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6 Things to Consider Before Applying For a Home Loan

Home Loan Applications Investing in properties has always been considered to be a wise and safe investment. However, with the prices of properties rising each passing day, it’s becoming challenging for ordinary men to afford to invest in the real estate sector.

A home loan is of immense help in this regard. It is an excellent form of financial assistance when you run short of cash or are unwilling to liquidate your savings. Nowadays, with the freedom to choose a convenient repayment tenure and easy EMIs, banks are helping people to purchase their dream properties.

Nevertheless, acquiring a loan isn’t an easy job. So, before you proceed to apply for a home loan, you must consider the following things.

Check your Credit score
Remember that a good credit score and credit history would help you get your home loan application approved quickly. You can also get the loan at low interest rates, sometimes even with additional credit perks! A credit score of between 750 and 900 is considered outstanding.
Rate of Interest (Fixed/Floating Rates)
As the name suggests, the rate of interest that stays unchanged from the time of loan sanction to its repayment is called a fixed rate of interest. On the other hand, a floating rate of interest keeps changing as per changes in the financial market. In today’s financial sector, people prefer a floating rate of interest instead of a fixed one. The former type is beneficial in the long term, unlike a fixed rate of interest.

Affordability
Once you are done with your research, you must see how much your financial resources permit you to spend after buying a property. Consider the current mortgage rate and get real numbers to weigh your financial position. Consider whatever monthly expenses you incur, including student loans, car payments, child care, and then find out the EMI you can afford.

Home Loan Applications

Repayment tenure
The repayment tenure is the period you get to repay the sanctioned loan. Your EMI and the repayment period are related. If you choose a more extended repayment period, your EMI might be less, but the interest rate would be extremely high. Consequently, you would have to pay double or triple the loan amount. If you earn a decent salary and are financially stable, consider choosing a small repayment tenure. In this case, your monthly EMI would be high, but the interest rate would be meager. Banks charge low rates of interest to encourage people to repay faster. Hence, before you proceed to apply for a home loan, make sure you are financially equipped to repay the loan amount in the shortest period to avoid paying a high interest rate.

Employment stability and number of dependants
When it comes to approving home loans, banks avoid applicants with a large number of dependants. According to banks, the more the number of dependents, the lesser the chances of getting the loan approved with a low interest rate. They assume that if a person has multiple dependents, their financial capacity to repay the loan is reduced. Consequently, the monthly income is spent on the dependents, which will prolong the repayment tenure. Sometimes, such people are expected to miss their EMIs, which will ultimately delay the complete repayment of the loan. Hence, maintaining a stable emolument history and regular income source is essential.

Compare the rate of interest of different banks
Borrowers can change their current lending bank to another lender. People consider changing the lender mainly when the other bank is offering loans at a comparatively lower interest rate. If you try to change, you have to pay a prepayment penalty. So, before you choose a specific bank, compare it with the policies of other banks as well. Also, it would help if you change the lender only if you are getting a significantly low rate of interest. Consider these factors only when you are sure it’s an excellent time to borrow a home loan. Research properly. With the internet at our fingertips, researching has become a hassle-free process.
Learn about the present market condition, check the rate of interest offered by central banks, their policies, and perks.
Lastly, when it’s time to sign the application, check the agreement documentation attentively and don’t hesitate to question the person-in-charge.

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Any facts, figures or references stated here are made by the author & don't reflect the endorsement of iU at all times unless otherwise drafted by official staff at iU. This article was first published here on 2nd September 2021.

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