When you hear the word “house,” you immediately think of a building that flaunts the latest architectural design. However, a property is more than a building to live in. Besides being a place of residence, a house is an investment that guarantees you massive returns sooner or later.
Today, many people buy houses for various reasons other than to own a “place of residence”. If you buy a property, you can lease out a part or all of it and collect rent, making it a lucrative investment. You can also use a newly purchased property for property development.
The real estate market is thriving now, and it makes sense for you to take advantage of the market situation. While buying a home is a milestone, it is a costly decision to make. Inflation causes property prices to soar and this negatively affects people in the lower-income groups.
However, regardless of the inflation, there’s a way to purchase a house comfortably today. It’s affordable and comes with many benefits. Read on to learn more about this cost-effective method.
An Overview of a Home Loan
A housing loan is a secured mortgage loan that most banks and non-banking financial companies (NBFCs) offer. These home loan packages have various interest rates and tenors – offered to you by your lender, based on your income and financial profile and eligibility.
One often hears of Home Loan deals gone sour, that leads to severe recovery action. However, these situations only arise out of lack of foresight. If you plan your home loan tenor well, and choose the correct lender, your borrowing experience can be smooth and hassle-free. Investigate the paperwork, especially what happens if you can’t meet the equated monthly instalments (EMIs) and ensure that you have a back up plan.
Five Things to Note Before Taking a Home Loan
When you’ve put together list of home loan lenders that suit your need and are a good fit for you, here are some things you should take into account, before making your final pitch.
Create a Shortlist of Lenders
Many lenders are quick to advertise their deals without including important details like the interest rate, the tenor offered, and prepayment charges, which you must be wary of.
We recommend creating a list of three to five lenders. Having a list allows you to study them closely and zero in on the best choice for you.
- Consider Your Budget
Almost everybody can take home loans today. This is because they’re generally affordable. However, one must remember that a home loan is a long-term deal, so the repayment can stretch to 30 years – which means that you must plan your repayment schedule based on your budget, and see if in the long run, a home loan is beneficial to your finances and family goals.
Your Credit Score
Before kick-starting the home loan application process, it is a good idea to take a look at what your credit score is? A high credit score is a proof of your good financial habits and income profile, which will help you secure a better home loan deal.
Before applying for a home loan, note that having a credit score of 725 upward gives you a strong chance of getting approved. If a lender denies your application, you not only miss out on the loan but will suffer a negative credit rating.
Check Your Home Loan Eligibility
You cannot get approved if you don’t meet the eligibility criteria for a home loan. Every lender has different requirements. While some accept a credit score lower than 725, most insist that you improve a low score before applying.
How can you determine your eligibility? Most lenders have an online tool known as the home loan eligibility calculator. With this tool, you can know your eligibility and whether to apply or not.
Study the Home Loan Agreement Carefully
Don’t get carried away by the high amount or the long repayment tenor. Most applicants fail to read the fine print before signing a loan agreement. Ensure that you evaluate the documents before including your signature.
Some lenders typically offer a dossier containing useful information about the financial and legal aspects of taking a loan.
Two Ways to Improve a Low Credit Score
Your credit score can make or break a good home loan application. To enhance your application, here are two things you can do:
Request to View Your Credit Report
You can assess your credit report before applying for a home loan. You can get a copy from your credit information bureau. After receiving a copy, study the report closely to know what’s causing the low score.
Repay Your Existing Debts
Debts reflect on your credit report, portraying you as a high-risk borrower. Lenders are sceptical about offering home loans to high-risk borrowers. So, to improve your score, pay some debts today.
Taking a home loan is not a shameful thing. It’s merely financial assistance and we all need assistance at some point. Before opting for financial assistance today, ensure that you abide by the things listed above.