Purchasing a home or plot is one of the most significant and important decisions an individual makes, and it can be exciting and stressful at the same time, especially without a clear roadmap and a solid plan. Without preparation, it can lead to loan rejection and financial liabilities that you can’t pay off.
To save yourself from all these, read out the blog as we are discussing a 12-month roadmap which tells you what you can do before starting to look for a property.
Phase 1: Audit your finances (Month 1 to 3)
Phase one is all about the financial audit. You should start doing a financial audit at the beginning of the year, so that if there is anything needed to improve, you have enough time. It includes evaluation of your income (expenses, savings, and investments), credit score, and debt-to-income ratio.
If you are thinking of buying your home through a home loan, it is important that you pay attention to factors like your credit score, to improve your Debt-to-income Ratio, and your spending etc.
1. Audit your spending: To get your home loan approved, it’s very important to get an audit of your spending. As a lender, check the bank statements to identify the patterns of your spending. If your statements show risky behaviour, like using the overdraft facility often, or any unnecessary expenses which can create liability in the future etc., checking bank statements is the first step of getting a home loan. So, it’s important that your statement looks clean. For this you have to avoid all the above-stated factors that can lead you towards loan rejection.
2. Debt-to-Income Ratio (DTI): The debt-to-income ratio is one of the important financial metrics that lenders consider before passing or rejecting the home loan. A low debt ratio makes you more appealing as a borrower, as it reflects that you are able to pay your debt. So, it’s important that before looking for lenders or properties, you improve your DTI.
To do so, you can pay off your immediate liabilities like credit card bills, high-interest loans, and avoid any new debt from the year before you are thinking of buying a property, and you can use this year to improve your DTI and overall profile building that presents you as a well-deserved candidate for the loan.
The idle Debt to Income Ratio
3. Credit score: Your credit score is also one of the factors that many lenders consider. Your credit score shows how often you repay your credit bills on time. If the score is quite good, you will be considered to be the desirable candidate for a home loan. In most cases, lenders prefer a credit score of 700 or above for a loan, and if your credit score is below 650, you will be considered a risky profile, and you might face difficulty to get loan, or you may get a home loan on high interest rate.
3. Down Payment Bucket: Start preparing the down payment bucket like move the savings to the high-yield Savings Account, or if you can do any extra work for a few extra penny which you can add to your down payment bucket, as much as the money you will give as a down payment, your bank loan will be reduced by that amount. Generally, Banks only give loan for the 80% of the property’s value and 20% of down payment will be paid by you. Always plan some extra amount for any additional cost.
4. No Big Buy Rule: Whenever you decide to buy a home, the year before don’t make any big purchase which creates a liability like purchased a new car on EMI can become a hurdle to get the home loan approval.
Phase 2: Look for a neighbourhood (Month-3 to 6)
1. Prepare Needs vs. Wants list: Now, it’s time to create a list of the facilities or amenities you want in your home or property. Considering these two factors- First, what is must, which is prepared as per your needs, and the second part goes to Wants, the part which is not important but good to have. It will help you to choose the right property.
2. Choose the locality: As per the prepared list of needs and wants shortlist some areas where you want to make purchase of your dream plot and go there in day to see the traffic, connectivity, transport facility and crowd and also visit there in night to see how the environment is there in night whether it’s safe for your family or not and finally after analysing all the important factors choose the one locality.
In the chosen locality research about the upcoming developments for example you are purchasing property near Tonk Road. So, while researching you will get to know about the Ring Road one of the biggest infrastructure properties in Jaipur. After that, analyse what is the current value of the property and what it will be after completion of the infrastructure development.
3. Research the market: In the area where you want to purchase the property, research what the right price for the properties are in the chosen locality. Collect information about the trends that give insight into the price increment. For this, you can use 99acres, which provides you with insights about 10 years of pricing trends. Research about the actors like current rental yield and the predicted yield after some time.
3. Phase 3: Banks & Lenders (Month- 6 to 9)
1. Check banks' requirements for a loan: You can contact banks regarding the home loan inquiries, you can check their requirements for a desirable home loan candidate, and, as per your situation, finalise two to three banks. While enquiring about home loan compare the interest rate of different banks to get the minimum interest rate and it will also give you an idea about the average current interest rate in your state.
2. Get a Pre-approval of a loan: It means before deciding which property you want to buy, you go to the banks, and they fetch your documents like your credit score from FICO, your tax returns, your bank statements, and give you an estimation of what budget you can buy a property. It will give you a clear picture of your budget. By knowing how much you can afford, you can save yourself from financial burden, and a pre-approved loan places you as a serious client in front of the developer.
3. Select your developer: After you get a Pre-approval of loan, it’s time to choose the right company for your property. In the market, there are many companies developing lands and constructing homes, which seems appealing, but before choosing, it’s important to research about the company. For this, you need to check whether the company is credible or not. While choosing a developer, check this whether the company sales JDA and RERA approved plots if you are purchasing in Rajasthan and in Maharashtra make sure the developer sales MSRDC approved and Maha RERA registered plots. In short, you have to make sure the chosen developer sales the registered and government approved property.
Phase 4: Paperwork (Month- 10 to 12)
Complete the paperwork: Now gather your papers, pay slips, tax returns, your ID proofs, bank statement, etc.
Now, it’s finally the time you start visiting the properties, select your dream property, and give your family the best gift, “Their Home.”
Happy Buying, Happy Living!