Dos and Don'ts of Home Loans



With growing financial institutions mushrooming all over, it is now becoming easier and easier to get a home loan. Gone are the days when homes were built or bought on the basis of savings made. With changing economy even the mindset has gone for a change and homeowners today are getting younger. With the help of Home Loans the younger generation now finds it easier to buy property and also see their value rise over the years.

Nevertheless, it a significant financial decision which needs serious thought. It calls for few vital steps whenever you are considering or applying for a home loan. Here are few dos and don'ts to follow as a ready reckoner.

Dos -

(i)Pay all your debt and loan payments on time. A delinquency on a loan or credit reduces the credit score. The score determines the amount of the home loan.

(ii)If you find it to pay off all the bills in a certain month and feel to drop some, drop the credit card payment first, followed by the installment loan payment and finally the existing home loan. Credit scoring system considers similar kind of loans at first in deciding the type of score to be assigned.

(iii)In mode of installment payments, place the smaller amount at last. This helps you to end up with larger mortgages but also allow you to replace non-tax deductible, high interest rate debt with lower rate home loan debt with deductible interest.

(iv)If you feel that you might run into a financial crisis, opt for a home loan than other considerations. Because, some other credit inquiries may hurt a borrower's credit score.

(v)It is better to increase the amount of down payment with solid savings.

(vi)The amount of the home loan depends on how much the appraiser values your home. By simple cleaning, some cosmetic enhancements, painting few rooms of your home you can boost up the amount of the loan.

(vii)It is advisable to consult credit unions. They normally waive closing costs for members and have high competitive rates.

Don'ts -

(i)Don't go for large amount of purchases for the next few months of your signing in a home loan. Because, at this time you should opt for down payment of as much money as you can arrange.

(ii)Don't consider expensive purchase if your budget does not support. A rising the monthly payment may end up covering too much loan with too small money.

(iii)Don't attempt to arrange pre-qualified report rather that pre-approved. Let the lenders go through all the credit reports, debt-to-income rations and other underwriting steps.

(iv)Don't try to ignore the money personality factor while you apply for a home loan. By choosing shorter term with higher payment saves and accumulate equity faster.

(v)Don't forget the high responsibility a home loan brings - defaulting on a home loan penalties you with greater burden than any other; with a faulty financial record your credit may rise higher than your imagination.

(vi)Don't apply for a bigger home loan than you need; it only leave you with a higher interest and higher payment.

(vii)Don't hurry to decide. Check and cross check every terms and conditions institutions offers; then the most suitable one.

(viii)Don't opt for title insurance. Title insurance protects the lender, not the borrower.