A Handy Checklist to Consider Before You Apply For a Home Loan

Buying a home is a huge step and if you are planning to purchase it through a home loan, there are certain points that you should keep in mind.

Before applying for a home loan, you need to carefully consider the required documents and procedures and follow them through, to ensure that you get your loan at the right time. Different estates offer different houses for sale and some even have tie-ups with major financial corporations to ensure their customers can get an easy loan approval. But before you go ahead and sign along the dotted lines, go through this checklist.

Do Your Research

 

A lot of attractive home loan rates are announced by banks from time to time. Make sure you go through the terms and conditions of all the available options. Often people decide to stick to one bank for all their loan purposes. If you do this you might miss out on lower home loan interest rates offered by other banks.

Research also includes deciding upon a house wisely. No matter how attractive a property is, you must keep your budget and requirements in mind.

Decide the EMI

Home Loan EMI is the monthly repayment amount that is deducted from your income. The EMI amount should be decided keeping your normal monthly expenses in mind and shouldn’t put a halt on your everyday life. A good rule of thumb is to not let your EMI go over 45%- 50% of your net monthly income, no matter how sure you are of a salary hike.

Tenure and Interest Rates

Here is the tricky part of home loans. Generally, the longer the tenure of the loan, the better. However, with lengthier loan tenure you’ll end up paying a higher rate of interest. But if the tenure is short, then there exists the pressure of a higher EMI. Therefore, the final decision rests upon your net monthly income, personal expenses, and a range of other personal factors. You should decide the EMI amount depending upon your age. Lenders keep the general age of maturity at 60 and getting tenure longer than that is relatively difficult. If you apply for a loan in your 30s you can get tenure of a maximum of 30 years, which is a good amount of time.

There are two types of interest rates, namely fixed and floating. The former remains unchanged throughout the loan tenure while the latter changes depending on market conditions. It makes sense to go for floating interest rates so that you can opt for lower interest rates any time during the tenure of your loan. A fixed interest rate gives you a definite idea of what you will be liable to pay till the end but exempts you from all forms of discounts even if the financial scale tips in your favor. Some lenders also offer the chance to switch between floating and fixed interest rates. So, decide the best for yourself and opt for an interest rate that suits you.

Down Payment

This is an initial payment that is made when you borrow money on credit and roughly comes up to 20%-25% of the total loan. Try to keep the down payment as high as possible but not at the cost of your daily expenses. The advantage of paying a high down payment is that you have to pay lesser EMIs during the repayment period.

Penalties or Charges

Other than the actual housing loan, you’ll have processing and legal verification charges. Also, there will be an additional charge if you default on payment of the EMI or wish to transfer your loan. These are individual charges that differ greatly from one bank to another, so make you aware of all the charges that the lender can levy.

Keep Documents Handy

Remember to keep all loan-related documents handy and go through them carefully. Also, keep an eye on your annual and monthly loan statements. Any last minute financial exchanges between you and your realtor are highly discouraged, and this is why you should file documents carefully when dealing with real estate.

Do not assume your loan advisors or lenders to have your best interests in mind. Only you are aware of your financial standing and economic status, so be wise. A mortgage can help you land the home of your dreams and make personal real estate a dream come true, but it shouldn’t affect you adversely.

[Source: http://loanwalle.com/blog/a-handy-checklist-to-consider-before-you-apply-for-a-home-loan/]