What Really Happens When You Apply For A Home Loan?

Imagine standing in front of a beautiful house, perhaps the one you’ve always dreamt of owning. You can almost see yourself living there, enjoying sunrises on the porch and hosting friends in the living room.

But, before this dream becomes a reality, there’s a small bridge you need to cross – the home loan process.

What Goes Into The Home Loan Process?

Some may think it’s just about filling out a form and waiting. While for others, this process is filled with unknowns and what-ifs. But there’s more to it. And by diving deep into the process, you can make it easier and less stressful.

Let’s break it down!

The Initial Application

First things first, to secure a home mortgage, you’ll have to finalize a lending institution or mortgage provider. Once that’s settled, you can begin with the home loan application process.

This application or form would include details about you, your finances, and the house you want to buy. It’ll further contain information about your credit history, current income, and any previous debts you might have.

But why do lenders want to know so much? It’s because they need to see if you can repay the loan. And when you have a good job and not too many bills, it lowers the risks and boosts your chances of loan approval.

Appraisal of the House

Once your application moves forward, the next thing the lending institution wants to know about is the value of the house. Is it worth the price? Here, the “appraisal” step comes in.

It’s basically an expert’s opinion on the accurate house’s value as lenders don’t want to loan more than a home is worth. But how do lenders make sure that you get a fair loan amount?

Well, that’s where the National Appraisal Management Company comes into the picture. Lenders often work with them to manage the appraisal process. They choose an appraiser who checks the house, compares it to similar homes, and gives a value.

Agree or not, this step is vital. If the appraisal is lower than the buying price, the loan might need adjustments. And sometimes, it can even halt the process.

Review of Documents and Verification

When you fill out your home loan application, the words you write are like promises. But how does the lender know these promises are true? The answer is document reviews and verification.

Lenders will ask you for papers that prove what you’ve said. This can include pay stubs, bank statements, and tax returns.

In addition to this, there’s a process called “underwriting.” It might sound fancy, but it’s just another check. Here, experts take a closer look at your finances to make sure you can pay back the loan. The process can take some time. But it’s a crucial step for lenders to feel good about the loan.

Decision Time: Approval or Denial

Finally, after all the checks and reviews, it’s decision time. If everything lines up, you get a “loan approval.” This means you’re all set to buy your house.

But sometimes, there might be issues like the appraisal being too low or a credit history problem. In that case, the loan could be denied. So, you must consult the lenders to come up with an effective solution for mortgage approval.

Things To Consider Before Availing A Home Loan

A home loan is not a small deal- after all, you are risking your entire life savings with such a big decision. However, there are a few things to keep in mind to make your entire journey of a home loan easier. Let’s check them out:

1. Inspect The Eligibity Of Your Loan

One of the initial steps is to ensure that you can qualify for a home loan. For starters, the lenders might need to assess your loan eligibility depending on your repayment capacity and income. Other critical considerations also include qualification, age, spouse’s income, financial position, and number of dependants. 

2. Different Housing Loan Types

Various different types of housing loans are available:

• Adjustable rate loans where the interest rate is associated with the benchmark rate of the lender. In case the rate changes, there will be a proportionate change in the interest rate.
• Fixed-rate loans where the interest rate remains fixed when somebody opts for the loan. The interest rate is applicable throughout the loan tenure. 
• Combination loans provide a part of the fixed rate loan and a portion of the adjustable interest rate.

3. Loan>Home

It is always a wise idea to pre-approve your home loan before selecting the house. Such loans assist you in fixing your exact budget and focusing on a better home search. Also, pre-approvals enable better negotiation where the deals get closed faster. You might consult the lender whether the good properties in your area are available or not.

4. EMI Options

EMI is the abbreviation for Equated Monthly Instalment which is the amount one has to pay to the lender every month. It involves repayment of the loan principal and interest on the loan’s outstanding amount. Pre-EMI is an idealogy that is helpful for under-construction properties. In such cases, you can disburse your loan in multiple stages. 

 5. Necessary Documents

A home loan can never get approved without showing the right set of documentation. Here are some necessary documents that you might need: 

• KYC Forms: These documents consist of proof of your identity and residential address. Certain documents that you might submit to fulfill this requirement are a valid passport, voter ID card, etc. 

• Income/Credit Documents: With such documents, the lender gets easy access to your loan eligibility. In case you are employed, you might submit your last 3 months’ salary slip.
• Property Documents: Property documents consist of the title deeds and the selling agreement. You have to submit all the original property documents in order to receive housing loan disbursement.

Final Thoughts

A home loan is a big commitment. That’s why lenders often make sure it’s a good match for everyone. So, if you’re dreaming of a new home, don’t fear the process. Embrace it, understand it, and walk through it with confidence.

Consider the aforementioned tips and buy the house of your dreams. Is there anything you would like us to add here? Comment below and let us know your thoughts on this. 

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