How to nail your home loan? 4 essential steps for getting the amount you need

The desire to have a roof over your head is universal. Yet, with the surge in property costs and home loan rates, getting the desired home loan amount at affordable interest rates can be an arduous task. Taking on excessive debt to purchase your ideal home can expose you to financial hazards. Moreover, surpassing your budget and borrowing more than the maximum limit for a home loan can have serious repercussions.

Are you and the lender on the same page about the loan amount? If not, this discrepancy can be quite frustrating. If lenders offer a lower home loan amount than requested, borrowers are left to choose between two opposing situations either be willing to borrow the desired home loan amount at a higher interest rate or be willing to drop the idea of seeking a home loan and buying your dream home with it. However, there are ways to secure a higher loan amount without significantly increasing costs.

Work on your creditworthiness

Before you rush to your nearest bank to obtain a home loan, check your credit score. All you have to do is procure a copy of your credit report and check for inaccuracies to rectify them. Look out for any nagging loans or debt that may have brought down your credit score. By emphasising this, you will achieve a higher credit score surpassing 750, thus, increasing your eligibility as a borrower. 

Additionally, if your debt component is too high, it is time to reduce your debt-to-income (DTI) ratio by paying down existing debts. This ratio demonstrates to lenders the proportion of your monthly income dedicated to current debts, with a lower DTI suggesting improved affordability for new loans.

Check your finances

How well are you prepared to repay the loan amount? Do you have enough money to make a large down payment? Before you apply for a loan, check if you have the requisite finances to pay 20% or more of the property value. This will reduce the overall loan burden while prompting lenders to appreciate your financial adeptness and approve your choice of loan amount at favourable interest rates.

Not many people have the necessary savings to make the down payment. This underscores the need to have an adequate savings balance in place before you proceed to apply for a home loan. Alternatively, you may make use of your emergency funds to strengthen your loan application.

Explore multiple lending options

Do not just settle down at the first loan offer. Look around and apply to various banks, mortgage institutions, and credit unions to secure the best home loan deal. Obtain quotes from them to assess interest rates, loan terms, and fees. Various lenders offer loans on varying terms. By comparing these options, you can identify the most competitive combination that ultimately saves you money.

Moreover, lenders often specialise in various types of loans tailored for different kinds of buyers. Comparing lenders aligns you with a product that aligns best with your particular needs and financial circumstances.

Have the necessary documents in place

Having all the necessary documents ready streamlines the loan application process. These may include salary slips for employment verification, income tax returns (ITRs) filed over the past two to three years, and bank statements demonstrating your financial stability and regular income. You must also share proof of residence with utility bills, rental agreements, or mortgage statements from your current residence.

To summarise, remember to balance your desires versus your needs and current financial conditions. Do not choose a property that you cannot pay for in the long run. It is important to realise your monetary limits and choose a property that matches the loan amount you qualify for.

Atul Monga, CEO& Co-Founder, BASIC Home Loan