A home sweet home is a personal asset that you have dreamt of owning for a long time now. If you are planning to buy a home, there are two things that you think of: a pretty home and a not-so-pretty usually-unavoidable home loan. However, what matters the most is qualifying for the home loan. It is very important for lenders to assess your repayment ability, which is essentially evaluated on the basis of your earnings, expenses, savings, work profile, financial capability and repayment history of loans and other dues. A bad credit score and the ghosts from the past, i.e. your credit debts or poor payment history can pose a problem while qualifying for a home loan. Here are 4 important tips to check before you go for a home loan:
1. Check Your Credit Score: A credit score lays the foundation for your easy home loan application process. This score depends on how consistent you are or how good your record is for paying your EMIs and credit card dues. The credit information report (CIR), which contains your Credit Score, is basically the credit history of your borrowings from different institutions such as banks or NBFCs (Non-Banking Financial Company) or Housing Finance Companies (HFCs). A trusted credit bureau prepares and maintains your credit records and shares it with the banks/lenders whenever an enquiry is made by the loan provider. The higher the credit score, the higher the chances of the loan getting approved. And also once can expect the best rate of interest on the home loan as a bonus. Ensure you check your credit score at least six months, preferably 12 months, before you plan to buy a home.
2. Consider your budget, down payment and EMI: Define your budget for buying a home, how much money you can consider for down payment and how much of home loan would you require. Typically, you can get 80% of the value of the property as a home loan if your income seems sufficient. Identify the EMI range that you are comfortable with, as that will help you decide the tenure of the loan. You can use online EMI calculators to play with various options in helping you here. In case your income is not sufficient, you can think of adding your parents or spouse as a co-borrower.
3. Documents Required for Home Loan: Before you go and apply for a home loan, it is necessary to understand the necessary documents required and ensure they are available before you approach a bank or housing finance company. Here is a list of documents that you should be ready with:
- Income Tax Returns or Form 16 for past 2-3 years make sure all taxes are filed
- PAN Card – the lender would carry out a PAN Verification to know its authenticity
- Aadhar Card – the bank would also do an Aadhaar verification to verify your identity
- Bank Statements for past 6-12 months for a bank account where your income and expenses reflect. Make sure you maintain a reasonable balance in this account over past 6 months.
– Last 3 Months Salary Slips if you are salaried
– Application Form with Photograph Duly Signed
4. Identify the right banks and lenders: Avoid applying to many lenders at the same time, as many credit inquiries can negatively impact your Credit Score. It doesn’t mean that you should not compare your options. Identify the banks or housing finance companies which have pre-approved the property where you plan to buy a house as that can reduce your loan approval time. Understand the eligibility criteria of such lenders in terms of the cutoff for credit score and the loan scheme (processing fees, the rate of interest etc.). Select one or two lenders which best match your requirements and get your loan sanctioned from them before booking the property.
Taking into consideration all the above points will prepare you well for your home loan and thus, improve your chances for a quick home loan approval. If co-borrowers are being considered for, do ensure you prepare them to check their credit score and keep their documents handy.