Owning a home is one of the biggest investments that you will ever make whether you are buying a new one or building one from scratch. But still, no matter how much you save up to buy the house of your dreams, it is still impossible for you to pay for its entire cost in just one give. This is why home loans have come into the rescue for most potential home owners.
With home loans, you do not have to pay all of the money that you have saved in your entire life for the upfront cost of your home. Nevertheless, the entire process of securing a home loan can be complicated if you have no idea what you are doing. There are several factors that come into play and some things that you must know before you apply for a home loan. Here are some essential home loan facts you ought to know.
• Factors that affect your being eligible to a home loan
Calculating your EMI or equated monthly installment is the most effective means for you to determine your being eligible to a home loan. Usually, banks limit your loan amount to 40% to 50% of your income including your dearness allowance on top of your basic salary. They also take into account your credit standing. Basically, if you still have an outstanding loan, your loan amount will be decreased more. Furthermore, if you have a poor credit standing, the interest rate that you have to pay for your home loan will be increased. Simply put, if you have a good credit score, strong repayment capability, and stable income, you will have more chances of having your home loan approved. But if you have a poor credit score and only have erratic earnings, then most likely your home loan application will be disapproved. In addition, when you have a co-applicant, you will have more chances of getting your home loan application approved.
• Knowing your home loan options
Generally, banks offer two major home loan options in terms of interest and home insurance. First, you have the fixed interest loan and second, you have the floating interest loan. As the name implies, the fixed interest home loan option will have fixed interest rates that you need to pay as well as a fixed EMI via your loan tenure. On the other hand, the floating interest home loan option changes as per market conditions that lead to more EMI fluctuations. This is one of the reasons why the fixed interest home loan option has between 1 and 2.5% higher interest rate in comparison to the floating interest home loan option.
• Important things to remember about your interest rate
No matter which home loan option you choose, you still have the power to do some negotiating regarding its interest rate. Of course, the banks will always gain the upper hand of the deal; however, you can still haggle if you are a loyal bank client or have secured a savings account in this same bank. Just be sure that you have a good credit history so that you can make your negotiations easier. Also, word of advice, apply for a home loan at the end of the month. Why? Most banks have business targets, and during the last days of the month, they can be more flexible if they want to make business with you.