While buying a house, many questions come to mind: How to arrange money to buy a home? Should I get a loan? What will be the rate of interest? Will the instalment be too heavy on my pockets? Will it be too long a process? Am I eligible for a home loan? Well, it is normal to be worried and the decision to buy a house must be thought out carefully. Home loans today are easy to get and the interest rates are attractive enough for most buyers, but there are factors to consider before opting for one. Let us look at each of these factors in detail.
Keep the Following in Mind Before Applying for a Home Loan
1. Research and Select the Best Interest Rates– Using the home loan EMI calculator tool, you can compare the interest rates being offered by various lenders. The calculator helps you to research well and make the right decision while applying for a home loan. With the help of the calculator, you can understand which type of interest you should opt for, how much you can pay for an EMI, and the best home loan tenor for you.
2. Down Payment Amount – Create a ready corpus for the down payment amount. The higher the down payment, the smaller will be the EMIs for home loans. This will help you to have realistic EMIs that you can manage easily without disturbing the other monthly expenses. So, be ready to make a down payment of at least 20% of the cost of the property
3. Loan Tenor – The home loan EMIs directly depend on the home loan tenor. A short repayment period or home loan tenor decreases the home loan interest burden. However, with a shorter tenor, the amount of your monthly instalments will increase. Therefore, try to make your EMIs affordable while keeping your tenor as short as possible.
4. CIBIL Score – A good CIBIL Score is an important eligibility criteria for a home loan. It is important to have a score of 750 plus to get an attractive rate of interest on your home loan. Getting your CIBIL score for the home loan report ready at least 6 months in advance will help to get a quick home loan.
5. Eligibility Criteria – The eligibility criteria for a home loan must be met before you get the home loan sanction letter. Income, age, location, credit score, work experience, and debt repayment are areas that are considered while calculating the eligibility criteria. One failing to meet their chosen lender’s eligibility criteria may have his/her home loan application rejected, thus creating a negative impact on their credit profile. Therefore, one must prepare well in advance before applying for a home loan.
6. FOIR – The debt-to-income ratio is another factor that lending institutions consider while evaluating the home loan eligibility of an applicant. Banks calculate FOIR based on your monthly income, spending, and the potential EMIs of the prospective loan. Lower FOIR or money spent on living expenses gives the lenders the confidence that you have the credibility to repay the loan EMIs.
7. Tax Benefits – One can avail of tax benefits on home loan. For instance, for the Principal amount, one can claim the maximum tax benefit of INR 1,50,000 under section 80C of the Income Tax Act, and the interest paid up to INR 2,00,000 can also be claimed as a tax deduction. If you have a co-borrower, then both can claim tax benefits for the home loan. If you are planning to take a home loan, make sure to enjoy the tax benefits that come along with the loan.
8. Prepayment & Other Charges – Processing fees are a part of the home loan process and are charged by banks or lending institutions for processing your loan application. Other charges may include administrative fees, prepayment charges, conversion charges, legal fees, and inspection fees. Also, if you are thinking of foreclosing the loan, you will need to pay an additional amount in the form of charges for the interest lost by them for pre-closing the loan. You must find out if there are any other hidden charges before you apply for the home loan.
9. Balance Transfer – A home loan balance transfer is a great way to bring down interest outgo and channel the savings into other investment avenues. If you think the interest rates are too high and are leading to high EMIs, you can transfer your loan to another bank offering lower interest rates and a longer tenor. This can help you save on EMIs.
Be careful while choosing the right home loan for you. Consider all the factors before applying for a loan like the service quality of the lender, maximum eligibility, and rate of interest. Did you know that the home loan interest rates depend on the SLR? Higher SLR means high rates of interest on the home loan. Keep a plan ready for how you are going to pay the EMI, and how will you manage the expenses. Keeping these factors in mind will make the process of the home loan application easy and increase your credibility as a borrower. So, do not rush into a home loan but instead make an informed decision. Talk to people who have already taken home loans and consult 2-3 banks or housing finance companies and then decide accordingly.