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4 Things to consider before you apply for a Home Loan

A home is a personal space and asset that everyone dreams of owning. Most of us also know how we would like our dream house to look like.

If you are planning to buy a home, there are two things that you think of: a pretty home and a not-so-pretty (usually-unavoidable home loan).  However, the important thing is qualifying for the home loan. In the insurance world, it is important for lenders to assess your repayment ability, which is essentially evaluated on the basis of your earnings, expenses, savings, work profile, financial capability, and repayment history of loans and other dues.

If by any chance a bad credit score or if you have any ghosts from the past, i.e. your credit debts or poor payment history this will definitely tend for things to take longer or can even pose a problem while qualifying for a home loan.

Here are the most 4 important tips to check before you go for a home loan:

  1. Check Your Credit Score: 

 A credit score is your foundation for your easy home loan application process. This fancy term only means it is a score that depends on how consistent you are or how good your records are for paying your various EMIs and credit card dues.

The credit information report (CIR), a report that every insurance company will have access is your Credit Score. This report is your credit history of borrowings from different institutions such as banks or NBFCs (Non-Banking Financial Company) or Housing Finance Companies (HFCs) etc. A trusted credit bureau maintains and prepares these records and shares it with the banks/lenders/insurance companies etc whenever an enquiry is made. This report is your bible, the higher your credit score, the higher chances of the loan getting approved. You also get an added bonus where you can expect the best rate of interest on the home loan. (This is such good news right!)

Something that you can do is to ensure that your credit scores are checked in at least six months to make sure there are no black marks on your report that will affect your plans later on.

2. Consider your budget, down payment, and EMI: 

Do you know what your budget for buying a home is? Do you have a plan on how much money you already have for a down payment? Do you know what type of, or what amount of home loan you would need?  Typically, you need to outline your requirements, and based on that you can identify the EMI range that you are comfortable with. Ideally, this will help you decide the tenure of the loan. You should also know to be aware of the market value you are looking to buy. Be aware that 80% of the value of the property can potentially be your home loan. If your income seems sufficient you can use online EMI calculators to check the various options available. If you think that your income is not sufficient, another option can be adding your parents or spouse as a co-borrower.

3. Documents Required for Home Loan: 

Before you go and apply for a home loan, it is necessary to understand there are documents and a set process that needs to be followed.  Ensure you cross-check what all is needed before you approach a bank or housing finance company.

Here a list of documents that will be needed

  • Income Tax Returns or Form 16 for past 2-3 years make sure all taxes are filed
  • PAN Card – Carry a PAN Verification for authenticity
  • Aadhar Card – the bank would also do an Aadhaar verification to verify your identity
  • Bank Statements for the last 6-12 months for a bank account where your income and expenses reflect. Make sure there is a reasonable balance in this account over the past 6 months.
    – Last 3 Months Salary Slips if you are salaried
    – Application Form with Photograph Duly Signed

4.Identify the right banks and lenders:

One important measure to keep in mind is to not apply to many lenders at the same time, as too many credit inquiries can negatively impact your Credit Score. But this doesn’t mean you shouldn’t compare your options. Identify the banks or housing finance companies that have pre-approved the property where you plan to buy a house that can reduce your loan approval time. Be aware and understand the eligibility criteria of such lenders in terms of the cutoff for credit score and the loan scheme (processing fees, the rate of interest, etc.). Research and information will be easily available online or even ask around to check-in the credibility and transparency of vendors. Select one or two lenders that best match your requirements and get your loan sanctioned from them before booking the property.

Take time to consider and validate the above points. This will prepare you well for your home loan and thus, improve your chances and scale down the number of back and forths for a quick home loan approval. If co-borrowers are being considered, do ensure they are prepared as well and make sure to check credit scores and keep their documents handy.

Still, confused? Do check out this link  for more information.

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