By SiliconIndia | Tuesday, March 4, 2014
BANGALORE: Home buying steps—Find a home you fell in love with, look for a suitable borrower, secure a loan amount and fulfill your dream. Sounds simple and easy right? Unfortunately, many people make mistakes in the process that prevents them from achieving this simple dream. Though shopping for home is exciting and exhilarating, it is tiring and a bit scary too, especially when it comes to financing. Don’t get lured by the companies who offer home loans with lower interest rates and attractive monthly payments, instead try to understand the risk behind it. Arm yourself with the below mentioned tips to avoid making costly mistakes-
1. Not checking your credit score: While planning to shop for a home loan, the first and the foremost thing is to know your credit score. Some of the things that you keep in mind while checking for you credit scores are too-high balances on certain accounts, clearing offending accounts if any, or few accounts that might be closed but it shows up as open. Also, take some time but try to clear up all the issues. Doing this you can increase your credit score which may, in turn, qualify you for a lower interest rate or better loan program. However, a bad credit score can hit your home loan interest rates to several percentage points or leave you without any approval.
2. Applying for a new credit : Focus on what you do! This means if you are going for planning to apply for a home loan it is better not to go for any auto loans, personal loans or new credit cards. . You are considered to have a greater credit risk when you apply for a new loan. Also there are higher chances of you loan application getting rejected due to your high interest rates. Thus better concentrate all your efforts on your home loan instead of going for other options.
3. Not getting the home loan pre-approved: Brace yourself before you apply for a home loan as good preparation is considered as the key to a good financing. Pre-approval by your bank is needed to qualify yourself for a home loan in any other banks. In a pre-approval the bank pulls out the information of your credit and they also look in to your income, employment and assets. According to your debt-to-income ratio, the banks will ensure on how much you can afford.
Along with this pre-approval you get a written commitment from your lender which is enough to show how serious you are about the purchase. If you are in good terms with your bank then it will definitely benefit you in terms of loan processing time. Thus things become a lot easier.
4. No planning for expenses: This is one of the common mistakes found among most of the loan borrowers. Planning your expenses is mandatory. Ask and clarify your doubts that you have in your mind about the expenses to your lender or bank. Many homebuyers are not aware of the fact that they need to have money to pay for the closing costs. In addition, home inspection fee, appraisal fee and other lender fees which they need to pay from their own pocket. It is always better to ask your lender about all these fees before closings, so that you can be well prepared.
Home buying alone is not all; you need to keep money for future expenses as well, such as home renovations, higher heating bills or cooling bills, home maintenance and furniture.
5. Lying on your loan application: Have you ever heard of a “liar loan”? The borrowers who have a tendency to lie and inflate their income to buy a large house take liar loans. There are many cases when an individual took a liar loan without even having a job. Exaggerating your income on a home loan application or telling other untruths are considered to be a national offense.
It is often seen that the loan officers are known for lying or stretching truths to get one client approval. But the fact is at the end it’s the borrower who have to pay for lenders lie, often in the form of monthly payments which they cannot afford. So never ever sign your name to a loan application that is not completely filled.
6. Going for exotic home loan programs: Most of the homeowners simply don’t know what they were getting themselves into. Some of the lenders who come up with all sorts of exotic products look flashy to the borrowers as the lenders help them make their dream of home a reality. There are many products like interest only loans, which can lower your payments up to 20-30 percent. The benefit of these loans is that they allow the borrowers to live in a home for few years by paying just the interest.
All of these products are considered as negative pay back products. In such cases the borrowers are actually building up negative equity. The truth is that the borrowers are paying more amount than actually they owe.
7. Choosing lenders who give lower interest rates: It’s a human tendency that we go for things that are cheap. Sounds good, but not in case of home loans. It is not a good idea to chase a lender who provides you with lower interest rates. Getting a good deal does not necessarily means getting a best interest rate. The interest rate on your loan is calculated by a variety of factors, but is categorized by the closing costs that you pay along with receiving the loan.
Origination point and discount points are the two types of point that are charged on a loan. A point is equal to 1 percent of your loan amount. A discount point is a charge that you pay to the lender to lower your interest rate and the origination point is a fee for service. Even if you choose a lender with lower interest rates ensure that he discloses all the discount points.
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