Everybody dreams of owning a house one day. For a lot of first-time home buyers, getting a home loan is the only way to make their aspirations of home ownership come alive. Whether you are looking to buy a house as an investment or to live in, home loans are a great way to finance it. Taking a home loan is a commitment that will last for years, hence it is important that you choose the right home loan.
In case you are planning to get a home loan, there are a few things you have to be aware of such as interest rate, documentation, credit score, etc.
Here are some things that you have to consider before getting a home loan:
There are different types of home loan that you can get, namely - fixed rate loan, floating/adjustable rate loan and combination loan. With easy accessibility of information on the internet, research about the home loan options that are available. Your research should include important information such as repayment tenure, interest rate, down payment, etc.
It is important to know the eligibility criteria of the home loan. First and foremost, you have to find out if you are eligible for the home loan you are applying for. The lenders will assess your eligibility on the basis of your age, qualification, credit score, repayment capacity, income, etc. Eligibility influences the loan amount and the home loan interest rates in India.
It is recommended that you get your loan pre-approved before you select your house. Pre-approvals help you with setting your budget and makes your search for a house more focused. They can also help you negotiate and close your deal faster. There is also the option to ask your lender if there are any good properties available in your preferred location. There are certain projects that are approved by the home loan lender that relaxes not only the documentation requirements but also provides assurance about the quality of these projects.
There are plenty of loan options available in the market but it is important to compare the interest rates of various lenders. Interest rates play a huge role in determining the EMI that you would have to pay. For example: a ₹10 Lakhs home loan EMI will be more affordable if paid off in 5 years rather than in a 10 year tenure. There are two types of interest rates- fixed and floating. In fixed interest home loans, the EMIs do not change over the home loan tenure. On the other hand, for floating interest home loans, the interest rate varies depending on MCLR. You should always opt for floating rate over fixed rate as your monthly instalments will be higher if you choose fixed interest rate. Fixed interest rate home loans come with a foreclosure penalty and a fixed liability whereas the floating interest rate changes from time to time and will help you save money on interest.
Lenders will offer home loans with various repayment tenures. EMIs and repayment period goes hand in hand. Lenders usually prefer applicants with a shorter repayment tenure. While choosing a longer tenure might result in a smaller instalment amount, it results in an overall high interest rate. Therefore, it is recommended to choose a shorter term loan if you are confident about your repayment ability. Lenders also offer attractive interest rates for candidates who choose a shorter repayment term.
Credit score is one of the most critical factors upon which lenders will decide whether or not to provide the loan. Therefore, in case you are planning to get a home loan, it is important to maintain a good CIBIL score. A CIBIL score of 750+ is considered to be a good score. Maintaining a good credit history is not that hard and can be maintained by making timely payments of existing loans and credit cards.
Your lender might ask to submit various documents when you apply for a home loan. These include KYC documents like driving licence, PAN card, Aadhar card, etc, income documents along with the property documents. Your original property documents like agreement to sell, property deed, etc will be mortgaged with your lender as a collateral. Also, make sure to read the fine print, terms and conditions carefully before you sign the home loan documents.
There will be additional costs associated with your home loan other than just the interest rate like processing fee, prepayment penalty, administrative charges, etc. Ideally, the home loan that you opt for should have zero prepayment penalty if you are getting a floating/adjustable interest rate home loan. Make sure that there are no hidden charges. According to regulations, lenders have to be transparent and disclose information about charges on their respective websites.
It is important to buy an insurance cover when you get a home loan as this will prevent you from being liable for the due loan amount in case something unfortunate/unexpected happens to you. As a matter of fact, a lot of lenders will request you purchase an insurance cover.
Foreclosing the home loan before the stipulated time will save you a lot of money. The sooner you pay off your home loan, the higher your CIBIL score will be. Lenders will usually charge a foreclosure penalty in case you pay the home loan before the repayment tenure. With an adjustable/floating interest rate, the lender will not charge any foreclosure charges.
Purchasing a house is a huge step and a home loan is a great way of fulfilling your dreams. By keeping the points mentioned above in mind, you can get a home loan in an easier and hassle-free manner.