Applying for a home loan is a great way to finance a house purchase. You get the financial assistance needed without making a huge dent in the savings account. However, there is a lot to think about before getting this loan. Many people have faced problems with their home loans, and most of their repayment problems are simply caused by one single reason – poor financial planning.
So, before getting busy in arranging the documents required for home loan, make sure to keep the following in mind:
- Try making a higher down payment
A lender usually offers a home loan that covers 80% of the property value. The remaining 20% will have to come from personal savings, and this amount is known as the down payment. If savings make it possible to pay for a higher down payment, it is advisable to do so. This is so that you can apply for a lower loan amount, which would be easier to pay off.
- Maintain a good credit record
Lenders will always check credit records while evaluating loan applications. A bad score could result in the application getting rejected, and a good one could lead to major benefits such as a bigger loan amount and a lower interest rate. It is best to maintain a credit score above 750 to improve home loan eligibility.
- Lessen the debt-to-income ratio
Another key aspect that lenders focus on is the applicant’s debt-to-income ratio. By analysing the monthly obligations drawn against monthly income, lenders get an idea of the repayment capacity. This is why it is best to reduce the credit card balance and pay off any outstanding debts before you apply for home loan. Having a good repayment capacity is a positive sign for a lender, improving the chances of loan approval.
- Focus on the additional charges
The interest on a housing loan is not the only charge that a lender applies. There might also be additional charges such as late payment penalties, processing fees, foreclosure charges, and so on. Many borrowers do not focus on these charges and later raise issues with the lender. It is always best to clear out these issues right from the beginning. So, always be alert and calculate these charges to see whether the loan plan is an affordable option or not.
- Study about the different home loan plans
There are many lucrative loan plans out there. Since a home loan is one of the biggest loans, you are most likely to apply for, it is important to consider numerous loan plans before settling on one. Do your research on various plans and find out which one offers you a low home loan interest rate, adequate loan amount, suitable repayment plan, and so on.
Going through these tips will help in avoiding mistakes that could cause problems in the repayment of the housing loan. Do make sure to use a home loan calculator, which will provide an estimate of the EMIs, thus helping in making a sound repayment plan.
