5 Golden Rules to follow when taking a Home Loan

In this blog, you'll learn about How to effectively apply for Home loans. Buying a new home? Congratulations, you’ve made it. What an exciting time when you start a new life with more responsibilities? Buying a house needs huge capital, and for a salaried person in any country, accumulating this amount can be quite difficult, especially when you’re just starting. Thanks to the banks. Bank loans have made buying and owning homes, cars, and almost anything possible for an average person. 

But to get a loan, you have to be worthy. This means being responsible with your credit cards, paying back loans on time, and earning a good salary. 

Home loans can get tricky with so many conditions, and you can struggle to keep up but not if you are prepared for it. We’ll tell you how:

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1. Compare effective home loan rate

All mortgages are not created equal. Even if loans have the same interest rate, there could be differences in the points and fees that make one offer more expensive. It’s important to understand all of the components that go into determining the price of your mortgage, so you can accurately compare the offers being made.

2. Have an Epic Credit Score

Having a good credit score puts you in a position to attract the best deal on your home loan. So it’s a good idea to obtain a copy of your credit report before starting the home buying process. You will see what your credit profile looks like to potential lenders and can then take steps to improve your credit score if necessary.

Here are a few things that you need to do to improve your credit score:

1. Pay Your Bills on Time
2. Get Credit for Making Utility and Cell Phone Payments on Time
3. Pay off Debt and Keep Balances Low on Credit Cards and Other Revolving Credit
4. Apply for, and Open New Credit Accounts Only as Needed
5. Don't Close Unused Credit Cards

3. Maximize Down Payment Amount

Depending on your lender and the type of loan you choose, your required down payment can range from 2.25% to 20% of the home's purchase price. Establishing a monthly budget will help you put away enough money for your down payment.

Once you’ve assessed what your budget will support, consider having money automatically deposited from your paycheck or bank account to a savings account to make it easier and more convenient to put aside money each month.

The more the down-payment amount, the lesser the overall interest cost by the time tenure ends. On higher down-payment, lower will be the loan amount, and hence lower will be the EMI.

4. Get Pre-Qualified

Many real estate agents want you to be pre-qualified for a loan before they will start to work with you. The mortgage pre-qualification process is fairly simple, usually requiring some financial information such as your income and the amount of savings and investments you have. Once you are pre-qualified, you will have a better sense of how much you can borrow and the price range of the homes you can afford.

5. Stay away from any Big Investments before applying for a Home Loan

It’s not uncommon for lenders to pull your credit report a second time to see if anything has changed before your loan closes. Be careful not to do anything to bring down your credit score while your loan is being processed. So, pay all of your bills on time, don’t apply for any new credit cards, and don’t take out any new car loans until your home loan has closed.

This is also one of the basic rules of investing. Never use borrowed money to invest. Ultra-safe investments like fixed deposits and bonds won’t match your interest rate on a loan. And investments that offer higher returns, such as equities, are too volatile. If the markets decline, you will not only suffer losses but will be strapped with an EMI as well.

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