Taking a home loan? Here is what you should keep in mind

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Home Loan

   With the prices of houses skyrocketing, it’s common to seek home loan from banks and financial institutions. Due to the falling interest rates, home loans are now available cheaper. The process of online applications has made approvals and disbursals fast. However, you get an approval for a home loan only after banks go through your credit history and check your borrowing potential.

If you are planning to take a home loan, here are a few things you must keep in mind:

Legality of the property

   Before you lay your hands on a property, make sure the builder is reputed and all papers of the property are in place. With RERA implemented across regions, you can check the builder’s profile online on the RERA website. Banks often refuse to give loans if the builder is not in its approval list.

Down payment

   You must have a budget chalked out before you start looking for a house. Calculate the down payment you would have to pay. It is usually about 20% of the value of the property. You can choose to pay more from your pocket if you can afford.

   You must save up for the down payment. In case, there is a deficit, you have take soft loan from your employer, family and friends. Try to minimise the borrowing amount to reduce the interest outgo.

Check your eligibility criteria

   Home loan lenders have a list of eligibility criterion and only if you happen to meet those, you are considered a potential borrower. Banks typically look at your credit history to understand your repayment habits and prefer a credit score of 750 for lending out. Your age, income, occupation, collateral security, margin requirements, etc are also important factors when it comes to determining the interest on the loan.

Check the fees and charges associated with the loan

   Home loans come with associated fees and charges. Processing fee is the most common fee payable at the time of application. Check if the fee is reasonable when you choose a lender.

Check the interest rate

   The interest rate on loans is a determining factor in deciding where to take your loan from. Lower the rate, lower would be the EMI outgo. Home loans are offered at fixed interest rates and floating interest rates. While fixed interest rates remain the same through the loan duration, floating rates change with bank’s changing lending practices. Weigh your options before you zero in on a loan.

Check your affordability of paying EMIs

   Customers often take up a lot of burden when it comes to paying EMI thinking that it would get easier with time, as their income would increase eventually. Consider the possibilities of not getting a raise soon or other unforeseen circumstances. You should look at a loan to income ratio of 20% to 30%. You can make changes in the tenure to reduce or increase the EMI amount depending on your affordability.

Buy an insurance plan to cover the loan amount

   Once you have taken a loan, the outstanding balance liability falls on your family’s shoulders in your absence. You can avoid this financial burden on your family by buying a mortgage redemption insurance cover while taking home loan. It is a decreasing term plan where the cover amount decreases as you repay the loan.

Shop around

   There are hundreds of banks and financial institutions which offer home loans at attractive interest rates. Before buying a home loan, go online and compare the interest rates and charge structure of all available home loans. Comparing would let you choose a loan which not only has the most reasonable interest rate but also limited fees and charges.

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