What to Consider Before Getting a House Loan(Read on 20 tips)

What to Consider Before Getting a House Loan: Property investment is always a good idea.

It can turn out to be a lucrative opportunity to make sure that your money grows in the future.

Property is not just an investment; it can provide a sense of relief and success to people as well.

Having a place to call your own is a feeling every person yearns for.

No matter the purpose of your aim to buy a house or property, the first thing to consider is the financial state.

Your financial state should either be well enough to buy the property or to get a home loan.

Various banks and money-lending enterprises provide financial assistance in the form of home loans.

These are offered at a controlled rate of interest and can be extended to a tenure of 20-30 years.

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What to Consider Before Getting a House Loan:

1. Get the background

A house loan is often considered a second mortgage and is based upon the equity in the property.

Or the difference between market value and any existing mortgages/loans against the house. 

Since houses, like all assets, constantly vary in market value, the amount of equity in a home constantly changes.

A home equity loan is given in a lump sum and used for major expenses, such as paying for college, medical expenses, or major home repairs, using your house as collateral.

A house loan usually has a fixed term of repayment and a higher interest rate than a mortgage.

But rates are lower than the rates on credit cards and other loans, and payments are often tax-deductible.

If you’re considering a house loan.

You’ll need to determine the equity of your home and find a reputable lender who will offer you a fair, affordable loan.

What to Consider Before Getting a House Loan:

The terms of a house loan may sound tempting and trustworthy enough for you to get one.

But hurrying through the process may cause you to lose money or make a bad investment.

As per the experts, there are certain aspects and house loan repayment tips that you should look over before getting one.

Here are some of the points to keep in mind and assess thoroughly to ensure that you make the right choice while signing off the papers.

2. Determine what you will use the money for.

A home equity loan can be used for home repairs and renovations, medical bills, college tuition, credit card debt, or any other unexpected expenses.

Your lender will give you a lump sum of money with a fixed interest rate and definite repayment period.

Because a home equity loan is a lump sum of money, it is best used for a specific expense (e.g. adding a room to your house, remodeling a bathroom, etc.).

• If you need money over time or just want some financial security, a home equity line of credit (HELOC) may be a better choice. You can withdraw money as you need it and are only required to pay back what you actually use.
• A home equity loan has a fixed interest rate, and a HELOC has variable interest rates. Your payments could change drastically with a HELOC.
• HELOC is similar to a revolving line of credit through a credit card or bank. Your monthly payments will depend on what you have borrowed and the current interest rate.

What to Consider Before Getting a House Loan:

3. Review your financial situation.

Before you borrow against your home, make sure you are in a financial position to repay the loan.

Write down all of your living expenses (e.g. food, mortgage, car payments, etc.), income, debt, and financial goals. House loans are only beneficial if you can afford to pay them back.

• If you are unable to pay the loan back, you may end up in more debt than before you had the loan.
• If you are using your loan to fund home improvement, make sure the added value to the home is worth taking out the loan.
• The lender will generally be looking at your cash flow when determining a loan amount and an interest rate. Lenders generally do not want to go through the expense and trouble of foreclosing on a defaulted loan. They know that if borrowers have no equity in a property (the total loans equal or exceed the property’s market value), they are more likely to default and walk away.

4. Factor in the additional costs.

Be prepared to pay fees and closing costs when you take out your loan.

The potential fees are to cover the home appraisal (if required by the lender).

Application, title search, document preparation, and an attorney or title agent.

These fees apply to both home equity loans and HELOCs.

There may be additional fees with a HELOC such as annual membership fees or transaction fees for each time you take out money.

Talk to your lender about the possibility of waiving a portion of or all of the closing costs.

• Keep in mind that a home equity loan is still a mortgage.
• The interest rate is likely to be higher than your first mortgage.
• But the closing costs will be lower than your original mortgage.

What to Consider Before Getting a House Loan:

5. Determine how much equity you have in your home.

You can calculate your house by subtracting the amount your house is worth from the amount you still owe on the mortgage.

For example, if your your home is currently valued at $200,000 and you owe $100,000.

Your equity would be $100,000.

Knowing your equity will prepare you to discuss your loan terms with potential lenders.

• Remember that market value fluctuates, so your equity is not a constant. Consider that most lenders expect a maximum loan amount equal to 80% of the market value. For example, if the market value is $200,000, lenders typically will loan up to $160,000 maximum.

6. Decide how much you need to borrow.

Lenders use a formula to decide how much your loan will be.

They typically take 75%-80% of your home’s value minus the amount you still owe.

Some lenders may offer to lend you more than the standard range and may even go up to 100% or 125% of your home’s value.

However, it may not be not advisable to take out a loan this large.

• If you try to sell your home and the value of the home has not appreciated yet, you may end up having to pay on the loan once you have sold your house.
• Loans larger than the value of your house also come with higher fees. Interest paid on the portion of your loan that is more than the value of your home is not tax deductible either.
• The deduction of interest paid on home equity loans may be limited based upon the maximum loans secured by the property, the date such loans were initiated, and the amount of interest paid.

What to Consider Before Getting a House Loan:

7. Talk to multiple lenders about home equity loans.

It is important to shop around and get the best deal that you can.

Your home equity loan does not have to be through the same lender as your current home loan.

Banks and credit unions are a good place to start.

Credit unions usually have better rates than banks and other types of lenders.

• Compare interest rates, fees, monthly payments, penalties for missed payments, and the length of the loan terms.
• Ask about waiving or discounts on additional fees and closing costs.
• Shopping around is important, but also consider your mortgage lender. They may be willing to give you a good rate because you are a current customer.
• Feel free to let each lender know that you are shopping around for the best deal.

8. Avoid predatory lenders.

Use good judgment when you choosing a lender.

Stay away from lenders who encourage you to take out more than you can afford (e.g. 90% or 100% of your home value).

Pressure you into making an immediate decision.

Refuse to give you copies of signed documents, ask you to sign paperwork before it has been filled out.

Or encourage you to lie on your application.

These mistakes are costly and can result in you losing your home to foreclosure or not being able to afford your monthly payments.

What to Consider Before Getting a House Loan:

9. Credit Score

The credit score is a calculation based on the eligibility criteria decided for a home loan.

The better you fit the eligibility criteria, the better your chances will be to get a higher credit score.

You should ensure that you have a good credit score before you decide to apply for a home loan.

You can maintain a high score by paying your credit card bills regularly.

And by ensuring that you are updated on the timeline of your loan repayment.

Having a CIBIL score higher than 750 is considered optimum to sanction a housing loan without any hindrances.

10. Home Loan Options

When you sit down to research the market and the available opportunities for a home loan.

You will find that different companies and banks offer different rate of interest, EMIs, repayment tenures.

And other factors related to the home loan.

Make sure that you go through the terms of each plan.

And choose the one that suits your financial condition the best.

Check out the details required in a home loan application form to further your research.

What to Consider Before Getting a House Loan:

11. Eligibility Criteria

Is a home loan a good idea? You can answer this question by assessing your eligibility criteria.

The criteria do not include just your present financial condition.

And various other factors such as loans and liabilities that you are currently repaying.

Having an active loan can decrease the probability of you getting a loan.

Other factors included in the eligibility criteria also include your age, source of income, and co-applicant.

Being close to retirement age can decrease your eligibility as the repayment tenure will continue even after retirement.

Also, the age of your co-applicant can be lower than 18.

But not much higher than they hit retirement age during the tenure of the loan.

12. Home Loan Tenure

You need to decide upon an achievable and practical repayment tenure for your home loan. Ensure that it is not too short that you have to pay much higher EMIs that you cannot afford. Also, it should not be too long that you undergo a loss by paying a large amount of your principal in interest. The tenure should be so chosen that monthly EMIs are possible for you to meet financially and should end well before your retirement age.

What to Consider Before Getting a House Loan:

13. Processing Fees

No one wants to spend more money on something that could have been done at a lower price. It is, therefore, better to do proper research before getting a housing loan. One of the home loan tips that most people ignore is assessing the exact processing fees charged by the bank. Most banks charge around 1% of the principal amount of the home loan. However, make sure that you choose a service provider that has the lowest processing fees.

14. Down Payment

This is a factor that cannot be ignored while talking about home loan tips and tricks. You will have to pay 10% to 15% of your principal amount as a down payment. However, if you are financially stable right now and can afford a large amount of cash, then you should choose to pay the highest percentage of the principal amount as a down payment. This will ensure that you will have to pay a lesser interest rate through the years as you cover the rest of the amount through EMIs.

What to Consider Before Getting a House Loan:

15. Type of Loan

It is a good home loan idea to ensure which type of housing loan is better suited to your present and future needs. In essence, there are two types of home loans offered by most banks and companies. One has a fixed interest rate, and the other has a floating interest rate. A fixed interest rate home loan will be one in which the interest rate does not change with the fluctuations in the market. That means, even if the rate of your property decreases or increases at any point in time, you will have to pay the exact amount of EMI that was decided upon signing the home loan.

A floating interest rate home loan will be the one in which the interest rate keeps changing as the market changes. If the rates of the property reduce over time, you will have to pay a lower EMI. The terms and conditions applicable over both the times of housing loan may differ from one bank to another.

16. Foreclosure Norms

Foreclosure is when you pay the remaining amount of your principal amount before the repayment tenure expires. Paying up the outstanding amount can save you from paying the interest applicable over the amount for the rest of the years of the tenure. However, some banks charge a fine when one chooses to foreclose their home loan. Therefore, it is essential to know the conditions of the bank or the service provider regarding the foreclosure of the loan. Also, keep account of RBI’s norms on the matter.

17. Negotiate

If you have an impeccable credit score, have a good history of paying your loans on time, and have a clean record, then you can try to negotiate with the bank. It may not amount to a big change in the terms and conditions of the loan, but even a slight decrease in your interest rate can benefit you along the line.

18. Apply for the loan.

Once you have chosen a lender, it is time to apply for your loan. Preview your paperwork before you sign. Ask for a “Good Faith Estimate.” They are required to send you this estimate within 3 days of you applying for the loan. Also, ask them for blank copies of the forms before you sign them. Take the time to read over them. Ask questions if there is anything that you do not understand.

• You can apply for your loan online and in person. Do what you are most comfortable with. However, applying for the loan in person will give you an opportunity to talk with someone if you have questions.
• If your lender has promised you anything, ask them to put it in writing.
• Fill out all of the necessary application forms. Many lenders will accept online applications, but some financial institutions will require you to be present why you apply for your loan.

What to Consider Before Getting a House Loan:

19. Close on your loan.

Read the loan documents carefully before you sign them. Make sure you understand the terms of repayment and the interest rate. All of the terms and conditions (e.g. interest rate, length of the loan, etc.) of the loan should match the original agreement. If there any changes to what you discussed with your lender, ask questions. By law, you can review the final loan statement one day prior to closing.

• Get a copy of all signed documents before you leave the lender.
• Never feel pressure to sign your documents. If anything is not right, do not sign them.

What to Consider Before Getting a House Loan:

20. More  tips

Conclusion

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First-time buyer mortgage advice can help you get the best deal.

When you need financial assistance to buy a property.

Among all other house loan ideas, the best one will be to make sure that you read all the documents thoroughly to be completely aware of each clause and rule.