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Home loan: Things to know before applying

Buying your dream home is full of excitement; however it is entirely a new lesson of your life to learn. It is truly a big decision of your life. There are many things you need to learn before you start shopping your house. Here are some tips to consider before you apply for your mortgage.

Following these tips you will get more prepared, and close your mortgage with ease and comfort.

Learn the home loan jargon
There are different types of home mortgage out there in the market each offering unique benefits. You should learn about fixed-rate, adjustable-rate, VA & FHA mortgages. Know about rate of interest and its impact on your monthly budget. Also know EMI & PMI.

Analyze your affordability
Mortgage calculator is available to calculate your affordability which includes loan repayment, taxes and insurance. Prefer paying off maximum down payment, if you can afford. It will reduce your mortgage payment.

Manage your credit
Do not apply to avail any credit cards, store accounts or any other source of credit. It will alter your credit report and shall affect on the type of loan you are going to receive. Similarly, do not close your active accounts, even the one with zero balance. Accounts showcase your credit history, especially the one with good payment history. Pay off your bill regularly to avail home loan easily with lower interest rates. All these points will help out to manage your good credit history.

Proper selection of lender
Make some market research and select trusted lender with solid credentials. When shopping around, consider community banks, credit unions and other smaller financial institutions which might be more approachable that offers lower interest. Often banks and credit unions offer relationship discounts for the borrowers who consolidate range of banking business with one institution.
Relationship discounts are available from banks and credit unions for those borrowers who consolidate a range of banking business with the one institution. Home and personal loan interest rate discounts, term deposit bonuses, savings account fee waivers and credit card annual fee waivers are commonly offered. Look beyond to get finance from the banks. Check out the wide range of financial providers like credit unions, building societies, mortgage originators, community banks and NGOs etc. that may offer better interest rates or lower fees than the larger banks.

Ensure applied interest rates
Do not rely solely on the “comparison rates” described in the advertisements but beware of their shortcomings in terms of hidden cost and fees. Ensure the actual applied interest rates. Sometimes lenders sell their financial packages by just quoting monthly repayment amount which disguises the high interest rates.

Indian Mortgage Industry

The Indian mortgage industry is a saga of great opportunities, tremendous growth and wonderful returns over a period of time. The sector has witnessed a significant double digit growth of almost 30% over last 3 years though the same is expected to be lower at 20% during 2007-08 due to rising interest rates and a slight correction expected in the property market especially in B and C segment markets and centres. According to a study conducted by CRISIL, India, the slower growth reflects the impact of rising property prices and interest rates. The interest rates have touched almost 12% floating and more than 13% fixed, highest since the year 2003 and 2004.

The study also shows that the increase in property rates coupled with higher interest costs have resulted in the negative impact on the affordability index which measures the ratio of rates of property to the net annual income of borrowers or purchasers of the property, the index is still at 5.2, which favors well comparable to other developing nations. The changing profile of the buyers in the Indian property scenario is also changing for a positive. The average age of Indian property buyers and borrowers is reducing. This means a longer repayment period and consequently an ability to borrow a higher amount of home loan. With increasing disposable income, and a trend of double income families gaining ground, the scene was never so good for the sector.

Various mortgage and housing loan companies are offering attractive packages to borrowers to enable them to buy properties. The growth is seen not only in A class cities and metropolitans but also at smaller cities and towns. The documentation procedure is also streamlined and is hassle free to a great extent. While it is possible that the Indian mortgage sector may see some correction in the shorter to medium time range because of the dream run witnessed during last 5 years or so, the scene looks bright for long term investors and those who are planning to buy property for personal use. The rental incomes are also increasing and offer good returns for those who want to purchase the property for investment purposes.

While those who have still not purchased the property may think that they have missed the bus, there is no point in repenting. The interest rate scenario is yet to be stabilized especially after a spate of hikes announced by most of the housing loan companies in recent times. So it may be a good idea to wait for a little more period and then look for direction both in terms of property prices and which way the interest rates move in the longer run. No doubt an increase in interest rates causes your home loan installments to go up or increase in the tenure of your home loan with the same monthly installment.

Another factor to be considered especially now is the reputation of builders and their commitment to quality and timely possession seen on the basis of his past record. It is expected that over a longer period of time, the property developed by quality builders is expected to experience a higher appreciation. Thus premium is being paid to quality construction and services.