So you’ve chosen the dream home that you’re planning to spend your life in, and have most of your plan sorted out. Right now you’re probably figuring out your finances but might be confused about which approach to take. It’s best to start with some basic research when you decide to take a Home Loan, especially the down payment rates, your savings, EMIs as they would occur, legal documents, security and your credit appraisal.
Read on to understand how you can prepare yourself for taking a Home Loan.
- Understand Your Creditworthiness
Before you approach an ideal lender for a Home Loan, gauge your financial status to determine how much of money you can pay by yourself. The lender checks your credit worthiness on the basis of how punctual you’ve been with your past payments as well as how healthy your credit card and savings accounts are. Once you have assessed your financial situation, chart out the time it would approximately take you to pay back whatever money you borrow. This would ensure that you know how much money you can borrow to be able to close your loan account on time. The banks would extend you much higher amounts for a longer period if your finances are stable. You also have to focus on how you can save money once you start paying the EMI on Home Loan that you have taken. Once you have taken these things into consideration, you can move onto the next step.
- Check out the Margin Limit
The Reserve Bank of India recently mandated that banks can provide loans for up to 90% of the total amount that you need. This means that you would still be required to pay the rest of the 10% from your own funds. The margin is therefore the limit upto which the bank can extend the loan to you. The higher the margin, the lesser your loan amount is. This also depends on the your ability to pay back the rest of the amount, so think carefully before you decide upon how you should shell out as down payment, and how much you should borrow.
- Get your Documents in Place
Before you even start applying for a Home Loan, get your papers in order. This means that first you do a thorough background check into the property that you are looking to purchase. The loan amount would get affected if the property is being built from scratch or is ready for sale or is a resale property, in which case the prices may be lower and the banks might be more forthcoming to extend a loan. Keep the following documents ready before you approach lenders for your housing finance.
- Application with a passport size photograph
- Bank account details of last six months
- Salary slips in case you are a salaried individual
- Balance Sheet of last three years in case you run your own business
- Bank statement of last 6 months or 1 year
These documents would help in determining your creditworthiness and to get a clear picture as to how much money could be extended to you. Apart from these documents you should also have the property related papers for the house you are interested in purchasing.
- Clear any Pending Debts
If you have taken multiple loans that are still running their course, then it would help to clear off those pending debts first, because having multiple loans would not just affect your creditworthiness, it would also make paying off the new loan that much more difficult. The banks would be reluctant to lend money if they find that you have existing loans that you haven’t paid off. However, even if you have multiple loans, it definitely does not mean that you cannot borrow from the bank but you have to determine that your existing loans do not deter your ability to pay them off and nor does it affect the chances of you paying off the new loan that you are seeking to borrow.
- Chart Out your Equated Monthly Installments or EMIs
EMIs are the monthly payments you’ll have to make to clear off Home Loan over the course of the loan tenure. The EMI’s cover the principal amount and the interest. You can also save a lot if the property that you are purchasing has been pre-approved by your lender. Essentially, you’ll be able to avail of a home loan at a low interest rate and for a longer tenure.
It’s extremely important that you first assess your financial status and determine if you’re capable of paying back a loan on time. You also need to keep your credit rating stable and check the property that you are planning to purchase beforehand. Keep your documents in order and ensure that you remain in a secure position even after taking a loan. If you keep these points in mind and plan your housing finance accordingly, it would not feel like a daunting task and you would be one step closer to securing your dream home.