5 mortgage tips for first-time home buyers
By V Swaminathan
A home loan is a crucial element for a home buyer. A home loan allows the buyer to take advantage of their finances or future income and buy the home of their dreams. Besides improving the purchasing budget, a home loan also offers tax deduction benefits to borrowers. However, before you take a leap, it is very important to understand the important factors that can help you get a better mortgage deal. Here are some tips for homebuyers looking to get home loans:
1. Check your credit score
When you apply for a loan, the first thing all lending institutions check is your credit score. Whether it is your loan eligibility, the loan amount you can be sanctioned with, or the interest rate, it all depends on your credit score. Against an excellent credit rating, you can qualify for larger home loans at better interest rates. A credit score above 800 basis points is considered excellent. Credit institutions such as banks prefer loan seekers with good credit scores because these borrowers are seen as honest and worthy customers who will pay their credit on time. You can build and improve your credit score by paying existing EMIs and credit card bills on time.
Once you have an idea of your credit score, make sure that all documents such as proof of identity, proof of address, income tax returns, payslips, bank statements, proof of the employer, etc. are in place. If you have already finalized the property you want to buy, keep the documents relating to the property handy, such as the identity and address of the seller, the title deed, the map, the certificate of completion, etc.
2. Opt for a joint mortgage loan
There are several advantages and advantages of taking out a joint mortgage loan. When you add a co-applicant, your home loan eligibility increases as the lending institution will consider the income of all applicants when deciding the loan amount. A joint home loan also makes all applicants eligible to claim the benefits of the tax deduction against the repayment of the home loan. Some banks even offer lower interest rates of up to 50 basis points if one of the applicants is female. In addition to these advantages, the responsibility for repaying the mortgage can be shared by both people if the loans were taken out jointly.
3. Buy low interest rates
Different banks offer different interest rates and are also willing to negotiate on them. Even a small reduction of 10 to 20 basis points can help you save a significant amount per month, especially in the long run. As a borrower, identify the best loan companies that charge the lowest interest rates. If the applicant purchases a property which is new construction and has bankers pre-approved for granting loans, the buyer can avail such loan as the lenders can process it quickly; they would already have many details about the property. Moreover, the lender may offer lower interest rates than those offered by others.
4. Browse the documents and read all the details
Credit institutions will ask you to sign a plethora of documents before disbursing your loan. Although reading all of these documents thoroughly is a difficult task, try to go through them as carefully as possible. Covenants written in small font should be read carefully as they usually contain terms and conditions that may be against the interest of the borrower.
5. Maximize the deposit and minimize the duration of the mandate
Typically, a minimum down payment of 20% is expected or must be paid by the borrower. However, financial prudence dictates that the borrower should try to pay 50-60% of the value of the property as a down payment and the remaining amount can be financed with a home loan. The higher the down payment, the lower the interest burden. In terms of term of validity, while many lenders offer long term loans of up to 30 years for repayment; try to choose a term of no longer than 20 years. The reason is that over longer terms a borrower ends up paying a lot of interest on the loan and also faces a higher risk of interest rate volatility.
(The author is CEO, Andromeda & Apnapaisa)