Planning to buy your first home with a housing loan? Read this post for 7 expert tips that are dedicated to first-time home loan borrowers.
The RBI has reduced the repo rate to historic lows, making retail loans like home loans highly affordable. If you've been planning to purchase your first home, this could be an excellent time to turn your plan into a reality.
But, as a home loan is a big - ticket size loan that you will repay for 15-20 years or more, it is essential to understand the basics. If you are looking for a home loan to purchase your first real estate, here are 7 tips that can help-
After taking the loan, you'll be required to pay EMIs every month. So, before you start browsing through properties and lenders, it'd be wise to first thoroughly evaluate your finances.
Use an online home loan calculator to know the exact EMI on the amount you can comfortably afford.
Apart from EMI, you'll also need to factor in the down payment you'll need to make. Most lenders offer home loans of up to 70%-90% of the property value. Apart from this, also consider charges such as stamp duty, loan processing fee, etc.
The builders or developers who have a reputation for delaying or not completing projects are often blacklisted by the lenders. If you are planning to purchase a home in a project constructed by one such developer, it is possible that the lender might not approve your loan request even if you are eligible for the loan.
Moreover, it is also possible for a lender to not approve loan requests of borrowers who want to purchase a home at specific blacklisted locations. Choose a property carefully and ensure that the developer or area is not on the blacklist of the lender you've selected.
While the interest rate is definitely the most significant consideration when taking a home loan, there are other factors such as LTV (Loan-to-Value) ratio, eligibility requirements, repayment flexibility, documentation process, and customer service that should also be closely analysed while selecting the lender.
A lender that fulfils these criteria and offers home loans at a competitive rate can be an excellent choice. If you have ever taken a loan from a particular lender and repaid it on time, you can consider the same lender for your home loan. Many of the lenders are open to interest rate negotiations for past customers.
Under the "Housing for All" initiative, the Government offers home loans at subsidized interest rates to eligible candidates. If this is your first home, and none of your family members own a property in their name anywhere in the country, you might qualify for PMAY (Pradhan Mantri Awas Yojana) subsidy.
The subsidy is available for people belonging to EWS (Economically Weaker Section), LIG (Low Income Group), MIG I (Middle Income Group I), and MIG II (Middle Income Group II) categories. Note that not every lender in India is eligible for offering PMAY subsidies. If you are eligible for this subsidy, choose a lender approved under this scheme.
One of the most vital considerations for a lender will be your eligibility for the loan. Every financial institution has eligibility criteria based on which it approves and rejects loan applications. Factors like your income, credit score, existing loans, and age will be analysed by the lender before approving the loan.
If you are a salaried or self-employed professional with a steady source of income above Rs. 25,000 per month and a credit score of above 700, you should mostly be eligible for a home loan from most lenders. You can check your credit score by visiting the CIBIL website for free once every year.
If you have a working spouse, you can also consider taking a joint home loan. When you add a co-applicant to your loan application, the chances of approval increase as the responsibility of repaying the loan will be shared by two individuals with a steady source of income. Moreover, some lenders also offer home loans at a cheaper rate when one of the co-applicants is a woman.
Also, with a joint home loan, both the co-applicants are eligible to claim tax deductions. Loan repayment also becomes easier with two working individuals working towards clearing the loan as soon as possible.
If your loan application is approved, the lender will require you to sign various documents before the loan amount is finally disbursed. Ensure that you thoroughly read all the loan documents before signing. Confirm that the terms and conditions, especially the interest rate, EMI, and loan tenure, on the loan documents are exactly the same as discussed between you and the loan executive.
While most people avoid reading the home loan documents, it is a critical step to avoid any discrepancies in the future. In case if you are unable to understand something on the document, ensure that you clarify the same with your lender before signing. The more cautious you are, the more comfortable and satisfactory will be the entire process.
The journey between making the home purchase decision and finally making the purchase with the help of a home loan can be daunting. The assistance of a reliable lender can make this process stress-free and quick.
Choose a lender carefully and keep these tips in mind to fulfil your dream of being a homeowner.