For many people, leaving a rental unit to move into their own home is an incredibly exciting time in their lives. But buying or building the house is just one part of a long process. It all starts with choosing the right housing loan for you. But getting a home loan is not the same as applying for a car loan or a personal loan, and spotting the differences and nuances is key to a successful loan application.
Educating yourself is essential. If you’re looking for a housing loan
1. Set a budget
Banks and lenders routinely approve loans that are bigger than what the applicants originally asked for. Remember that you don’t have to take out the entire amount. Just because the money is available doesn’t mean that it’s yours for the taking.
Financial institutions look at your income and credit score to determine your loan amount, but they don’t factor in recurring expenses such as utilities, rent, and food. The smart decision is to set a budget according to your ability to pay. If you want to make the most of your loan, aim for at least twenty percent below the maximum loan amount given by the lender.
2. Check your credit score
As a rule of thumb, the better the credit score, the lower the interest rate. Knowing your credit score allows you to plan how much you can pay and for how long. If you know you have a good credit score, you can negotiate with your lender for a lower interest rate.
If you’re applying for a home loan in the Philippines, you can only get your credit score upon request. The Credit Information Corporation is responsible for evaluating a person’s score. If you want to increase your credit score, you should work toward improving your debt/credit ratio, paying your bills on time, and staying within your credit limit.
3. Save for a down payment
Regardless of the type of loan you get, the lender will require you to pay a down payment and other ancillary costs. The down payment can be as much as 20% of the principal. Before applying for a loan, it might be wise to start saving for a down payment.
You can use this opportunity to simulate the monthly payments you’re going to have to make. Set aside an amount equal to your projected monthly loan payments. If you can’t afford to pay the down payment, you will have to lower your housing loan expectations.
Some banks also require you to have a certain amount of money in the bank before they even consider your application. Check your options before committing to a lender.
4. Don’t quit your job
If you want to quit your current job, and already have a new job lined up, then do so after your loan is approved. Quitting your job is the fastest way to torpedo a loan application.
Sudden changes in your financial status force the lender to reevaluate your application to take into account the loss of income. Even if you’re confident you can still make the payments, your lender might not see it that way and reject your application.
