All You Need to Know About Mortgage Loans

For many aspiring homeowners, the cost of a house remains a significant obstacle while trying to buy a house. If you’re stuck in a similar situation, it’s time to apply for a mortgage loan. Also known as a home loan, a mortgage loan is an effective tool that empowers people who wish to buy a house. 

The amount you receive in a mortgage loan can only be used to purchase a house, under-construction property, or a plot of land. However, these three are the only alternatives you get when it comes to using the credit received in a mortgage loan. 

Oftentimes, mortgage loans and loans against property are used interchangeably. Nonetheless, the difference between these two terms lies in the ownership of the property. Within a loan against property, the borrower already owns the property and presents it as the collateral. 

On the other hand, in a mortgage loan, the property you buy from the loaned amount is the collateral. In the case of failure to adhere to the loan’s conditions, the lender has the complete right to confiscate the property.

Now that we have discussed the basics of a mortgage loan, it’s time to understand what it takes for you to fulfill your dream of owning a house.

Mortgage Loan Application Process in 5 Steps 

‘How can I get a mortgage loan?’ is one of the most frequent questions that people ask when they get to know about them. Let’s understand the mortgage loan approval process in 5 simple steps. 

Step 1: Pre-Approval Process

In this process, your lender analyzes your credit score and your Debt To Income (DTI) Ratio to get an idea of your financial situation. Your tax returns, pay stubs, loans, bank statements, etc are also checked to get an insight into your financial situation. If your qualifications match your lender’s expectations, they will give you an estimated figure for the amount they can loan you.

Step 2: House Hunting

Your pre-approval letter gives you a rough idea of the amount you can get within the loan. Now, you can easily narrow down your choices in the housing market. Knowing your budget helps you focus on realistic options. Remember to consider the amount declared in your approval letter as the highest you can get.

You must put your budgeting skills to use and balance the cost of your house. Remember to consider factors like closing costs, property taxes, homeowners insurance, and more.

Step 3: Final Application

Once you have selected your dream home, it’s time to take your loan application a step further. Your real estate agent shall guide you in writing a formal document that includes the amount you need to pay to own the property, assigned to the property seller. 

After the approval of the offer from both ends, you shall approach your lender with this newfound information. This is when you will formally apply for your mortgage loan.

Step 4: Loan Processing

Your lender will now process your loan application and once again scrutinize your cash flow, credit score, and more such aspects. A round of the property in question will be made from the lender's side as well to ensure that the loaned amount does not exceed the property’s.

This procedure includes navigation through multiple complex rules and regulations. This is why, you must provide accurate information to your lender as soon as possible to reduce the chances of putting your application on hold or being rejected.

Step 5: Determining Conditions

The final stage of loan approval is your agreement to the terms and conditions presented by your lender. These conditions include the interest rate and your monthly payments. You can and should negotiate through the deal to get a better cut within the loan deal. 

If you find it difficult to take it head-on with your lender, feel free to consult an expert. UCAI houses a team of industry experts who don’t just help you find a trustworthy lender but also assist you with the negotiation process.

Eligibility Criteria For Mortgage Loan

The mortgage loan eligibility criteria change based on your lender and the kind of loan you avail. However, it is somewhat necessary to involve a mortgage professional to help you gain a better mortgage deal. Besides the procedure, let’s go over some general mortgage loan eligibility criteria to understand your stakes better. 

Financial Stability

Your financial stability is calculated by the combination of your CIBIL score and Debt Income ratio. Your credit score shows your debt history and how you deal with it. A higher credit score can bring you benefits such as lower interest rates on your mortgage. 

Your DTI on the other hand compares your possible debt payments to your gross monthly income to calculate your capabilities. A DTI ratio below 36% showcases an ability to manage a mortgage payment on top of your expenditures.

Employment and Income

Lenders prefer reliable employment with a verifiable track record. Frequent job changes or employment gaps do not express a good record so you must ensure a clean employment history. You are also required to verify your income with relevant documentation such as pay stubs, tax returns, etc to prove your income and ability to repay the loan.

Savings for Down Payment

The down payment on the house is a small amount of money out of the total price you pay initially. While some loan services allow for discounted down payments, a down payment of 20% or more showcases the financial commitment and lessens the amount you would need to borrow.

Having a healthy savings account showcases your financial responsibility and helps cover closing costs i.e. fees associated with obtaining the mortgage loan.

The Property Itself

The property's location can impact loan eligibility. Some lenders might have restrictions on properties in certain areas. There are also some limitations to the type of property based on the loan program. Some loans might be reserved for single-family homes, while others may include condos or multi-unit dwellings.

Is A Mortgage Loan Tax-Free?

Loans often spark curiosity regarding their tax benefits. And guess what? Availing a mortgage loan does indeed make you eligible for tax deductions.  There aren’t any tax deductions on the principal amount, however, there is a relaxation on the interest you pay. 

Section 24 allows a deduction of up to Rs. 2 lakh for self-occupied properties, and Section 80C lets you deduct a portion of your principal repayment (up to Rs. 1.5 lakh) from your taxable income. Nevertheless, these deductions come with conditions, and hence you must consult a tax advisor to ensure benefit maximization and regulatory compliance.

Conclusion

Oftentimes your savings and the price of your dream home have a vast difference. But by availing of a mortgage loan, you get to minimize that distance. Sometimes mortgage loans even offer tax benefits, making them an even more attractive deal. By following the steps discussed in this article, you shall be able to navigate the process, from pre-approval to closing. In case you face any troubles, team UCAI is here to help you out.