Are you well-informed and equipped with all the relevant financial tips and techniques required before you apply for loan to buy your dream home? If not, then here you are about to learn about some important ways to conclude, whether is this the right time to buy your home or not. These suggestions and measures will help you use the best available home loan offers. It shall help in selecting the best home loan option and get the loan with the lowest cost of credit.
Before any loan approval, lending institutions, such as banks and NBFCs check your credit score to know your creditworthiness and repayment capacity. In India, there are four leading Credit Information Companies (CICs) or credit bureaus that can help you access and monitor your credit report and credit score. These four credit bureaus named TransUnion CIBIL, Experian, Equifax, and CRIF High Mark generate and issue millions of credit reports, based on the consumer credit information provided to them by the respective lenders.
Therefore, to get instant help or to know your creditworthiness, you can check and download your free credit report from Paisabazaar’s website or app. This offered service is free of cost for a lifetime and you receive monthly updates in multiple languages as well.
Tips to Consider before Applying for a Home Loan
Financial planning is an essential task to be undertaken before applying for a home loan or any other credit product. Further, we would like to help you with some of the important financial tips to consider, implement, and execute.
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Assess Your Financial Situation
Before you plan to buy a home, assess your financial situation painstakingly by evaluating your savings, income, monthly salary, expenses, and past and existing debts. By doing this you can be more aware of your affordability and ability to repay the loan, as a home loan is a credit product with a repayment tenure that spans up to 25 years or even more.
Know and Plan Your Budget
While opting for a home loan, do not pay all of your savings in the form of a down payment, as it may result in cash crunch situations later. Also, make sure that your monthly EMIs do not exceed more than 50%-60% of your savings, as you might be well eligible for a higher loan amount. Do not exceed your budget, even if you get tempted to buy a bigger property with a higher amount. It may result in cutting down your additional overheads and expenses just to meet the existing over-budgeted loan EMIs.
Do Your Homework
Always check and compare various loan options available from multiple potential lenders. Do remember that the lowest interest offered by any bank may not be the best-suited deal as per your requirements. Thoroughly read all the loan documents, as well as check all the hidden charges attached before signing any loan application.
Create an Emergency Fund
As the name signifies, an emergency fund is usually used at the time of financial crisis or cash crunch situations. There may be times wherein you require cash to meet urgent monetary requirements, so this fund can come to the rescue during this dire situation.
Start with Your Credit Report
Monitor your CIBIL report regularly to remain updated with the latest credit score, check for errors and resolve them at the earliest to avoid any negative impact on your credit score. Make sure that your credit report is accurate so there is the least possibility of home loan application rejection. Do not apply with a co-applicant, if in case his/her credit score is low (below 650), as it further diminishes the chances of your loan approval.
Clear all Your Debts
It is mandatory to clear all of your past and existing debts before submitting a loan application, as your debt-to-income ratio is scrutinized when you apply for a home loan. Ideally, you should maintain your Debt-to-Income (DTI) ratio below 35% to avoid any loan application rejection. However, most lenders keep on increasing the DTI ratio as the income increases. Your Debt-to-Income ratio signifies whether you shall be able to afford to buy a home or not.
Check the Eligibility Criteria
You can apply for a home loan, once you have cleared the eligibility criteria, as defined by the respective lender. The criteria mainly consist of parameters like your age, nationality, occupation, credit score, etc. The eligibility criteria set by banks and NBFCs shall differ from each other and vary as per the applicant’s profile and loan application.
Useful Tips:
The home loan application process becomes more simplified if all the above-mentioned tips and measures are followed cautiously and dedicatedly. Your primary objective before submitting any home loan application is to maintain a high credit score (750+), as it helps in availing home loans at comparatively lower interest rates with additional benefits.
Do not worry, if you have a low credit score, as there are NBFCs and other lenders that offer home loans without considering your credit score; however, the interest rates offered may be on the higher side and even the loan amount offered is may not be much. Better is to improve your credit score and keep it close to 850 to enjoy credit-related benefits.