Nowadays, buying homes is no longer an impossible feat. Financial and Non-financial institutions readily provide home loans at attractive rates to prospective buyers. However, there are certain aspects that need to be taken into account before applying for a home loan.
Know your Loan Eligibility:
Typically, Banks can sanction up to 80% of the property value as loan amount subject to your past history in paying credit card dues, home loans, if any, and your current income. Another point to note here; while calculating your net income, banks usually exclude heads like Leave Travel Allowance (LTA) and medical allowances as employees are expected to use them for personal consumption. Only that part of your income will be considered which can actually be utilized to pay off the loan amount.
Know your CIBIL Score:
Your home loan eligibility also depends on your credit score. The Credit Information Bureau India Limited (CIBIL) scores every individual on a scale of 300 to 900 depending on his/her past credit history, management of accounts, management of previous loans, if any, history of any bounced checks, etc. Usually a score of above 700 is considered acceptable for sanctioning of home loans. All financial and non-financial institutions make it a point to check the CIBIL score before sanctioning a loan.
Types of Interest Rates:
There are two types of interest rates – fixed and floating. It is important to understand the difference between the two as these will have a profound impact on your monthly EMI amount. Fixed interest rates are immune to changes in the market conditions and will stay stable throughout the loan tenure, and hence are advisable if interest rates are likely to increase. The floating interest rates change in response to fluctuations in the markets. Therefore, it would be sensible to choose this option if interest rates are predicted to fall.
The calculation of monthly EMI on home loans is based on the loan amount, the interest rate on loans and the tenure. There is an inverse relationship between the EMI and the loan tenure. That is to say, if the loan tenure is long, then the EMI amount will be less on a monthly basis and vice versa. However, it is also to be noted that there is a direct relationship between the tenure of the loan and its interest rates. So, if you opt for a longer tenure, then the amount you pay as interest will be much higher than if you opt for a short tenure period. Hence, careful analysis of different permutations and combinations are needed before you make a decision.
Choose the Lender With Care:
Do careful research before settling on a lender. Look for things such as terms and conditions of offering a loan, the interest rates, loan repayment options, customer service, charges for termination, etc., and go for the one that offers you the best package.
Read the Agreement Documents with Care:
Make sure you read the loan contract carefully with special attention to the small print before signing it off.
These tips can go a long way in simplifying the loan approval process and bringing you a step closer to possessing your dream home.