Everyone dreams of owning their own home. However in almost every country buying a home is an expensive proposition. More or less every middle class person requires a loan from banking or lending company to buy the house and they repay it over several years. The bank withholds the ownership documents till the loan is repaid in full to prevent any fraud. It is difficult to qualify for home loans (or mortgages as they are called in the West). It is not through magic that one gets a home loan but by careful preparation.
The groundwork to securing a home loan has to be laid over several years. The following discusses some ways in which it might be easier for you to obtain a home loan.
- Improve your credit score – Credit scores matter a lot. It is one of the principal factors in you receiving a loan. Without an excellent credit score it is difficult to find a loan in the current economic climate. A good credit score is something above 700. It can be checked at The Credit Information Bureau of India Limited or CIBIL by paying a small fee. Try and avoid credit card debts. It goes a long way to improve your credit score.
- Calculate your debt to income ratio – This can be calculated by dividing the total debt you owe by your income. This indicator helps you understand the amount of debt you can live with. Ideally, this should not exceed 40% of your income. There are two ways to improve your debt to income ratio – increase your income or reduce your debt.
- Save for a down payment – Banks like to lend to those who are fiscally disciplined. One of the ways to demonstrate that is to save a certain amount regularly for your down payment. If you manage to save 20% of the price of the house by yourself that demonstrates to the bank that you are in control of your finances. Further a large down payment also reduces your repayment burden. The extra interest you would have had to pay had you not saved for a down payment would be a tidy sum of money which you can now utilize to pay for a trip to Europe.
- Have a stable job – If you are going to apply for a home loan avoid the propensity to move from job to job in search of better pay or perquisites. Otherwise your lender would naturally be concerned about your employability and your ability to repay the loan. Stability in all matters is a great asset when it comes to home loan.
- Always show honesty with your lender – Be upfront about your repayment of loans in the past and if there is any detail the bank should know. You must also disclose the exact amount of your debts and income without any inflation or reduction. Always be available for verification and other processes and answer all questions truthfully and honestly. If you do your homework properly it should pose any problem when you apply for a home loan.
Conclusion
It is not really very difficult to get a home loan when compared to other forms of loan such as those taken for business. However at every step you have to show your commitment to the process of buying and keeping the property. If you have steady income and not too many debts then there is usually no problem receiving a home loan.
