Buying a home of one’s own is a universal dream shared by millions around the world. And while it can be an exciting experience, the decision to be a first-time home buyer can also be accompanied nervousness and apprehension about the process! However, identifying a home and finding an appropriate loan should not be the cause of excitement and fulfillment, not worry! Here are some tips for a first-time home buyer in India.
I am a first-time home buyer. What should my first steps be?
a. If you are thinking of buying a home with a loan, then your first step should be to obtain a copy of your Credit Information Report (CIR) or credit report to check your credit history and credit score. That way, if you have a low score, you have enough time to strengthen your credit profile and become loan eligible, instead of running the risk of loan rejection.
b. One you have started working on your credit score and identified a property, research the loan offers available. As a first-time home buyer, it might initially seem a bit overwhelming but it is important to compare interest rates, tenures, fees and other features in detail since it is a significant personal financial commitment that can stretch for decades. You can consult with a professional, if required. Make sure to clarify any doubts with the bank/housing finance company and, most importantly, do not hurry and rush into a decision.
How can I qualify for a home loan as a first-time buyer? What do lenders look for?
Lenders look at several factors when determining whether to approve of your housing loan application. They include the following indicators:
1. Your credit score: Typically, you need a minimum credit score of 750 for lenders to proceed with processing your application.
2. Your credit report: Lenders check your payment history over the years to see if you have a record of making payments on time and in full over all your past loans.
3. Employment status and salary: Lenders want to be assured that you will have a steady monthly income to pay off your EMIs over the loan period.
4. Clean title deed and complete documentation of the property: While this requirement is not related to your individual credit situation, banks want to ensure that there is no problem with the collateral (the home) in case you default on your loan.
What are the reasons my home loan application could be rejected?
There are three main reasons your loan application could be rejected.
1. Personal reasons: If the loan amount you are asking for is greater than what you can afford, lenders may be unwilling to take on the risk of default. Make sure that you choose a property that is not too expensive and that fits in with your income. Also if you have too many loans and EMI obligations, lenders might think that you will not be able to take on an additional loan repayment on your current income.
2. Credit reasons: If you have a poor credit history and credit score, lenders might not want to take the risk of lending to you. If your loan application has been rejected earlier (any kind of loan - whether home or auto or personal loan), banks will see that as a warning signal that other lenders have not found you to be a suitable for a loan and they may reject your application again. There could also be external credit –related reasons for rejection - for example, your co-applicant could have a bad credit score, or you might be guarantor of a loan that has been defaulted on.
3. Legal reasons: If there is any problem with the legal documents pertaining to the property, the banks will be unwilling to approve your loan application.