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Getting the Best Home Loan

Updated on August 24, 2015

Buying or owning a house is matter of great honour and joy. Everyone likes to hear praises for their beautiful home. We have evolved over time and so has our houses. It is not a mere shelter anymore. It brings us a lot of pride and also proves to be a long term asset for us. You have worked hard and saved up a lot to turn your cherished dream of owning a house to reality. But this dream is often overshadowed by reality when you face financial problems. The correct home loan for you paves a path between your dream and reality.

The daunting task that lies ahead of you is choosing the correct home loan product for yourself. The home loan, you choose, provides you with the upfront money to buy a house or a property. The repayment of the loan is done over a period of time known as the repayment tenure. Your monthly interest is calculated on the basis of the loan amount and the tenure you choose to repay your loan amount. You must understand that choosing a loan which is easy to repay is definitely the right thing to do. The monthly interest that you are paying should not hamper your financial stability in anyway. You must remember that apart from paying your home loan instalments you might have several other responsibilities too, including, your family, household expenses, other loans repayments, if any, etc. Ensure that the loan you choose offers you the best interest rate that is easily affordable by you.

There are several factors which determine your loan eligibility. Your job has a crucial role to play in the whole process. Most finance companies and banks have a list of professions which are negative according to them. Ensure that you do not fall under such a category to avoid any kind of hassle in the long run. The area of the property also matters a lot to the bank or financer providing you with the home loan. The bank might not want to provide a loan consider the area negative. A particular property outside the city's geographical limit can also be considered negative by the bank or financier. Your personal details are very important when you apply for a loan. The finance companies would require details about your credit history along with the number of people dependant on your income.

Banks provide several home loan solutions which are customisable and suits the changing needs and requirements of the customers. A single home loan product cannot suffice for everyone. The types depend upon different factors including adjustable rates of interest, fixed rate of interest, term of the loan, annual percentage rate, etc.

Fixed Rate or Adjustable Rate?

Mortgages are basically of two types, namely, fixed rate and adjustable rate. You will be paying a fixed monthly interest when you choose a fixed rate mortgage. This means that throught the home loan repayment tenure, the amount of monthly instalment remains the same. The best benefit of this particular home loan type is that you are completely protected against all inflation happening in the current market. If the rate of the mortgage goes up, then also it will not affect you in any way. But you will also not be able to enjoy reduced rates of interest, if there is any drop in the interest rates. You could also think of refinancing your mortgage in case there is a significant drop in the rates.

Different lenders offers various loan tenures. Some offer 15 to 30 years, whereas, others may offer a tenure of 20 years. If the tenure of your home is higher then you will be paying smaller monthly instalments every year. This happens because you are paying off your debt over such a long period of time. However, with a tenure as long as 30 years, you might just end up paying a lump sum amount as interest. A 15 year loan repayment tenure would initially churn higher monthly payments out of your pockets. But, the, the advantage here is that you are paying for a lesser period of time and also building up your equity at a substantially faster rate. The amount of interest paid by you will also be lesser compared to a tenure of 30 years.

ARM or Adjustable Rate Mortgage has its own perks as the interest rate keeps changing over the repayment tenure. There is an initial period where the interest rate remains fixed. Mostly that period is the first 3, 5 or 7 years. The rates can be readjusted after this period. When the loan is adjusted then the payments and interest rates can increase. Hence, it becomes a little risky at times. This kind of a mortgage is good for you if you plan to stay in the owned house only for a short duration. It is plausible that you get lower rates of interest than that of a mortgage that has a fixed rate.

Finance clearing and credit rating

You must analyze all your finances before you find the perfect home loan for yourself. According to several financial experts, all your mortgage payments including insurance and taxes should not be above 30 percent of your monthly take-home income. You should ensure that you have complete control over your finances and maintain the stability too. You may get a better pay in the long run but planning to go for loan based on a hypothetical situation is absolutely not advised. Understand you real financial situation and plan for a home loan accordingly to avoid several problems and hassles in the long run.

It is of utmost importance that you keep a check of your credit rating too. A good credit score will definitely help you get a good loan amount from the bank or the financer. The interest rate also depends a lot on your credit score that you increase over time. Make sure that you study the credit reports and work towards improving your credit score, if it does not look good. Credit score can be enhanced by repaying the credit card debts in time. Do not max-out on your credit card limits and avoid making late payments. These hamper your credit score, in turn, making it difficult for you to avail a good loan amount with better interest rates. It is also advisable that you maintain one credit card rather than switching credit cards often and using them without a proper strategy or plan. It may require up to 90 days clear out all erroneous information from your credit report.

Get several quotes from different banks and financers to understand the best home loan for you. Mortgage companies, commercial banks, credit unions and thrift institutions provide home loans.

If you feel that you want help with selecting the best home loan, consult a broker. Brokers will help you to choose from a wide range of loan products and tenures. Also, you should talk to different brokers to understand the various home loans available in the market. After all this, it is good idea to check backgrounds for both brokers and financers. You must know how long they have been in this business and how honestly they have been doing their job so far. Feedbacks from people who are associated with the lender, that are unbiased, can prove to be extremely valuable while choosing the home loan.

To get a better home loan from your financer you can choose to club your income with your spouse's income, if you are married. If you show a higher household income, then you have a better chance to get a bigger loan amount. If you aren't married yet, you could club your father's or mother's income with that of your income.

It is very important that you do both qualitative and quantitative research before you choose a home loan product. Understand your financial status and decide upon your home loan amount accordingly. Own the house of your dreams and live in peace with your family. Avoid problems aof staying in a rented apartment and provide your family the security and pleasure that they deserve.

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