Buying a house? Here is how you can prepare yourself

Did you know the number of active home loans in the budget-friendly segment was nearly Rs 1.58 crore between April and December 2020? It constituted nearly 89% of the total market! These figures show that buying a house is no longer a dream but an accessible reality. 

But to better your chances of getting a home loan application approved, it is best to be proactive. Read on to understand six ways to financially prepare yourself before you apply for a home loan and submit an application. 

Let's quickly take a look at the points below. 

6 Way to prepare yourself for a home loan
 

• Understand your financial situation

Before buying a house, you must properly understand your financial condition. Here are some points you must know before you apply for a home loan -

- Debt-to-income (DTI) ratio - It compares your monthly loan payments to your income. Lenders frequently use it to evaluate applications. They look for a DTI ratio of 43% or lower.

- Credit score - Aim for a score of more than 650. It is best to start paying off your outstanding dues and increase your credit limit.

- Estimated budget - This will include the down payment, monthly mortgage payments, and additional costs. You can also research different types of home loans and understand their requirements.

• Save for a down payment

A down payment on a property is an up-front payment essential to buying a house. Here are some ways you can lower your down payment -

- Loan-to-value (LTV) ratio - It determines the down payment amount and should normally range from 15% to 20% of the cost of the home. It compares a property's appraised worth and the loan amount you borrow for it. Essentially, the higher the LTV, the lower the required down payment is.

- Cut down your expenses - Estimate a budget, monitor your monthly expenses, and cut down on unnecessary ones.

- Start investing - Even if you are not an impulsive buyer, investing in a savings account or other assets is a smart move.

• Get a pre-approved home loan

A pre-approved home loan offer is a process in which a lender reviews your financial information and creditworthiness to determine the maximum loan amount they are willing to lend you.

Getting pre-approved for a home loan offers several advantages, such as -

- Providing a clear understanding of your borrowing capacity, thus helping you set a realistic budget 

- It is a signal to sellers and real estate agents that you are a committed buyer, giving you a competitive advantage

- It streamlines the home-buying process as you have already completed a significant portion of the loan application

To obtain pre-approval, you usually need to complete a mortgage application and provide supporting documentation such as -

- Proof of assets

- Confirmation of income

- Good credit history

- Employment verification

- Other important paperwork

• Plan for additional costs

Many buyers overlook the hidden/closing costs and prepayment clause of securing a home loan. Closing costs are fees incurred by homebuyers when setting up or finalising a new mortgage. Usually, the closing cost is 3-5% of your home's purchase price, although it depends on the lender. 

Some examples of closing costs are -

- Brokerage fees

- Property taxes

- Home inspection fees

Here are some quick tips you can use to plan for the closing costs -

- Negotiate with lenders

- Compare costs with multiple lenders

- Review the loan estimate

- Use online loan calculators

- Compare the types of home loans

- Have enough funds in your account 

• Be prepared for the loan application process

To speed up the loan application process, you must obtain the necessary paperwork that includes the following -

- Identification proof

- Income documentation

- Financial statements

Here are a few ways to improve the chances of a smoother and more effective loan application experience -

- Have a high credit score to qualify for lower interest rates

- Respond to any inquiries or requests from lenders 

- Educate yourself on the many types of home loans accessible to you

- Be organised, proactive, and well-informed

• Be ready for the responsibilities of buying a house

As a potential homeowner, making a strategic plan to pay off your mortgage, property taxes, utility bills, and insurance premiums on time is important. 

Here is a checklist to be financially prepared for the responsibilities of buying a house -

- Make a comprehensive budget

- Plan for ongoing expenses

- Research the different types of home loans available

- Review and update insurance coverage

- Prioritise debt management

- Explore tax benefits

In conclusion
 

When buying a house, it's crucial to be ready for the added financial responsibilities that come along with it. You can prioritise your financial planning before and after buying a house using efficient budgeting techniques. 

Metra Trust Home Loan offers flexible repayment options and competitive interest rates to help you achieve your homeownership goals. Apply for a home loan with Metra Trust now!