One of the most important items on everyone’s wish list is to own a home. However, because this necessarily necessitates a large financial investment, most people have difficulty making their goal a reality.
Owning a home is a dual investment since it allows you to benefit from capital appreciation on the property while also saving money on rent that you would otherwise have to pay if you rented. Furthermore, a house provides long-term security and is a wonderful investment.
Your home is an investment that is for a lifetime, it needs to be thought through, and thought of well. It demands your life’s savings and efforts, so you need to be careful where your money goes!
To make your dream home possible, you would need funds, but if you’re short of the required amount, financial assistance will come in handy.
This Financial assistance is known as a “Home Loan”
Let’s take a deep dive and know all about home loans!
What is a “Home Loan”?
A home loan is one of the most important elements or tools when one is looking to buy a home. Simply defined, a home/housing loan, often known as a mortgage, is a sum of money borrowed by an individual from a bank or other lending institution. The borrower must repay the loan amount plus interest in Easy Monthly Instalments, or EMIs, over a period that can range from 10 to 30 years, depending on the loan type.
Some important terms to know!
Down payment: The amount you spend out of your own pocket toward the purchase of a home.
Loan Amount: The amount you borrow to meet the remaining balance of the purchase price. The sale price of the home minus your down payment will be your loan amount.
Loan Term: The length of time you have to pay back your mortgage is referred to as the loan term. Your loan debt will be zero during the last month of your loan term if you make full payments on time every month.
Interest Rate: The cost of borrowing money stated as a percentage is your interest rate. For example, if you borrow INR 100,000 at 3% interest, you will pay INR 3,000 in interest every year. (Well, not really, because you’re paying down debt all year, but we’ll keep it easy.) This is the profit that your home loan lender makes from lending to you. Home loan rates, like auto loan rates and credit card annual percentage rates, are expressed as a percentage of the loan amount (APRs).
Key tips before you take a home loan
– Go with a higher down-payment
It is preferable to provide as much down-payment to the lender as possible, regardless of whether you choose a bank or a housing finance company. The larger the down payment, the lower the entire interest expense by the end of the term. Higher down payments result in a smaller loan amount and, as a result, a lower EMI.
– Choose the right property
If you are buying a property in an approved society, you increase your chances of getting a loan amount of up to 75-90% of the property value.
– Build a strong Credit Score
A good credit score improves your chances of getting a home loan. To do so, one must make sure that all loan payments are made on schedule. Your credit score will reflect your commitment to settling debt if you pay credit card dues and monthly installments (EMIs) on time. Any missed payment or default has a negative influence on your credit score. A low credit usage ratio (CUR) is also beneficial to your credit score.
When you apply for a home loan, the bank will most likely examine your credit score to see if you are creditworthy. Banks and other financial organizations employ a variety of credit bureau scores. There is no minimum credit score for a home loan, although a score of 750 or higher is generally regarded as good for approval. Low house loan interest rates are also linked to a good CIBIL score.
– Opt for a joint home loan
If you have numerous earning members in your family, applying for a house loan jointly boosts your chances of being approved for a larger loan. Applying for a home loan alongside your spouse and/or parents is the best option.
Co-borrowing improves home loan eligibility while also dividing repayment costs and providing tax benefits. A good-credit co-borrower boosts your EMI affordability, hence improving your house loan eligibility.
– Look for lenders offering the lowest rates of interest
You will have a greater chance of securing a loan from a housing finance firm if you are new to credit or self-employed. Most housing finance organizations have built in-house models to help them determine the repayment capacity and creditworthiness of applicants with a variety of income sources.
HFCs have carved themselves a niche in this market, specializing in low-cost house loans, and are sometimes a better bet. HFCs are also present in local markets where banks are not. Private or public sector banks will be available to salaried consumers with a good credit score. Always go with a lender with a proven track record and parentage.
In addition, lenders typically evaluate loans with a loan-to-value ratio of 85 percent. However, if the lender has authorized the project or if they have a good relationship with the builder, they can contemplate up to 90% LTV.
– Restructure your loan terms (for existing loan takers)
Businesses, people, and even governments use it to avoid defaulting on existing debts by negotiating lower interest rates. Loan restructuring is a less expensive alternative to insolvency when a debtor is in financial difficulties. Both the debtor and the creditor can benefit from it.
If you’re not restructuring your loans due to insolvency, you can still ask for better terms from your lenders, or switch to another lender who will provide you with a lower rate of interest on your home loan.
Bottom of the line
A digital platform can help you choose the best lenders for your home loan, and that is where FinMapp will help you. Though house loans provide a convenient way to purchase a property without having to pay cash, it is up to you to grasp the terms and conditions to take advantage of the benefit and save money.
Taking out a home loan necessitates a long-term commitment to your lender, so keep these tips in mind as you search for the best home loan for your dream home.