Home loan is not just about taking lump sum amount of money and repaying it in defined tenure, but it’s also about doing in-depth research and preparation before availing it. Taking a home loan is considered to be one of the most important financial decisions for an individual. So, applicant should be highly convinced and prepared before choosing from the available home loan options. In the present financial scenario, home loan is majorly availed by first time home buyers and to get the best available loan option, they need to be well aware of certain crucial aspects before applying. So, let’s understand how your decision of taking home loan could be helpful in making your financial future, even more secure.
Below mentioned are the important factors to be considered before applying for a home loan:
1) Rate of Interest: Fixed/Floating Rates
There are two types of rate of interest offered by banks, NBFCs and non-government institutions which are termed as Fixed and Floating rate of interest. Fixed rate of interest is when the interest rate remains the same from the time the loan was sanctioned and it does not change even if there are any fluctuations in the financial market. Whereas, floating rate of interest signifies that the interest rate at which the loan was sanctioned will not be locked and it will keep on changing as per the market conditions. However, in today’s financial market most of the borrowers prefer floating rate of interest as it is more beneficial, as compared to the fixed rate of interest.
2) Interest Rate Negotiation
Every lender offers different rate of interest, as per their policies and RBI guidelines. It’s always recommended to check and compare before finalising on interest rate offered by any lender. Low interest rate does not always mean that the borrower will be saving from it, but he/she should also check and consider the hidden charges attached with the same, such as processing fees, pre-payment charges, fore closure charges, Loan-to-Value (LTV) ratio, penal charges, etc. Interest rate might be low or high but these hidden charges make a lot of impact on the total savings of borrower(s).
3) Maintaining a good CIBIL score
Good credit score or CIBIL score is always appreciated by almost every financial institution. It’s mandatory to maintain good credit score and history before applying for any loan. CIBIL score above 750 and close to 900 is considered good enough by the lenders and it becomes easy for them to sanction loan at lesser interest rates with added benefits. According to TransUnion CIBIL “79% of loans or credit cards are approved for individuals with a CIBIL Score greater than 750”. Maintaining a decent CIBIL score is a good practice as it makes easier to avail loans at lower interest rates and enjoy credit with added benefits.
4) Home Loan Eligibility Criteria
Checking for your eligibility is the most important criteria before taking a home loan. Applicant(s) can calculate the home loan eligibility by simply submitting few desired loan details in the eligibility calculator and can also check the loan EMIs (Equated Monthly Installments) from the EMI calculator. Financial institutions generally limit the installments at 40%-50% of the applicant’s salary which is basic salary added with dearness allowance. Home loan eligibility is reduced even further, if the applicant is availing other loan(s), as well.
5) Employment Stability
Lenders generally sanction loan to the applicant with stable employment and regular source of income. Applicants may face difficulty in loan sanction with unstable employment. Applicants with unstable job or employment are considered as high-risk borrowers by the lenders and the desired loan may get declined. Therefore, applicants looking forward to have a home loan should look for stable employment first. Banks are only concerned that the borrower is able to repay the loan amount or not, if bank is shown the balanced and stable employment history, it makes it easier for them to sanction home loan.
6) Affordability
Affordability is considered to be as important as finalizing on the home loan interest rate. Checking the affordability is one of the key components of your home loan research. Affordability can also mean setting a budget and budgeting is highly important before applying for a loan. Applicants also have other monthly expenses to make like rent, child’s education, car payments, insurances, household expenses, etc. So, the applicant needs to make sure that the availed home loan does not impact the other expenses which are required to meet every month. To make it convenient, the borrower can simply check on his/her budget and calculate the EMI from the EMI calculator, considering other important expenses.
7) Changing Lender or Balance transferring
Borrowers have the option of changing their current lender with another lender, if he/she is finding it beneficial to switch from one to another. Majorly the shift is made because of the low interest rate offered by another lender. This is the situation where choosing the floating rate of interest becomes beneficial. However, to opt for the new lender or to balance transfer your home loan, there is a pre-payment penalty levied. The additional cost incurred by the borrower is the processing fee which is paid to the new lender. Balance transfer of the current home loan should be performed only if there is significant change or drop in the interest rate, not when the change is nominal or else the additional cost incurred by the borrower will compensate for the interest rate change.
8) Loan Tenure
Taking a home loan is maintaining a long-term association with the respective bank or NBFC. Thus, it is equally important to choose the right loan tenure which is convenient and hassle free to repay in the course of decided tenure. Usually the loan term ranges between 15-30 years and it’s as per your affordability to decide on the best suited tenure in which no other expenses are affected. Interest rates tend to change as per the chosen loan timeline.
9) Number of Dependents
Banks and NBFCs (Non-Banking Financial Institutions) are very particular about the number of dependents of the borrower(s). More the number of dependents less becomes the possibility of getting the loan sanctioned with lesser interest rates. Simply because the lenders make an assumption that if there are more number of dependents, then the loan repayment capacity of the borrower decreases, as his/her monthly salary will be allocated or spent on dependents in large percentage, resulting in delayed or missed EMIs. Documentation is also one of the important part in home loan processing.
With the variety of lending and credit options in today’s financial market, it has become relatively easy and convenient to avail loan with competitive interest rate, thus resulting in fulfilling your desire of buying your own home.
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