Buying a home is one of the major milestones for an individual. This is often associated with self-esteem. But real estate properties being very capital intensive, makes buying a house a tough work. The easy solution is applying for home loan. This way the person takes loan and buy the preferred house.
It is also considered to be one of the most crucial moment. The buyer needs to browse through an extensive list of properties to carry out a comparison that will help him/her in making an effective buying decision.
The buyer or home loan borrower will also need to learn various jargons associated with the home loan sector.
Based on the borrower’s requirements, the eligibility criteria, and other factors, he/she might get his loan application approved or rejected.
A lending institution such as a bank or a non-banking financial company (NBFC) will look into various factors and parameters to determine whether a home loan can be sanctioned or not.
For a first time home buyers, applying for a home loan could turn out to be a complicated and tedious task that involves a lot of paperwork, forms, obtaining approvals, etc.
The Process – while applying for home loan
Once an applicant submits the home loan application form, the lender will review the application. This is done to ensure the fulfillment of the eligibility criteria. This is followed by verifications and scrutiny of the application on various parameters.
The lender will also look into the income and creditworthiness of the applicant.
If the lender is satisfied with the information provided by the applicant, the home loan application could be sanctioned or rejected based on a diverse range of factors.
Tips to Consider while applying for home loan
As a home buyer, the borrower will need to consider various factors that can affect his/her eligibility for a home loan application.
Additionally, these are few of the most important factors that the financial institution will consider to determine whether a home loan can be granted to the applicant.
The following list mentions the important factors involved in the home loan application process which can have a positive or negative impact on the application:
#1. Finding a House
Buying a house wouldn’t have been a difficult task provided finding a suitable house was an easy task.
Considering the types of properties, locality options, amenities, etc. most borrowers spend a significant amount of time in finding a house that suits his/her requirements.
While looking out for a house, it is essential to carry out a background check for the builder/developer.
Buying a house takes many years of planning, hence the borrower is required to select a house that falls in his/her budget.
The location of property must also be suitable so the borrower doesn’t have to worry about relocation after they have moved to the purchased house.
Even if the buyer has plans to rent out the house after purchase, he/she wouldn’t want the investment to be futile, hence the initial background checks and property evaluation are equally important.
#2. Approved Housing Project
A borrower can also choose to select a property from the list of approved housing projects provided by most banks and lending institutions throughout the nation.
The properties which are included in the list of approved projects have certain advantages for the buyer since these properties and the responsible builders have been already scrutinized by the lenders under various parameters.
When the borrower chooses to a buy a property from the approved housing projects, he/she has more chances of buying that house since finalizing on a house that falls outside the approved housing projects can at times lead to application rejection due to many reasons such as budget constraints, the house is already booked, etc.
Hence, the buyer can save a lot of time when he/she chooses to consider the houses from an approved project. In the event of an approved projects, the lender checks the track record of the builder, construction period, etc. to determine whether it can be added to the list.
Once the property is added to the list, the buyer can proceed with the home loan application (subject to eligibility criteria). The list can either be obtained from the lender’s website or by contacting them through different communication channels.
#3. Making the Down Payment
Though it has been one of the major deterrents for most borrowers, regular savings, co-signing, etc. can help reduce the burden of the down payment.
Most lenders expect at least 15-20% of the property values to be paid as the down payment amount. Though there are provisions for zero down payment option, it is not advisable since foreclosure is applicable for first missed EMI itself.
Moreover, the down payment also helps in lowering the Home Loan EMI. The borrowers can use a Home Loan EMI Calculator to estimate EMIs they will need to pay.
If a borrower is planning to buy a house on loan, the down payment amount should be one of the priority factors that he/she needs to take into consideration.
While having a healthy credit score will take you a step closer to the approval of the home loan application, it also allows the buyer to negotiate the property value with the builder.
A healthy credit score represents a healthy debt repayment behavior which is always desirable to the lender.
#4. Credit Score
Most lending institutions will carry out a credit check before approving or rejecting a home loan application. With the help of a credit check, the lender will get an insight of the applicant’s credit history.
The credit history which contains the cumulative data of an applicant’s credit/loan account and debt repayment history functions as a risk management tool for the lender.
The Credit Bureau assigns a credit score to an individual based on his/her credit history and the availability of various other types of credit and loan account information.
The information on a credit report is reported by the various government as well as non-government establishment on a periodical or regular basis.
These establishments are legally required to supply the credit and loan account related information of an individual to the Credit Bureaus to help prepare the Credit Information Reports (CIRs) that also contains the credit rating.
Credit report and rating play a vital role in the home loan application process.
It helps to assess the debt repayment capabilities of an individual while helping the lender in avoiding bad or unpaid loan accounts.
Before applying for a home loan, if the applicant carries out a self credit-check, it’ll help him/her to pre-determine whether the loan application will get approved or rejected.
A regular or periodical review of the credit report will eventually enable the individual to learn the factors and trends that have a positive or negative impact on the credit score.
Additionally, if there are any errors such as an incorrect entry/listing on the credit report, the individual can get in touch with the Credit Bureau to remove or amend any listing of credit or loan accounts.
There are various other methods that an individual can follow to achieve a healthy credit score. These would help while applying for home loan:
4a. Is Credit Score Really Important?
A home loan application where the applicant has a healthy or a positive credit score will have more chances of the loan application getting approved over the other applicants who have a poor credit score.
The credit score indicates the creditworthiness of an applicant. A healthy score would indicate a higher chance of loan repayment capability since the credit history indicates the prompt repayments of credit on a loan or credit card account.
Most lenders have made the credit score to be an essential part of the home loan application process which makes it an important factor for consideration before applying for a home loan.
#5. Home Loan Protection Plan
The borrower can choose to add a home loan protection plan that will protect his/her family against legal hassle in the event of the borrower’s unfortunate death.
Under this plan, the insurer will pay the remaining EMIs after the death of the borrower and the family/dependent is not asked to vacate the property.
Though it is not one of the popular financial products, buying a protection plan for the home loan can turn out to be a valuable life saver.
#6. Property Inspection
If the buyer decides to carry out a property inspection through professional service providers, they will inspect every inch of the house to detect damages, defects, etc. and notify the buyer which helps in saving time and money.
Damages and defects detected at an earlier stage will give enough time to the buyer and builder to fix the issues beforehand rather than spending a fortune later to repair the damages.
#7.Tax Savings and Property Tax
A home loan borrower is eligible for tax deductions under Section 80C of the Income Tax Act, 1961. Additionally, the borrower also needs to consider the property tax which is paid on an annual basis to the local government or municipal corporation of the area in order to understand the complete value of the property and the payables.
Disclaimer: All blog posts of getmoneyrich.com are for information only. No blog posts should be considered as an investment advice or as a recommendation. The user must self-analyze all securities before investing in one.