A First-Time Home Buyer’s Guide to Home Loans

Until a few years ago, buying a home meant saving up for years and then exhausting those savings in one go to buy a home or a piece of land. Thankfully, home loans have made it financially easier for people to afford a home. Most people these days seek external financial assistance in the form of home loans once they decide to buy a home of their own. 

With more and more people applying for home loans these days, the popularity of this financial tool has witnessed a major spike in recent years. This, in turn, has led to lenders becoming more cautious about picking the right borrowers. It is not, therefore, very surprising that many home loan applications face rejection these days. 

If you are a first-time home buyer and a first-time borrower, you must be extra cautious about ticking all the right boxes while making a home loan application. In this guide for home loan beginners, we share tips on what one can do to get one’s home loan application approved quickly. 

A First-Time Home Buyer’s Guide to Home Loans

  1. Figure out a Budget

Once people decide to buy a home, the first thing they do is start searching for properties. Instead of starting with a property search, people should ideally sit down and figure out the right budget for them. They must look at their finances and then decide on the EMIs they can afford and the down payment they can afford to make. Doing this exercise allows a borrower to find the right house for them as well as the right property. 

  1. Start Saving for the Down Payment

Once you have decided to invest in real estate, make sure you have enough savings to cover the down payment. Most lenders sanction 80% to 90% of a property’s value as home loan; the rest must be paid by the borrower. While you can always pay the minimum down payment, i.e. 10% to 15% of the property’s value, it is advisable that you save more and pay a higher down payment. Lenders see borrowers who opt to pay a higher down payment as less risky clients and therefore, extend their best offers to such individuals. Thus, before applying for a home loan, save up for a few months and make sure you have ample savings to pay more than what you just need to pay in the form of a down payment. 

  1. Do Your Research

Don’t accept the loan offer that you get from the first lender you talk to. Do your research, talk to a few different lenders and get an idea of the interest rates and facilities being offered by banks and lenders in the market. Get quotes from as many lenders as possible. Once you have quotes from everyone, use a home loan calculator to understand which lender is offering you the best deal and go with them. 

  1. Make Sure You Clear Your Chosen Lender’s Eligibility Criteria

Once you know which lender will be your first choice for borrowing a home loan, go to that lender’s website and check the eligibility criteria set by them. Apply for a home loan only if you qualify for the eligibility criteria. If you don’t qualify for the home loan, do not apply as a rejection will directly hit your credit score and ruin your chances of getting a good deal from another lender. 

  1. Start Making a Document File

Applying for a home loan involves a lot of paperwork. You will be required to provide identity and residence proof documents, such as PAN Card, Aadhar, Passport, Utility bills, etc. Similarly, your chosen lender will also most certainly ask you for income documents, such as your salary slips, last six months’ bank account statements, etc. Some lenders may even ask you for Form 16 or your ITR returns. So, before you begin with the application process, make a file of all the documents you will need to furnish during the home loan application process. Doing this will help you avoid bumps and get your loan approval expedited. 

  1. Opt for the Right Tenor

Selecting the right tenor for a home loan is very important. If you keep the tenor too short, you will save majorly on the total interest outgo. However, this will lead to your EMIs becoming too high and maybe also unaffordable. On the other hand, if you make your tenor too long, your EMIs will reduce considerably, but you will end up paying too much interest. So, borrowers must make sure to strike the right balance between tenor and EMIs: keep your EMIs as affordable as possible while keeping your tenor as short as possible. 

  1. Read Everything Carefully Before Signing on the Dotted Line

Once you have been approved for a loan, your lender will issue a home sanction letter, which will contain important details, such as the home loan amount sanctioned, the interest rate offered, tenor, etc. If you are happy with the terms and conditions mentioned in the letter, you will be required to send back a signed copy of the letter to your lender. They will then begin to work on the final home loan agreement. Just because you approved of the terms and conditions mentioned in the home loan sanction letter, you should not sign the home loan agreement without reading it first. In fact, get your home loan checked by a lawyer. Ask them to figure out clauses regarding hidden fees and charges and sign the copy only after you are 100% satisfied with all the stipulates. 

We hope the tips shared in this article will help you get yourself the best home loan deal and avoid any mistakes you might regret later. 

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