8 Important Measures To Take Care Before Applying For A Home Loan

We understand the importance of owning a home in one’s life and the challenges associated in buying a home especially which are relevant to the finances. Applying for Home Loan is one of them.

Considering the same, we bring to you the 8 important measures that a buyer should consider while applying for a Home Loan.

1. Legality of the property

Before zeroing in on your dream property, make sure to check credentials of the builder. Check about the reputation, delivery track record, talk to existing residents if possible. As next step, check if all property documentation is in place. With RERA implemented across regions, you can check the builder's profile online on RERA website too. Banks often refuse to provide loans for builder’s projects which are not RERA registered is not in their approval list.

2. Optimum Down payment

One must have a budget chalked out before you start looking for a house. Calculate the down payment to be made which is usually about 20% of the property value. However, you can choose to always pay more as down payment basis your budget and availability of funds.

A good tip is to secure your down payment in a manner that it can be liquidated/or available the moment you decide to buy your choice of home. In case of a deficit, you may have to take a soft loan from your employer, family & friends to bridge the difference. However, try to minimize the borrowing amount to reduce the interest outgo.

3. 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 check your credit history to gauge your repayment pattern and prefer a credit score of 750 for lending a loan. Age, income, occupation, collateral security, margin requirements, etc. are also important factors while determining the interest on loan.

Eligibility norms for the borrower, based on the Monthly CTC:

Banks offers home loans with tenures ranging from 05 – 30 years. CIBIL has become a very critical tool and all banks clearly accept its mandate. CIBIL score clearly shows the ability of a potential borrower to repay his/her debt in EMI’s.

4. Check associated fee and charges with the loan

Home loans have associated fee and charges. Processing fee is the most common fee payable at the time of application. It is advisable to choose a lender with reasonable fee.

5. Opt for the best interest rate

The interest rate on loan is a crucial factor in deciding the financial institution to take loan from. Lower the rate, lower would be the EMI outgo. Home loans are offered at either fixed or floating interest rates. While fixed interest rates remain the same throughout the loan tenure, floating rates change with bank's changing lending practices. Weigh your options well before deciding on the loan option.

HDFC LTD, ICICI BANK, PNB Housing Finance, Indiabulls, Aditya Birla Housing Finance Ltd with all of them providing loans at 8.50% rate of interest. The interest rate charged by banks on a home loan is floating, unless specified.

6. Be smart while 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 possibility of not getting a substantial raise/ increment 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 funds availability in future.

Customers should definitely opt for a longer duration of home loan, if there is already an outstanding loan. Although banks provide loan facility up to 60 times of monthly gross salary, it’s up to the borrower to increase or decrease their loan tenure. As a thumb rule, home loans are normally terminated at an average age cycle of 10-12 years.

7. Insure your 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 loved ones by buying a mortgage redemption insurance cover while taking home loan. It is a decreasing term plan where the cover amount decreases as per repayment of loan.

This is often misunderstood by the borrower, and often taken as an incremental income for the mortgage company. It is a very important tool, wherein the mortgage company offers borrower an option for an insurance cover for the property. The insurance policy works as a term plan which is valid only during the loan tenure. In case of a mishap with the borrower, co-applicant and other family members are not liable to service the loan. Closure and settlement is done by the insurance company & the original property papers are handed over to applicant’s nominee.

8. Shop Around

There are numerous banks and financial institutions offering home loans at attractive interest rates. Before opting for a home loan, search online and compare the interest rates and charges structure of home loans. This would lead to customer choosing a loan which not only has the most reasonable interest rate but also minimum fees and charges.

Today almost all banks are offering similar rate of interest, with a variation of 10-15 basis points. The prevailing average interest rate is 8.50%. Processing fees is generally negotiable and settled at the time of initiating the loan.