How to get home loans for first time buyers
Purchasing your home can take a long time and you may have to be patient until you find just the right one. However, if you’re planning to take a home loan, it is always better to know beforehand what you may require for a successful application of a home loan and save valuable time when you actually proceed to purchase your home.
Gone are the days of patiently collecting sufficient funds to purchase a home; a home which would remain in the family for decades to come. The times, they have changed and how. Nowadays, banks are prepared to give on the spot approvals on home loans and there are previous tie ups with builders in order to process a speedy loan process. A home can be purchased in a few weeks and there have been cases where people have moved into their dream home within a few days of obtaining their loan. The need of the hour has become speed, be it in purchase of a home or in the sanction of a loan.
Home loans have become one of the most sought after financial instruments and have become the reason of happiness for millions of people in India. Banks and financial institutions ensure a smooth, hassle free process for getting loans and it is estimated that 70-80% of salaried class employees and 15-20% of self employed people avail of finance through banks and financial institutions.
It is important to understand that while taking a loan may seem easy, it also means that you are taking a financial obligation for a long time; in some cases loan tenures extend upto 20-25 years. Read below to understand certain nuances of a home loan and ensure that you take the right steps in the right direction towards purchasing your dream house.
First, put your documents in order and assess if you qualify
As a home buyer, you would have already armed yourself with preliminary knowledge about requirements for a home loan. So, it is recommended that first-time home buyers should know before hand their own expenses and incomes and decide how much they can afford to spend on the loan. This should be done before the bank or lender tells you how much you qualify for. You can even determine your loan eligibility by utilizing the online loan eligibility calculator.
Before you approach a lender, ensure that you have all your salary slips, bank statements, income tax receipts and other vital documents in perfect order. You must be prepared with a good idea of what can be afforded, in terms of down payment and Monthly EMI’s. Calculate the debt-to-income ratio and consider beforehand down payments and taxes.
Study the home loan amount, the tenure and the monthly installments diligently
Pay your installments leisurely over a period of 20 years or more—that’s what the typical sales person of a financial institution is likely to say. Usually first time borrowers make this cardinal error and assume that the longer the duration for repayment the more financially viable it will be. However, opting for a long loan tenure also means that you may end up paying higher interest to the bank, over an extended period of time. Not vice versa as it may seem to be.
Consider how much of money you can allot for the monthly installments and try to limit your total EMI by setting it in the average range of 50-65 % of your net salary. Enquire with the bank about the most ideal tenure and opt for one which is comfortable to pay and doesn’t take years to foreclose.
Many people opt to increase their loan eligibility by adding an earning member of their next of kin as a co-applicant on the loan. You can even improve your loan amount eligibility by getting your fixed income from sources other than the basic salary; consider avenues such as rent or the interest accrued from fixed income securities. These can be used to calculate your net income.
Figure out your down payment
These are the two words that any first time home buyer might dread. Buying a home is not easy and putting together the money for the down payment can be quite tedious.
Speak with the banks when you’re starting the process and simultaneously enquire with friends, colleagues and acquaintances to find out the best financial institutions which they may have associated with in the past. Enquire before hand about the process and the steps that first-time home buyers must consider.
Check your credit
Chances are you will be closely watching this before you apply for the loan. In case you haven’t yet done so, consider it to be among the first few things that you must do in order to qualify for a loan. Make the reports your constant companion and check for mistakes, unpaid accounts or collection accounts. Don’t assume that your credit rating will be stable and consistent, check your credit utilization ratio thoroughly; the lower it is the higher your credit score will be. Begin the process at least a few months before you start looking for your home.
Fixed or floating rate of interest
Determine which type of an interest will suit your needs. It is ideal to consider fixed rate loans when your fixed monthly cash flows work on a tight rein. If you feel you will not be able to manage any erratic changes in the interest rates and the corresponding rise in installments, it is best to consider a fixed rate of interest. Remember, that fixed interests have a higher rate of interest than floating rate loans. For someone who has additional amounts of income coming in from different sources, it is recommended to opt for variable rates. However, do read the fine print of home loan agreements judiciously and think carefully before determining which one suits you best.