Securing The Best Home Loan For You
What are home loans?
A home loan, also known as a mortgage loan, is a kind of credit that is taken from financial institutions for buying, building or repairing a house. They are home purchase loans that are offered by financial institutions to an individual with a fixed income source. These home loans are generally taken for buying or constructing a home.
To obtain a home loan, one has to apply with banks or other lenders offering this service. This kind of loan is issued by the bank at an interest rate that could be fixed or floating depending upon the economic condition and working of banks. You can apply for it by submitting documents and providing some basic information on home loans – like whether you want a fixed or floating interest rate, etc.
The importance of home loans
There is a huge rush among home buyers as home loans have become an easier way to obtain them. Banks offer attractive deals such as low-interest rates and flexible tenures as compared to other options like private money lenders. Various financial institutions allow home buyers that they can benefit from low-interest rates on home loan EMIs.
Who can obtain home loans?
Generally, people who are salaried or have a regular source of income can apply for home loans easily. Even self-employed individuals holding a valid degree/diploma and satisfactory business track record can also apply for home loans.
For Salaried Individuals Regular home loans are accepted by banks. The home loan eligibility criteria of banks vary depending upon the salary structure of an applicant. For Self-Employed Individuals, You can even obtain home loans for self-employed professionals.
Self-employed individuals should have a sound business track record and regular income from their business to be eligible for home loans. The home loan interest rates offered by banks are attractive as compared to other options like private money lenders.
Also, individuals can get home purchase loans at easy EMIs. It is always better to consult a financial expert before obtaining home loans as there might be some hidden costs involved in it.
How can you obtain a home loan?
The first step towards obtaining home loans is to fill home loan application form and submit it at your nearest bank branch. You can also get home loans from websites that offer home loans online. To obtain home loans, one has to fulfil all formalities in accordance with the rules of financial institutions.
Things you need to know about home loans are as follows:
- Your eligibility to apply for a home loan
- Source of income, employment status, credit card repayment history, etc.
- EMI monthly outflow is not more than one-third of your monthly income
Home loan eligibility
To get a home increase, you must be over 18 years old. Your lender may require evidence of your age if you are between 18 and 21 years old.
You also need to have an acceptable employment history in your name. Evidence of this can include:
– payslips from the last 3 months with details of hours worked and amount paid
– evidence of superannuation (i.e. retirement savings) for the past 3 years
– your tax returns for the past 3 years, if you’re self-employed
– a letter from your employer confirming your full-time employment status and evidence of income over an extended period of time (if you are employed on a part-time basis)
If you are self-employed, you must have at least 2 years of returns that show income. If only one year of tax returns is obtainable, then financial statements or projections which can be supported by declared accounts for the current year should also be provided.
If your income will include rental income, you need to show evidence of this. This means providing a rental agreement and rent receipts.
You also need to be able to afford the repayments on the home loan that you’re applying for, and provide:
– your most recent 3 months’ bank statements showing that you have savings in your account of at least $5,000 per month (or the equivalent)
– your most recent 3 months’ payslips and/or employment contract
If you’re using rental income to qualify for a home loan:
Your repayment rate must be at least 30% of your income. This is known as your Gross Debt Service Ratio (GDS). For example, if you make $5,000 per month in rent, your total repayment on a $300,000 loan would be $1,250. This means your GDS is 1.25 ($5,000/ $1,250). The lender will apply an additional 5% to the transaction value of the home for insurance purposes (GST). So for this example, the total repayment would be $12,500 per month.
If you have other credit commitments such as car payments or other home loans, this will affect your ability to borrow money for a new home loan. These should be consolidated into one before applying for a home loan.
You must also provide evidence of savings over the previous 6 months in your name. This can include:
– an up to date bank statement
– receipts for interest earned on your savings (if you have been with the same employer for more than 2 years)
Home loan criteria
When applying for home loans, banks consider several factors. Your EMI monthly outflow should not be more than one-third of your monthly income so that repayments are easily manageable
Home loan interest rates
Home loans are interest rate-based loans that are used by individuals to invest in real estate. These interest rates are often higher than the interest on other types of loans, due to the risk associated with their investment nature.
The largest interest rates for home loan borrowers are typically seen between ages 31-45, where interest rates begin around 5%. The interest is compounded daily and then paid monthly along with the remainder of the principle. Home loan interest rates can be negotiated before committing to a final number.
Some home loan interest rates include adjustable interest rates which may see changes over time, however, many fixed interest rates do not change throughout the life of the loan. Both involve additional fees associated with closing costs and points – one point equaling a 1% interest rate.
There are various interest rates for home loans, including the interest rate on the loan itself, the interest rate of interest-only payments, the interest rate of interest-adjusted balance, and more. The most common interest rates are the Annual Percentage Rate (APR), Interest Rate, and Effective Interest Rate.
The APR is an annualized interest rate that includes fees associated with closing costs. A lower fee associated with closing costs means a lower APR for borrowers.
An interest-only loan’s interest rate is only applied to the amount borrowed – not to already existing equity built up within their investment account or property value. For this reason, the interest-only home loan interest rate tends to be higher than other home loans as it does not factor in current equity.
Finally, the interest-adjusted balance home loan interest rate considers the interest rate of interest-only payments within the total principle at hand during each billing period. For example, if someone with an interest-only home loan interest rate of 6% did not have to make interest-only payments for several months due to vacation or other circumstances, their interest-adjusted balance interest rate may lower as the interest-only payments were not made.
Though home loans can provide a considerable investment opportunity for many individuals, it is important to note that each interest rate provides different circumstances and conditions. For this reason, it is best to speak with a representative from any potential lender before committing to an interest rate.
Two types of loans
Loans are of two types-secured loans and unsecured loans.
A home purchase loan is the secured home improvement loan that you get based on the mortgage of your house against which you get this home improvement money.
The home loans that one gets is dependent upon many factors like his/her income, employment status, credit card repayment history etc. Banks offer attractive deals such as low-interest rates and flexible tenures as compared to other options like private money lenders. People who want to obtain home loans should consider the following points:
For Salaried Individuals
For Self-Employed Individuals
Regular home loans are accepted by banks for salaried individuals. Home loan eligibility criteria of banks vary depending upon the salary structure of an applicant. Banks offer attractive deals such as low EMIs, flexible tenures as compared to other options like private money lenders.
It is always better to consult a financial expert before obtaining home loans as there might be some hidden costs involved in it. So it’s better to be sure about the facility and terms and conditions before you apply for a home loan.
As an individual’s income source changes from time to time so do their home loan eligibility criteria. It’s always better to consult a financial expert before obtaining home loans as there might be some hidden costs involved in it.
Equated Monthly Installments
EMI stands for Equated Monthly Installments which is the regular payment that has to be made by borrowers towards their debt. So it’s better to be sure about the facility and terms and conditions before you apply for a loan.
As one gets older his/her eligibility criteria also change, sometimes it becomes a bit more rigid.
The interest rate on home loans offered by banks is attractive as compared to other options like private money lenders.
Two types of home loans are obtainable – home purchase home improvement home renovation home improvement loan and an unsecured loan.
PERSONAL LOAN
A personal loan is a kind of credit facility that is given by banks or NBFC to individual borrowers. This loan can be used for additional purposes apart from house construction or buying. It can be used to buy household goods, gadgets, vehicles etc., in case your purpose of taking this loan is limited only to house construction then you need to think again about the idea because banks may charge high interest rates on it. You should go for a home loan in that case.
FIXED HOME LOANS
A home loan with a fixed tenure is beneficial for borrowers from the perspective of regular EMI payments and low interest rates. The tenure on home loans is normally around 15-20 years, but one can choose a home renovation repayment period depending upon his/her monthly income and capacity to repay debt.
These loans are obtained by individuals who need construction or purchase money for house construction or buying purposes.
HOME IMPROVEMENT LOANS
These loans can be used for additional purposes apart from house construction or buying. It can be used to buy household goods, gadgets, vehicles etc., in case your purpose of taking this loan is limited only to house construction then you need to think again about the idea because banks may charge a high-interest rate on it. You should go for a home personal unsecured loan in that case.
How can you obtain a loan for your construction projects?
The only way to get in touch with these lenders is by looking into relevant websites that offer such facilities and come at lower interest rates. You should compare the terms and conditions before finalizing one. Also, go through customer reviews and case studies before taking up their services as they might ask for personal guaranties which will lead to loss of belongings if not followed accordingly.
Home renovation or improving your house isn’t always about giving it an additional floor or more rooms; you may need this home loans home improvement loan renovation loan home renovations to repair damaged parts of your house, for roof repairs or to complete the construction started earlier. It is a kind of unsecured personal instant cash loan which helps you out in financial emergencies without any hassle.
As every bank and financial institution approves such off the shelf products the only task you need to do is filling an online form and shortlisting your dream home improvement plan and choosing your suitable repayment option (weekly, monthly, quarterly etc).