Purchasing the first home can sometimes feel like an endless journey, beginning with the challenges of house hunting and selecting a suitable lender for a home loan
The stagnant home loan interest rates present a favorable opportunity for first-time homebuyers who may have previously hesitated to take on a home loan. However, purchasing a home requires careful financial planning and should not be decided impulsively. Prior to making a decision, it is crucial to follow essential tips to ensure a well-prepared approach. These tips include:
Save enough for the downpayment
Purchasing a house typically requires a downpayment, which means you won’t be solely relying on the loan amount to cover the entire cost. The downpayment is an upfront payment that you need to make, and it’s important for your lender to know how much you have saved towards this. Ideally, the size of the downpayment should not exceed three percent of the loan amount you are seeking.
To ensure that you have enough funds for the downpayment, it is advisable to start saving early in life. By saving money at an early stage, you benefit from having time on your side. When you save and invest in high-yield savings schemes and liquid funds over an extended period, the money has the opportunity to compound and grow. This enables you to accumulate a substantial corpus that can adequately cover the downpayment when the time comes to purchase a house.
Decide your budget
First-time homebuyers don’t need to aggressively pursue a large house right away. It’s advisable to consider a reasonably priced house that can be purchased with a smaller loan amount. Before embarking on your house-hunting journey, determine the amount you are willing to spend and the level of debt you can comfortably incur and repay.
When deciding on the maximum loan you will apply for, ensure that you have an emergency fund in place to cover your equated monthly installments (EMIs) in case of unexpected job loss. Additionally, make sure that your EMI payments do not hinder your ability to invest or impede your regular monthly savings. Striking a balance between your loan obligations and financial stability is essential when making these decisions.
Check your credit score
Have you taken note of your credit score? What if your desired loan amount is rejected by your bank or comes with higher interest rates? Lenders determine the loan amount and interest rates based on your credit score. This means that the loan amount you can obtain and the interest rates you qualify for depend on how high your credit score is. Prior to approaching any bank or lending institution for a loan, it is advisable to check your credit score through a fintech website by providing your details.
This will enable you to assess your creditworthiness before applying for the desired loan amount. In the event of a lower credit score, you may need to explore alternative debt options or consider obtaining the loan at higher interest rates to fulfill the amount needed to purchase the house.
Choice of lender
Choosing the appropriate lending institution is crucial to avoid falling victim to fraudulent practices. It is essential to conduct thorough research online, read testimonials, and compare interest rates when deciding on a lender. Opting for lenders registered with authorized institutions may result in slightly higher charges but provides protection against potential scams.
Additionally, consider factors such as loan tenures, flexibility in loan prepayment, any additional charges, and other relevant details. By carefully comparing and contrasting these aspects, you can determine which lender best suits your needs and safeguards your interests.
Check preapproval details
Determining whether your loan application will be approved requires taking action and applying for it. Evaluate your borrowing capacity by submitting loan applications to various banks. Enter your desired loan amount in the application form and observe if the lender approves it and under what conditions. A pre approval letter signifies the lender’s willingness to lend you the specified amount with specific terms and conditions. Once you possess a pre-approval letter, negotiating with real estate agents becomes more manageable as you have the advantage in terms of the purchase amount.
When you are ready to start searching for a home, initiate the process by applying for preapproval. Lenders will verify your income, assets, and debt by checking your credit history and reviewing your documentation. Applying for pre-approval from multiple lenders to compare rates is acceptable, as long as you do so within a defined timeframe, such as a month, to avoid any negative impact on your credit score.
The complexities of home shopping, real estate prices, and loan requirements may appear overwhelming to first-time homebuyers. However, proper planning can alleviate unnecessary stress associated with loan applications, approval processes, and finding the right home in a desirable location.