NRI Corner

One of the most crucial decisions which most of us take in our life is buying a home. This requires thoughtful planning, financial need and a good knowledge of your credit score. A good credit score for home loan can be a game changer for you, as through that score you can get desired mortgage loan. This post will talk all about your credit score, why it matters and the steps to improve it to buy a home. Why Your Credit Score Matters in Home Buying A high credit score shows how responsibly you have managed your credits in the past, and this gives confidence to the lenders in your ability to repay a mortgage. With an excellent credit score you can: Enhance your mortgage approval chances. Help you in availing lower interest rates, thus saving thousands over the life of your loan. Minimize down payment Avail better loan products. Usually, an excellent credit score for home loan is higher than 740 which can make you eligible for the best mortgage rates. Score ranging from 670 to 739 are good, while the score below 580 will make it difficult for you to secure conventional mortgage. Now, as you have understood why credit score matters, let’s know the ways to improve it before applying for a mortgage loan. 1.Check Your Credit Reports Firstly you must know where you stand in the credit score. Equifax, Experian and TransUnion are the three major credit bureaus from where you can check your credit report for free in every 12 months. What to Look For: Errors or inaccuracies: This may include accounts you haven’t opened, incorrect balances or later payment reported in error. Negative items: Conditions like late payments, charge-offs, collections or bankruptcies can impact your credit score. You must dispute your inaccuracies you find. Correct even the smallest error as it can noticeably improve your credit score. 2. Pay Down Credit Card Balances Your credit utilization ratio should be less than 30% or below 10% will be the best to improve your score. That implies you need to keep a check on your credit card expenditure as per your credit limit. Action Steps: You must pay-off high interest credit cards first. Make multiple payments per month to keep the balance low. Paying down balances will improve your credit score in as little as a month. 3. Avoid Opening New Credit Accounts Whenever you apply for new credit card, a hard inquiry will be done on your credit report which can temporarily impact your score. Hence for few months before purchasing a new home, you should avoid applying for new credit card unless it is very urgent. This includes: Store credit cards Personal and auto loans Financing for electronics or furniture. These new account will have impact on both score and debt-to-income ratio, which lenders consider while approving mortgage loans. 4. Make All Payments on Time Payment history contributes around 35% of your credit score- the greatest aspect. Even you miss on a single payment; it can severely impact your credit and will remain on your report for seven years. Tips to Stay on Track: Consolidate your bills or automate minimum payments. If you are in trouble, contact creditors- this may provide you temporary relief or payment plans. To build a strong credit profile you should consolidate on-time payments with time. 5. Don’t Close Old Accounts Length of credit history will contribute around 15% of your credit score. A credit account open for longer duration will be beneficial for you. So, even in case of old credit card, you can keep it open-especially in case of no annual fee. Closing old accounts can: Lessen down your average credit history. Improve your credit utilization ratio. It can be done by lowering down your available credit. Unless there is a valid reason like high annual charges, chances of theft, keep your old accounts open and do transactions from it occasionally. 6. Deal With Collections and Charge-Offs In case of accounts in collections or charge-offs, handle them properly before applying for mortgage. You can: Negotiate with the creditor to settle or pay off the debt. Look for ‘pay-for-delete’ agreement- some collectors may delete the items from credit report once paid off. Work with a credit counselor to plan your debt repayment process. Settling down your repayments will never automatically remove it from report, but this will improve your image in front of lenders and they may improve your score, especially with newer credit scoring models. 7. Become an Authorized User If you have any friend or family member with good credit score, you can request them to get added as an authorized user on their credit card account. This plan will: Increase you credit average age. Minimize your credit utilization. Add positive payment history to your report. It’s a smart way to improve your score, provided the primary account holder takes the responsibility with their payments. 8. Consider a Rapid Rescore (If Needed) In case of time crunch- like you are under contract on a house- get help with rapid rescore. In this process, your lender will work with credit bureaus to quickly update your information, especially after fixing error or paying down debt. You can’t do this strategy by yourself, and it is usually done when even a small change in your credit score can make a significant different in getting a better mortgage rate. Final Takeaway The first step towards improving your credit score is to check your credit reports, avoid new debt, pay down balances and follow good financial habits. Your credit score is a key to unlock better financial opportunities- not only for purchasing home but also for your overall financial journey in future. Higher the score, better will be the future options and savings. Plan strategically, act consistently and take atleast 3-6 months to improve the score before applying for any mortgage. All the above steps can improve your possibilities of home loan eligibility, by managing your credit score, so start working

For first-time home buyers buying a home is a life time investment and thus, you must have a good knowledge about the home buying procedure. Also, you should avoid some common myths associated with it. As myths are simply human beliefs that don’t have any proof and believing in all these can be your biggest mistake. Let’s have a look on some of the common misconceptions or home buying myths which you can avoid to move ahead in this journey with excitement and confidence. Myth 1: With the emergence of RERA, home owners don’t have to do much research work RERA (Real Estate Regulation Act) was emerged as a saviour of property buyers and imposed some regulations on the real estate companies to protect their rights. RERA is only imposed on properties that are greater than 500 square meter and with more than eight housing units. While many home buyers believe that this law protects all the properties. It’s a myth. Our recommendation Before buying any property, you must ensure that your builder is registered with RERA board to avail the benefits of their protection. Myth 2: Renting is cost-effective than buying any property This is the biggest myth many people think. Suppose you want to buy a home in Pune of Rs. 80 lakhs. The fixed interest rate you may pay will be around 9.4%. In this condition your EMI will be Rs. 67,000. If you prefer to live in a rented home, then probably the rental value will range from 25k to 30k. Also, this rental value will increase with time. As per Economic Times, rental prices in all the cities are increasing with time and gradually it may reach up to 26.2%. So initially EMI may seem to be a burden, but as time passes and with the annual hike in your salary, this burden will reduce. Also, remember at the end of your tenure, you will be the owner of your property for life. This is the huge benefit, especially during your retirement period, you won’t have to pay the rent. Our recommendation Buying a home is a smart decision if you think about property rates appreciation, tax exemption and a feeling of enjoying in your own home. Myth 3: Builder doesn’t matter while buying any property Choosing a builder that doesn’t think about customers, can put you in trouble while buying home. Such builders often use low-quality materials to complete their construction work. Hence you must go with reputed builders that can deliver high-quality results within promised timelines. Our recommendation Always look for reputed builders that use high-quality building material. This will increase your property life. Myth 4: A glamourous ad reflects reliable and trusted project You may come across many glamourous ads of upcoming projects. But always remember that ‘All that glitters is not gold’. Don’t believe in colorful newspaper ads or celebrity-endorsed commercials. You must trust your own research work, do on-site visits to know the project’s progress. Also, during your visit along with showcase flat, also check the common areas, and amenities. If your builder has any previously done work, then visit that building too and talk with the residents there. Our recommendation Speak with other buyers to know the true condition of project. Know their overall experience with the builder. Myth 5: Under-construction projects are cheap Although, under construction projects may be cheaper at the outset, but ready-to-move construction will give you better understanding of project. There are always some risks involved in under construction projects. You can never predict how the project will turn out. Our recommendation To be on safe side, it is better to invest in ready-to-move home. In case of choosing any under construction project, you must go with the builder with excellent track record. Myth 6: Buying home demands greater down payment Depending on your property, you need to pay home loan of around 80-90%. Although, paying 10-20% down-payment is ideal. To pay this down-payment you can keep another property as collateral or you can apply for personal loan for down payment. Our recommendation If you have sufficient finances, then paying down payment from your own pocket is a wise decision. If not, then go with the personal loan or else you can negotiate with the builder to reduce the down payment. Myth 7: Subvention schemes will reduce the overall cost Remember, there is nothing like free lunch. Many real estate developers tempt buyers to invest in under construction projects through innovative schemes. Subvention scheme is one of them. Under this scheme buyers don’t have to pay EMI until they get the possession. Initially it may seem to cut down cost, but things are not that easy. Your overall EMI will never reduce, instead the overall amount you will pay to the buyer will be more. Our recommendation Follow basic loan pricing, instead of under construction projects you can go with the completed one to start the EMI as soon as you get the possession. Myth 8: Real estate investment is risky This is the biggest myth among home buyers. Every investment involves risk, however as compared to others, real estate involves less risk, as it is a game of economics based on demand and supply. With the increase in demand of real estate, your property price will also increase and hence this field is less volatile as compared to other investments. Wrapping Up Buying a property has now become easy. You must avoid the above-mentioned myths to buy your property at the right price. Always check the developers’ reputation in the market before making any investment. Also, you must remain updated about the current market trends, financial options and interest rate to take informed decisions. Don’t rely only on the opinion of our friends or any outdated information. You can also take help from real estate professionals as they can help you in your research work and that will make the difference. A knowledgeable buyer will always remain aligned with his financial goals and

For many, buying a home is a one-time investment or you can call it as an important milestone. But what are your views on home loan? Is it mere a debt for you? Not really. Don’t consider it as a liability; instead it is a way to quickly build wealth with time. With productive strategies and smart planning, you can grow equity with these monthly EMIs with long-term financial security. You must know how EMI can bring you closer to home ownership, to convert your monthly payments into an asset to meet your future requirements. Below are some ways to make your home loan work for you, instead of the other way around. Understanding the Power of EMIs After taking amount from the lenders, borrowers are supposed to repay it in the form of fixed monthly installments. These installments are termed as EMI. At the beginning, the major portion of EMI is used to pay interest, while the remaining fraction pays for principal amount. This gradual payment will move forward towards principal repayment. You must deeply know this structure to plan you prepayments and take smart decisions regarding refinance. In your loan tenure even a small extra payment can reduce the burden in long run. Also, understanding how your EMI is split will help to budget and manage your finances efficiently. A well-planned strategy will let your EMI cover debt repayment, and give its contribution in asset building. With time principal lessens down and maximum fraction of EMI will be used to repay the principal amount. What Is Home Equity? In simple language, it is true party of your property you owe. For instance, if your home value is ₹ 90 lakhs and the remaining loan balance is ₹ 30 lakh, then your home equity is ₹60 lakh. With time this equity will become your asset, allowing you to use it for your future financial goals. Equity building will increase your net worth, and it can become a major cornerstone in your wealth creation journey if used wisely. Ways to Build Equity Faster You can build equity faster by paying your EMI installments regularly and on time. Below are some smart ways to speed up the process: Make extra mortgage payment It is the easiest way to reduce your mortgage amount and build equity at a faster pace. Even if you pay a small amount extra in each month, it can make a significant difference to lessen down you loan term and save an interest. Choose a Shorter Tenure Although choosing a long tenure will reduce EMI burden, but you will end up paying more interest with time. A shorter loan term will save interest and will allow you to repay faster. Home Value Appreciation Real estate value increases with time (although this appreciation depends on the location and market conditions). With the rise in your home’s value, your equity will grow without making you pay any extra amount. Make a larger down payment If you want to buy a home, then opting for higher down payment will give you more equity in your home in shorter duration. This will minimize the amount you owe. Unlocking the Power of a Home Equity Loan After building an excellent equity by paying most of your loan amount, you can avail advantage of home equity loan. You can get finance for your next project or any other work by showing this home equity. You can get the funds at much lower interest rates as compared to that of personal loans or credit cards. This will prove to be a smart move to get funds for your major expenses like children’s education, home renovation or even starting a new business. Although, since you have used your property as collateral, you must use it responsibly. Know your repayment capability before applying for any loan based on your home equity. The Tax Benefits on Home Loan You Shouldn’t Miss The greatest advantage of home loan is the tax benefit it offers. Being a first-time home buyer you can avail other deductions under section 80EE and 80EEA based on certain conditions. You can minimize your tax liabilities through all these benefits, making your home loan journey a cost-effective one. Many people overlook the advantages they can avail through smart tax planning, hence ensure to contact a professional tax advisor to avail those benefits. Common Mistakes to Avoid Through equity building and making smart usage of your home loan you can avail many advantages. But there are some pitfalls too that you should know: Ignoring refinancing options In case of lower interest rates, it’s better not to take loan.  You can involve in refinancing to decrease your EMI or pay off the loan quickly. Not keeping track of prepayment penalties Although most of the floating-rate loans don’t impose prepayment charges, some fixed-loans do. Always keep a track before making lump-sum payments. Over-leveraging your home equity It involves risk to take excessive loan amount against your home’s value. Keep a buffer to remain ready for the conditions like market downturns, or any unexpected financial stress. Delaying payments Late payments will not only impose penalties, but will also impact your credit score which can result in financial strain. Final Words Consider EMI as an opportunity to grow your wealth. Every installment of EMI you pay brings you closer to homeownership and your every move to utilize this equity can multiple the benefits. You must know how to leverage and build equity and enter into the world of home equity loan sensibly. By efficiently utilizing the tax benefits on home loan you will not only see your home as a space to live, but a key driver of financial success. With proper strategic prepayments, and availing tax benefits wisely, you can gradually build a valuable asset. So, stop considering your loan as a burden, call it as an opportunity for long-term wealth and enjoy the desired financial freedom. It’s the time to play smart and avail tax benefits on home