Posts Tagged ‘Loan’

Tips For a Hassle-Free Loan Application

June 24th, 2013

The hunt for the perfect loan plan can be quite tiresome in itself, so any home buyer can benefit from helpful hints to facilitate the application process. Below are a few things you can do to have a speedier, smoother experience.

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1. Keep your credit history impeccable.

Banks or financing institutions typically prefer loan-takers who have good credit standing. If you would like to know your credit score, you may check with the Singapore Credit Bureau.

When you apply for a loan, banks or financing institutions are entitled to inspect your credit history. The Credit Bureau records pertinent data about this, and makes it available to your bank. Take note that the Credit Bureau keeps a record of your credit history for the past twelve months. For any closed account, a record is kept on the twelve months prior to closure.

If you have always made it a point to pay on time, especially in the past twelve months, you have nothing to worry about. A perfect credit score makes it easier for you to get a mortgage. In addition, you will be eligible for a loan with more desirable interest rates.

However, if your bank or financing company doesn’t find your credit score satisfactory, they may hold you to stricter requirements, or even decline giving you a loan altogether.

One of the things that can make the damage to your credit score is your credit card – particularly if you have multiple cards (Likely given the ease in which banks approve cards these days!). First of all, it makes you feel like you have more cash than you really do, leading you to spend money that you don’t have. Furthermore, having a credit card qualifies you for a lower loan quantum. As a general rule, be careful not to sign up for too many credit cards, regardless of the benefits they seem to afford. You will also need to be very cautious and disciplined in your spending, or you will eventually drown in a sea of debt.

It will therefore greatly benefit you to pay all your bills on time, strictly limit your credit spending, and never evade your mortgage payments. Otherwise, you will be hurting your own credit score, and this in turn will disqualify you from applying for future loans with desirable terms.

2. Have a sober evaluation of your financial situation.

Know what you can realistically afford, and buy only within your means. You may be tempted to buy a house that is much bigger than what you really need; you might even be attracted to an excessively stylish flat in an upscale development. However, you have to base your purchase on your actual needs as a resident, and not merely your desire to show off. Find a home that won’t put too much strain on your finances, even in the event that your financial situation should change.

To determine what you can afford, determine the debt service ratio (DSR):

DSR = Monthly Mortgage Payments / Monthly Gross Household Income

The recommended DSR for purchasing a home is 30%. This indicates what is affordable for you, so it’s important to choose a home well within that budget.

DSR, however, is only a short-term method for determining affordability. Your initial computation may no longer be applicable in the months or years to come, since your income will likely change. It’s therefore important to recalculate the DSR for different scenarios, such as when you lose your job, or your spouse changes occupations, or your household expenditures increase due to an unforeseen interest rate hike.

In addition to the DSR, you need to take all your household’s financial liabilities. For instance, paying off a car loan, medical bills or sending a child to university means a huge outlay. You need to be sure you can afford all these expenses together, and be prepared for emergencies or further stress on your bank account. When your situation worsens, you may be left with no choice but to give up your house – even losing money in the process.

3. Familiarize yourself with the legal and financial terms.

You will encounter a lot of legal and bank jargon when you apply for a loan, and it’s best to be prepared. For instance, you’ll receive a Letter of Offer after your application is approved, and you will need to understand all the terms discussed in the letter.

If you come across something unfamiliar or confusing, the wise thing to do is to contact the bank or financing company, and ask one of their personnel to clarify things for you in plain language. You may also benefit from asking a lawyer.

4. Opt for a suitable loan plan.

It’s always more advantageous to be informed, so make sure you do a bit or research on the various kinds of loans available. It’s also best to be informed about the new features that banks or financing companies offer. Take the time to compare and contrast, then choose the package that is best for your situation – should you opt for a fixed-rate loan, a variable rate loan, or a hybrid with the benefits of both? Which banks offer the best features, or the most sensible interest rates?

Naturally, a home buyer will find it difficult to answer all these questions. For a clearer understanding of the different loan plans, and how they apply to your unique financial profile, it’s best to consult a certified mortgage broker.

As much as possible, choose a loan that will have reasonable interest rates throughout the whole loan tenure, and not just at the start of the term. Although refinancing or repricing can be done later on, don’t consider this as a backup plan. Instead, right from the start, select a loan package that will work well for you. Remember that interest rates are never constant, and you may be in a high interest-rate environment when you opt for refinancing. You will need to contemplate whether lower interest rates for the first few years will make up for rates that may increase significantly afterward.

Furthermore, do keep in mind that the Monetary Authority of Singapore (MAS; the country’s Central Bank) may occasionally enforce new procedures regarding borrowing and lending, and it may not be as simple to take a loan in the future.

With all the different loan types and the numerous considerations, it’s understandably hard to keep tabs on everything. This is where a mortgage consultant will come in handy. For free expert advice and comprehensive reports on housing loans, visit iCompareLoan.com, where we apply cutting-edge loan analysis systems

5. Select a reliable financing institution.

In addition to choosing the right loan plan, it’s just as important to opt for a suitable financier. Don’t just find a lender that offers agreeable loan features; find one that is reputable and trustworthy.

A mortgage consultant can give you helpful advice on this, as well as unbiased assessments regarding the various loan packages offered by banks and financing companies.

6. Avoid drastic changes in your financial situation while applying for a loan.

Any change in your financial profile may affect your eligibility, so plan things carefully. For example, if you plan to change jobs, it’s best to do this after you have completed your application and received your loan. In fact, for some banks or lending companies, borrowers are required to hold the same job for a certain period of time in able to qualify for a loan.

7. Don’t apply for any additional loans (such as a car loan or a second home loan) before your current one is disbursed.

Even if your mortgage is approved in principle, it’s best to forego any additional borrowing for a while, or your financier may choose to lower your quantum.

For instance, let’s assume your housing loan has been approved-in-principle. Since you thought you had this in the bag, you went and took a car loan too. Even though your bank was about to approve your housing loan, they may opt to reduce your loan quantum upon discovering that you will be paying for a car loan as well. In effect, you will no longer be able to afford the house.

A property loan is a serious financial obligation which may put a lot of stress on you and your family. To avoid unnecessary confusion and hassle, contact a mortgage consultant who can advise you on the best way to go about things.

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