How to apply for a home loan

Anyone intending to purchase a house may not have enough savings to make a down payment for the entire amount. In such cases, borrowing a home loan from a bank or financial institution is an option they can explore.

Here’s everything you need to know about how to apply for a home loan.

If someone wants to purchase a house and does not have adequate finances to close the transaction, they make an application for home loan to banks and financial institutions. The additional financial assistance that banks or financial institutions provide is known as a home loan or a mortgage loan.

A home loan involves the lender providing a certain amount of money to the borrower, which the borrower must pay back within a predetermined period, along with interest. The lender may also charge additional fees for processing the application. The house you buy acts as the collateral for the loan -- if you default on repayments, the lender can take possession of the property and sell it off to recover dues.

There is a crucial difference between applying for a home loan and enquiring about the various offers available. A formal application process only commences when you submit the relevant documents and fill up the application form. Only when the lender sends you official communication about conditional or final approval of your loan is your application process complete.

So how to apply for a home loan? There are various options available. You can apply for home loan online or offline. You can also complete the paperwork through a mortgage broker.

When you apply for a home loan depends on whether you have found a property or not.

Some borrowers may start the application for loans even before they have found a house. This is also known as getting pre-approved for a home loan. Such home loan applications differ from receiving formal approval for borrowing a loan. It only helps the borrowers to know how much they are eligible to borrow and assures them that they can make an offer as soon as they like a property.

Being pre-approved also shows the sellers that the borrower is a serious buyer. Applying for a home loan before you have found the house makes more sense for borrowers on a tight budget. It ensures that they only shortlist such properties for which they can manage finances.

How to get pre-approved for home loan? Make sure to fill in the home buyer declaration form and submit all the relevant documents requested by the lender. It is also important to remember that getting pre-approved through a home loan application online is no guarantee that you will get a home loan.

Alternatively, you can apply for a home loan only once you have found the property. In such cases, the lenders provide unconditional approval of your application. If you cannot secure the loan, the purchase of the house may not go through as the lender directly makes the payment to the seller. So if you opt for a home loan online application, ensure that you submit the requested documents to avoid last-minute rejection.

When you already own a property, you may apply for a different type of loan, commonly known as a reverse mortgage. This involves monetising the equity you hold in the property in exchange for regular payments from the lender. Unlike traditional home loans, reverse mortgage loans do not include instalment payments, and the relationship between the mortgager vs mortgagee also varies.

Applying for home loan is a straightforward process.

You can apply for a mortgage by submitting your application to the lender directly or by appointing a broker to handle the process. Here’s a quick overview of the various steps involved:

Shortlisting the lender

Several lenders in the market provide home loans, but not all lenders are equal. That’s why it is crucial to find the right one for you before applying for a mortgage.

Once you have decided to apply for home loan, make a list of all the lenders who are likely to extend financing based on the eligibility requirements listed on their website. Regular lenders may not be the best bet if you need bad credit home loans. Similarly, if you are applying for home loans for seniors, you may need to restrict your shortlist to only such lenders who offer this special product.

During the shortlisting exercise, also pay attention to the credit score requirements specified. If your score is low, take the necessary steps to improve your credit score before formally applying.

Start arranging the paperwork

Once you have selected the lender to whom you will apply for mortgage, start getting all the paperwork in order. This will help you save time when the application process begins.

Most lenders processing home loans applications require various documentary evidence to assess your eligibility as a borrower.

Wondering what do I need to apply for a home loan? Some of the commonly requested documents include:

• Bank statements from the past three months, recent pay slips, or any other document that can serve as evidence of income;
• List of assets
• List of outstanding liabilities, including any other loans you may have borrowed
• A statement of your current expenses
• Personal documents such as birth certificate, driver’s licence, current passport, etc., as proof of identity

It is also important to note that the documentary requirements for application for a home loan may vary depending on which lender you approach. If you don’t have a particular document that’s been requested, get in touch with the representative at the bank to find out if there are any alternatives you can provide. Requirements may also vary when you apply for home loan with casual employment as you may not be able to offer the same evidence of steady income.

Submit your application

Currently, most lenders allow you to apply for a home loan online. You can fill up the application form online, attach all the relevant documents supporting your application, and submit it on the designated online portal. Apply for home loan online is also a hassle-free option for the borrower as you can complete it from the comfort of your home.

If you are not comfortable completing the home loan application online process, check with the concerned lender if you can visit the branch and submit the application in person.

Wait for approval

Once you complete the home loan apply process, it can take up to a week to hear from the lender. Sometimes, the lender may only provide conditional approval or pre-approval. This means that although the lender may not commit to anything immediately, you still get a clear idea about how much loan amount the lender will approve based on your income, debts, and liabilities.

Pre-approvals are useful when you haven’t found a property but want to secure your finances. Remember that most pre-approvals last up to three months, and you should start looking for a house as soon as you receive it. Once you find the property, you will need to submit the signed contract of sale to the lender to complete the loan application process.

In other cases, you may get unconditional approval, especially if you have already signed an agreement with the seller about the house you intend to purchase and are applying for home loan to arrange the finances. Having an excellent credit history also improves your chances of getting unconditional approval.

As part of your application process, the lender will also conduct a property valuation to ensure that the property value is not larger than the loan value. This is a critical step as the house you wish to purchase also doubles up as collateral for the loan.

Examine the loan documents

The lender will send the relevant loan documents for your signature if you get unconditional approval. Make sure to scrutinise them to understand the terms and conditions. If you have made an online home loan application, you will receive a digital copy of the loan agreement and will need to sign it electronically.

Arrange for lender’s mortgage insurance

When you apply for mortgage, be prepared to pay for a Lender’s Mortgage Insurance in case the loan-to-value ratio of your mortgage is above 80 percent.

This insurance protects the lender when you default on loan payments, and selling your home is not enough to recover the dues. In such cases, the insurance provider funds the shortfall and, in turn, recovers it from you.

Depending on the lender, the mortgage insurance may be requested before the final approval is issued and you sign the loan documents.

Settlement and repayment

The last stage when you apply for a mortgage is the settlement stage. This is when the lender transfers the amount to the seller, and the property ownership is transferred to the buyer. It may also involve meetings between the representatives of the buyers and sellers, and a settlement agent may liaise with the seller to get their signatures on the relevant agreements before the funds are transferred.

Once the money is paid, and the ownership is transferred, you will need to register yourself as the new owner at the title office.

Loan repayments usually begin a month or two after the settlement is over.

Now that you know how to apply home loan, start the process as soon as you decide to purchase a house. Make sure to weigh your options carefully to avoid getting a raw deal. More importantly, check credit score before applying for any loans to ensure your eligibility and avoid sudden rejections.