RAJIV RAJ | SEP 23, 2014, 05.34 PM | Businessinsider.in
There’s nothing quite as pleasurable as having a roof over your head that you can call your own. However, the decision to buy your own house is a huge one; it involves several steps and the very first being, home mortgage. While you may think that you will be spoilt for choice with so many lenders and products galore, but shopping for mortgage is trickier than you think. This article aims to simplify the process for you; all you need to do is follow the below-mentioned six steps to buy your dream home.
Ensure that your CIBIL report is in ship-shape
The first thing any bank will look at while assessing your home loan eligibility would be your CIBIL score and CIBIL report. It will also determine the kind of interest rates you are eligible for. It is therefore of utmost importance for you to check out your CIBIL report well in advance (at least six months prior to making an application for a loan) to see that everything is in order, and see if anything can be done to better your CIBIL score. You should also see whether or not there are any errors in the report. For instance, there may be a loan that may be paid off from your end but doesn’t reflect in your credit report as the lender may not have reported the closure of the same. Such errors negatively impact your CIBIL score.
Try and improve your debt-to-income ratio
This is an important consideration that a lender will take into account while assessing your loan eligibility. Simply put, your debt-to-income ratio is the amount of debt you handle in proportion to how much money you make. Before you apply for a mortgage you should therefore make an attempt either to reduce your debt or increase your income. Some ways to boost your ratio is to start making bigger payments on your credit card or by paying off some long standing loans on which the interest outgo is large.
Plan for a big down payment
Before you shop for a mortgage, you should have ideally saved for a large down payment of 20 per cent of the property value. The larger your down payment, the cheaper it will turn out to be for you in the long run as you will have a smaller EMI outgo. Besides, paying a higher down payment will qualify you for better rates of interest and will tilt the deal in your favour as you will be perceived as a less risky customer.
Research thoroughly before you decide on the lender
A mortgage is a long-term financial commitment that you will make. It is therefore necessary for you to choose the right bank who will give you the best mortgage experience. Check the credentials of the prospective banks you want to approach, and research online about the kind of mortgage experience others have had with them. You may also consider opinion of friends or relatives who have recently taken home loans. Choosing the right bank will ensure that your mortgage experience is smooth sailing.
Submit a thorough application
Make sure you submit a complete application with all the accurate information that the bank will require to process your loan. Along with the fully completed application form, ensure that all the papers such as salary slips, IT returns, bank statements etc. are in order.
Lock in your interest rate
The interest rate is in the mind of any home loan borrower. After having discussed various implications of interest rate options with your lender, you must make a commitment and lock in your rate of interest. You can choose from a loan with a floating rate of interest, a fixed rate of interest or a hybrid loan. The floating rate will be linked to the base rate of the bank and will change as per the economic cycles. While the floating rate may seem cheaper, there will always be an element of uncertainty attached to it.
If you want certainty in your monthly outgo you may consider a loan with a fixed rate of interest. However, it will always be 1-2.5 percentage points higher than a floating rate. Depending upon your financial position and the volatility in the market, you may also decide to take a hybrid loan that is a combination of fixed and floating rate loans. In this loan, the bank will offer you a fixed rate of interest for the first 3-5 years of the loan tenure and thereby shift it onto a floating rate regime.
Applying for a home loan may seem scary if you go into the process unprepared, but if you have braced yourself well in advance and followed these steps you will find that getting your home loan application approval will be a piece of cake.
Rajiv Raj is the director and co-founder of http://www.creditvidya.com
Source : http://goo.gl/CWu4ld