Everybody dreams of owning a house at some point in life. But actualizing this dream is a difficult process for most people who don't have enough savings or backup money to invest in a house. Therefore, the most popular solution for such people to actualize their dream is to go for a home loan!!
While applying for a home loan is comparatively easier now than before, owing to the decreased interest rates, it's still such a big decision to make. Why? Because let's be honest: applying and getting the loan is the easiest part of the whole house-buying process, the difficult part comes later. And this difficult part includes years of financial commitment (to pay off the loan) which can affect your financial health significantly.
Similarly there are many things to consider before applying for a home loan to prevent future financial complications, including: 1. Interest Payments Different companies offer different interest rates, so one must do extensive research to opt for the lowest interest rate offering company. However, the "type" of interest rate also matters A LOT. Basically, there are two types of interest rates:
Floating
Fixed
While floating interest rates are subject to change as per the rising/falling economic climate, fixed interest rates are constant. Therefore, the loan applicant should carefully choose between a fixed and floating rate according to the economic circumstances and the relevant Equated Monthly Installments (EMIs). 2. Repayment Tenure
Loan repayment tenure is also an important thing to consider, which varies between shorter periods to as long as 20 years. It should be carefully selected based on the applicant's financial stability and saving priorities. If the applicant has a bigger family to feed and therefore can't afford heavy EMI, he should opt for longer tenures and vice versa. One must note that the longer the tenure, the less the EMI burden BUT it also translates to greater overall interest, and vice versa. So the applicant must choose wisely based on his age, monthly income, etc. 3. Down Payment Loan companies offer loans which constitute only a part of the property's cost, and the remaining cost (known as down payment) has to be paid off by the buyer himself. If the applicant can afford it, he should opt for a higher down payment as it not only increases the probability of getting the loan but also lessens the burden of high repayment and interest rates.
4. Miscellaneous Charges Home loans come with a variety of charges, the interest payment being only one of them. These miscellaneous charges include processing fee, foreclosure/prepayment fee, late payment charges, etc. The loan applicant must sort out these miscellaneous charges and document them on paper beforehand to avoid future complications. 5. Credit Score There are several factors that determine the eligibility of an applicant for getting a home loan. Credit score is one important factor. A healthy credit score, which should ideally be more than 750, increases the chances of availing a home loan and that too at a lower interest rate. Therefore applicants should ensure a healthy credit score (by paying off all his dues) before applying for a home loan.
Final Word
The aforementioned factors must be kept in mind before applying for a home loan to make a healthy and informed decision.
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