Plan for your home loan

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Home Loan

Are you planning to acquire your dream home this festival season?

   Here are some tips to help you get the finance in place comfortably.

 A common question asked by many prospective homebuyers is, ‘how do I plan for a housing loan?’ Is it important to plan for it at all?

   The answer is that it is very important to plan for your housing loan. It is a major decision almost as much as choosing the property itself.

  There are several aspects to it that need to be considered by a prospective homebuyer.

   These include the amount to be borrowed, most suitable lender, costs involved, tenure of the loan that suits you the best, type of home loan to be taken and so on.

CIBIL score

   Nowadays, a major factor evaluated while sanctioning a home loan is your credit score or the CIBIL score. Higher the score better are the chances of getting a home loan. Further, with a high score, you can also negotiate for favourable loan terms, including a lower interest rate.

  This is because the CIBIL score reflects the credit rating. It shows details such as how many defaults on loan or interest payments the applicant has made, how many loans the applicant has already availed and so on. This summarises the credit standing of the applicant.

  In order to improve this rating you should ensure that all your debt obligations loans, credit card outstanding etc are paid on time and there are no delays or defaults.

Choosing lender

   You need to negotiate with banks for a favourable rate of interest and loan terms. Before handing over the papers to a few selected banks, it is better to consult them informally and understand their loan terms and charges, including interest rates. This is because in case you approach a number of banks, all of them will check your CIBIL score. Too many such enquiries tend to impact your CIBIL score adversely.

   So, you need to first check the loan products that banks are offering, what their loan terms are, compare their processing charges, interest rates, how much of the cost of your property the will finance etc. Once you have short-listed 2-3 banks, you can give them copies of the property documents formally so that they can assess and advise you on your loan eligibility.

  As a loan sanction remains valid for 3-6 months, you can plan accordingly on the purchase of the property.

How much should you borrow?

   This is a very important aspect of buying a home. You need to assess your loan requirement realistically. With the amount you borrow you should be able to complete the property purchase process seamlessly. Also, you should be able to pay the EMIs comfortably, without any pressure on your regular income. Ideally, you need to consider your income along with the income of your spouse both present as well as expected income in the future.

   Banks usually fund 70-80 percent of the purchase price. The balance amount has to be generated from your own resources. So, you need to find out how much you have to generate on your own. This is called margin money.

Plan repayment

   You need to plan repayment of the home loan efficiently. Factor in the expected increases in your income such as salary hikes, rent, interest etc, and the likely expenditures over the years, liabilities to be paid off and so on. This will indicate how much you can spare towards meeting EMIs.

Borrowing costs

   Another important factor you should consider is the borrowing cost. This includes the total interest cost as well as other charges such as processing fee and so on.

   Now, the interest rates are based on the marginal cost of funds based lending rate (MCLR) of banks, plus a margin. You need to analyse the total interest cost involved. In case of some banks, the MCLR may be high, but they may be charging a lower margin. You need to evaluate these factors carefully. The margin remains fixed for the loan tenure. The MCLR is revised at regular intervals by banks.

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