loans have always played a fundamental role in meeting this significant need.
Understanding a bank’s products, policies, and terms is vital for safe and profitable home loans.
The housing loan you choose is your long-term commitment, so be sure to go through the tips below to get the right home loan for you. Have you heard about the Islamic Home Finance facility that allows you to get your dream house through Shariah-compliant policies?
Best Ways to Choose a Home Loan
Here are some prudent steps you can take before you take a home loan:
Make Thorough Comparison
While doing your research on home loan lenders, make sure you compare them based on the following:
- The rates of home loan interest charged
- Home loan processing fee and charges
- The record price swings of the lender for the past two years
- The terms and conditions for partial and prepaid rates
- Debt Consolidation so that less than 50% of monthly income is used for debt repayment
After selecting the correct lender, you need to submit a home loan application, customer form (KYC), age certificate, and employment and income information to the lender.
The lender then performs due diligence to verify the borrower’s credibility and the income document, assesses the applicant’s ability to repay the loan, and approves it based on the applicant’s creditworthiness.
If applicants wish to reduce the approved loan size, they can notify the bank.
Save for Down Payment
Set your monthly budget and contribute a larger sum towards your down payment. Usually, lenders are ready to loan you 70-90% of the real estate amount, which also means a higher repayment amount, a larger tenure, and of course, higher rates of home loan interest.
If you have a good chunk of savings, it is recommended to shed it out and lower the loan amount, which will be highly beneficial in the longer run.
Understand Different Interest Rates on Your Home Loan
You must have a good knowledge of the below-mentioned categories of interest:
- Variable rate: it is variable because it depends on the official discount rate
- Fixed Interest: Under these conditions, the interest on the loan remains the same for the specified period; usually, the period is from 2 to 5 years, and then it goes back to the variable rate
- Split Loans: Home loans are based on fixed and variable interest rates
Check Your Credit Score
The best home loan deals are often made to creditworthy people. However, you must work on setting your credit score high before you apply for a home loan. You can do that by repaying all your existing debts and maintaining a good balance.
The CIBIL score should be above 750 to offer attractive housing loan interest rates. Your loan may be rejected, or you can pay tremendous interest if your CIBIL score is low.
Make sure the lender allows portability or balance transfer of your loan. This is usually offered by lenders who charge a variable interest rate on your housing loan. This can help you reduce interest and free you from many lenders’ exit fees.
Understand the Foreclosure Rules
The RBI recently banned any charges lenders apply on foreclosure of home loans. It is essential to know this when taking out the loan foreclosure so that you don’t end up paying an extra amount.
Maintain Financial Accounts
You may submit certain financial documents when applying for a housing loan. Preparing and organizing these documents will speed up the process.
Most importantly, you will need pay slips, tax returns, bank statements, and so on for at least a few months. So, make sure you have your documentation handy before applying for a home loan.
Before applying for one, you must be aware of trending home loan markets and different aspects of the procedure.
Spending a lot of time with your lender or an experienced professional is advisable to help you make the right decisions, so buying a new house through a decent home loan only brings back good memories.