There are multiple uses of real estate as an asset. You can either buy a property and reside in that house, use the property as an investment in real estate, or rent the house to a tenant or a number of tenants to earn rental income.
In order to purchase a property to use it as you may please, you may want to avail a loan. There are several banks offering home loans to make the process easier for you as it is one of the most sought out loans. To make the best out of the decision, you need to plan things properly to avoid any financial crisis later.
Here are 10 things you need to know before you avail a home loan:
Eligibility criteria is the filtration process from the banks end to verify if the home loan borrower is capable of paying the installments. Before availing of any loan, it is crucial to know the eligibility criteria of the banks you’re looking up to, home loan is no exception.
Firstly, you need to check whether you qualify for the home loan. Different banks will have different criterion for their potential home loan borrowers. The usual eligibility criterion includes age, financial standing, dependents, qualifications, credit score, ability to repay, etc.
A home loan eligibility calculator will give you a fair idea.
Various types of home loans
Home loans come in different types from almost all banks offering the service. The three predominant types of home loans that one can avail are the adjustable/ floating rate loan, fixed-rate loan and the combination loan.
As per your suitability, you can go for any of the three types of home loans.
Get your loan approved before getting your home
It is important to get your home loan approved before making a purchase of home. Why? Because possession of the amount in advance will provide you the freedom to plan things in the best way. Not only will you have the financial freedom to go for the best available option but also, it will give you a systematic and more focused way of going through the process. This will also help you narrow down your property options. Pre-approval of home loan will also make it easier for you to secure a deal for purchasing the home. The lenders may even recommend you some good properties in your desired location.
The amount of loan
The amount of loan you will receive from the bank will be based on the value of your preferred property or properties. It usually ranges from 75% to 90% of the cost price of your preferred property. It is no surprise that your house hunt may depend on the amount sanctioned by the bank. The loan amount can increase in case you have a co-applicant for your home loan. The bank will assess your co-applicant’s eligibility and accordingly sanction the eligible amount.
Associated additional costs for the home loan
Your home loan will come with additional costs of its own. This will include processing fees, interest payments, administrative charges, prepayment penalties, etc. In case you are availing an adjustable/ floating loan for your home, the loan should ideally have zero prepayment charges.
The EMI expands to Equated Monthly Instalment. It is the amount paid by the borrower to the lender on a monthly basis. The EMI includes the principal amount as well as the calculated interest amount on the principal amount. It is advisable that you choose your EMI option very carefully by anticipating all odds that may or may not arise in the future.
Banks will offer various repayment tenures for your home loan. The longer the tenure of repayment, the easier will it be on your pocket as your EMI will not burn a hole in them every month. Thus, analyse your options and accordingly choose the best option.
Your home loan application will require various documents for verification purposes. These will typically include your KYC documents, income scores, credit documents, as well as the documents related to your property. As a security interest, your original property is mortgaged with your lender on the property being financed.
When availing a home loan, you will need to purchase an insurance as well. This will keep you from being liable for any outstanding loan under any unfortunate circumstances. The insurance company will take care of the outstanding loan amount in case anything unfortunate happens to you.
Defaulting on the loan
You are liable to pay the EMI on time. Failing to pay the EMI for more than 3 months will allow the lenders to take necessary actions against the defaulter.