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Buying a house? Here is how you can prepare yourself

Summary: Before you think of buying a house, or submitting a home loan application, you should think about some factors such as the types of home loans, the documentation, and your financial situation, among others. Let's explore them in detail below.

15 Jul 2024 by Team FinFIRST

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Did you know the number of active home loans in the budget-friendly segment was nearly Rs 1.58 crore between April and December 2020? It constituted nearly 89% of the total market! These figures show that buying a house is no longer a dream but an accessible reality.

But to better your chances of getting a home loan application approved, it is best to be proactive. Read on to understand six ways to financially prepare yourself before you apply for a home loan and submit an application.

Let's quickly take a look at the points below.

How to apply for IDFC FIRST Bank Home Loan and how the EMI calculator can help before you apply?

Mastering the home loan disbursement process: Things to know

6 Way to prepare yourself for a home loan

Understand your financial situation

Before buying a house, you must properly understand your financial condition. Here are some points you must know before you apply for a home loan -

- Debt-to-income (DTI) ratio - It compares your monthly loan payments to your income. Lenders frequently use it to evaluate applications. They look for a DTI ratio of 43% or lower.

- Credit score - Aim for a score of more than 650. It is best to start paying off your outstanding dues and increase your credit limit.

- Estimated budget - This will include the down payment, monthly mortgage payments, and additional costs. You can also research different types of home loans and understand their requirements.

Save for a down payment

A down payment on a property is an up-front payment essential to buying a house. Here are some ways you can lower your down payment -

- Loan-to-value (LTV) ratio - It determines the down payment amount and should normally range from 15% to 20% of the cost of the home. It compares a property's appraised worth and the loan amount you borrow for it. Essentially, the higher the LTV, the lower the required down payment is.

- Cut down your expenses - Estimate a budget, monitor your monthly expenses, and cut down on unnecessary ones.

- Start investing - Even if you are not an impulsive buyer, investing in a savings account or other assets is a smart move.

Get a pre-approved home loan

A pre-approved home loan offer is a process in which a lender reviews your financial information and creditworthiness to determine the maximum loan amount they are willing to lend you.

Getting pre-approved for a home loan offers several advantages, such as -

- Providing a clear understanding of your borrowing capacity, thus helping you set a realistic budget

- It is a signal to sellers and real estate agents that you are a committed buyer, giving you a competitive advantage

- It streamlines the home-buying process as you have already completed a significant portion of the loan application

To obtain pre-approval, you usually need to complete a mortgage application and provide supporting documentation such as -

- Proof of assets

- Confirmation of income

- Good credit history

- Employment verification

- Other important paperwork

Plan for additional costs

Many buyers overlook the hidden/closing costs and prepayment clause of securing a home loan. Closing costs are fees incurred by homebuyers when setting up or finalising a new mortgage. Usually, the closing cost is 3-5% of your home's purchase price, although it depends on the lender.

Some examples of closing costs are -

- Brokerage fees

- Property taxes

- Home inspection fees

Here are some quick tips you can use to plan for the closing costs -

- Negotiate with lenders

- Compare costs with multiple lenders

- Review the loan estimate

- Use online loan calculators

- Compare the types of home loans

- Have enough funds in your account

Be prepared for the loan application process

To speed up the loan application process, you must obtain the necessary paperwork that includes the following -

- Identification proof

- Income documentation

- Financial statements

Here are a few ways to improve the chances of a smoother and more effective loan application experience -

- Have a high credit score to qualify for lower interest rates

- Respond to any inquiries or requests from lenders

- Educate yourself on the many types of home loans accessible to you

- Be organised, proactive, and well-informed

Be ready for the responsibilities of buying a house

As a potential homeowner, making a strategic plan to pay off your mortgage, property taxes, utility bills, and insurance premiums on time is important.

Here is a checklist to be financially prepared for the responsibilities of buying a house -

- Make a comprehensive budget

- Plan for ongoing expenses

- Research the different types of home loans available

- Review and update insurance coverage

- Prioritise debt management

- Explore tax benefits

In conclusion

When buying a house, it's crucial to be ready for the added financial responsibilities that come along with it. You can prioritise your financial planning before and after buying a house using efficient budgeting techniques.

IDFC FIRST Bank Home Loan offers flexible repayment options and competitive interest rates to help you achieve your homeownership goals. Apply for a home loan with IDFC FIRST Bank now!

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.

The features, benefits and offers mentioned in the article are applicable as on the day of publication of this blog and is subject to change without notice. The contents herein are also subject to other product specific terms and conditions and any third party terms and conditions, as applicable. Please refer our website www.idfcfirst.bank.in for latest updates.