A home loan is a loan advanced to a person to assist in buying an apartment or other residential property. You can also apply for a Home Improvement Loan to carry out renovations to your home, or you can apply for a Home Extention Loan if you want to construct additions to your home. You can avail of a Land Purchase Loan if you simply wish to purchase land for purposes of constructing a home or as an investment.
How can I apply for a home loan?
There are several ways to apply for a home loan once you have decided which loan to apply for.
1. You can do it online by logging on to the bank/housing finance company’s website and following the instructions on how to apply. Some lenders may offer a discount on the processing fee if you apply online.
2. You can call the lender’s call centre/branch and ask to speak to a housing loan representative, who will guide you through the details of the application process.
3. Alternatively, you can walk into the lender’s branch and submit the application in person with the requisite documentation.
If you are very busy and pressed for time, some banks may offer a service whereby they send a representative to your door (often for a fee) with details of the loan application.
Will I qualify for a home loan? 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. A credit score of 750 or above reassures lenders that you are a responsible borrower and have a good track record of making repayments.
2. Your credit report: Once they know you have a good credit score, lenders look at your credit report. They check your payment history over the years to see if you have a record of making payments on time and in full over a long period. They also check for any written-off accounts in the past to see if you have defaulted on any prior debt obligations. All these indicators of poor credit behaviour are red flags for lenders, even if your current credit score is adequate.
They will also look at your existing loan obligations to see if you can take on additional debt payments on your present and predicted future salary.
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. The tenure of a home loan can stretch for decades and lenders want to know if you have a high probability of steady employment and income during that period. Make sure that you choose a property that you can afford on your current income.
4. Clean title deed and complete documentation of the property: While this requirement is not related to your individual credit situation, banks want to make ensure that there is no problem with the collateral (the home) in case you default on your loan. They will first make sure that all the legal documents relating to the property are in order.