Buying a home is an achievement for many young people and adults out there. Buying a home is an important and huge financial decision in anybody’s life. It is the first step towards financial independence and shows stability in life. Our home is a precious place for us. It is where we are going to live, make memories and watch our children grow. Buying a home is a dream come true for many people. But, paying all at once to fulfil this dream is not possible for everybody. For such dreamers, there is always a saviour: Home loans.
When you think about home loans, one of the few things which will pop into your head is all the tedious paperwork you have to do. This seems scary to many people since usually, it is their first time applying for a home loan. Applying for a home loan means there is going to be a lot of running and documents work.
People face many issues and sometimes even fall for scams just because of not know home loans. A lot of hurdles and problems can easily be overcome from some basic awareness about bank loans and how it works. In this article, you will learn about home loan and things you should know about them.
But, first, what is a home loan?
In simple words, a home loan is a loan given to you by a financial body (such as banks) for purchasing a home. The home or property is mortgaged to the lending financial body until you repay the whole amount with interest. along with interest. There are many technical terms you need to know to have a better understanding of all the paperwork when you are applying for a home loan.
Some technical terms and their meanings you should know:
- Principal amount: This is the amount of money you are going to borrow from the bank. For example, let’s say you are purchasing a home at $100,000.Then, $100,000 is the principal amount for which you will approach the bank.
- Interest Rates: When applying for home loans, you will face two different types of interest rates: the fixed and floating interest rate.
If you opt for a fixed interest rate, your interest rate on principal will stay the same and constant throughout the complete tenure. Your EMI amount will remain the same and you won’t have to face any changes in rate due to market interest rates.
In the case of a floating interest rate, your interest rate will vary with time depending upon the bank’s MCLR. The amount you have to pay can get low as well as high. This can be risky. Therefore, you need to know about it while applying for a loan.
- EMI: EMI refers to the monthly instalment of money you have to pay during the entire tenure. EMI is calculated based upon principal amount and interest rate.
- Preapproval Document: This document decides the amount of money you can receive in a loan. Before applying for a loan, getting a preapproval is suggested. Do not confuse it with prequalification. Both documents are unique and hold different values.
- Down Payment: When applying for a home loan, the borrower needs to pay a certain amount as a down payment to the bank. The amount of Down Payment depends upon the bank, principal amount, borrower’s credit history and score. It usually varies between 15 to 30 per cent of the principal amount.
- Credit Score: When you are applying for any type of loan, your credit score matters the most. Whether you get the loan or not depends upon your credit score and history. Having a good credit score can boost your chances of getting home loan approval.
There are many other technical terms related to bank and loans. If you ever face any problem understanding any word or sentence, feel free to ask the staffs or the bank agent, they are always there to help and guide you through all your bank related troubles,
Things you must know before applying for a home loan
Apart from technical terms, there are some other things you should do and know while applying for a home loan.
- Your Credit Score and Credit History matters the most
A good credit score and history let the money lenders know that you are trustable. If a friend or family member asking for financial help, we help them without thinking too much since we have known them for a long time, but, how are banks supposed to give loan to unknown strangers? Banks judges customers based on their credit history and score only after which they decide to approve your loan.
A good credit score not only helps you get the loan approval but also, provide you with lower interest rates. When it comes to home loans, you should always try to get a loan at low-interest rates since the tenure of a home loan can go up to 20 years. So, compare home loans and find the best one for yourself.
- Pay bills in time
Paying your bills in time can help improve your credit score. As we mentioned earlier, your credit score is very important for loan approval. A good credit score and history can secure you the loan approval you are looking for. By paying your bill in time without any delay, you can boost your credit score and create a good credit history.
Not paying the bills in time will hurt your credit score and unfortunately ruin your chances of home loan approval. A bad credit score also hurts your chances of getting other types of loans.
- Your Assets and Liabilities are taken into consideration
Assets and Liabilities – both of them can be considered before a bank or a lender gives you the money. Assets mean the properties and any valuables you hold such as a car, home, etc. Liabilities are like the financial responsibilities one has in their lives such as education debt or car loan. Lenders take note of these and decide how much amount they can lend.
- Research about loans on your own
You should always research different options and information regarding home loans on your own. Different banks offer you money at different rates for different tenure period. You should always check and compare various banks and see which one would be best for you. Have all documents ready and visit different banks. They are eager to lend you money as well. If their requirements do not fit you well, there are many other options for home loans.