Owning a house is one of the biggest aspirations that you and your family might have. Also, it is one of the biggest investments you will make financially and emotionally. Therefore, a home loan is the most viable option for an individual who doesn’t have sufficient funds to buy a property to construct a dream home. It is a common type of loan that people borrow from a financial or lending institution to achieve their personal goal of owning a home. With flexible loan repayment options and the freedom to choose loan tenure, a home loan is a simple solution to the cash shortage. However, there are some things that you should know before applying for a home loan.
1) Eligibility criteria:
The first and foremost thing to be done before you apply for a home loan is to check the eligibility criteria. Your age, income, credit score, job stability, nationality, etc., are certain factors that help financial institutions determine if you are eligible for a home loan. Now that the applicant’s income plays a major role in deciding the amount of the loan, you can also submit your spouse’s income proof and make them a co-applicant. Another way to enhance eligibility is to increase tenure, which helps bring the EMI down.
2) Types of home loans:
Before you apply for a housing loan, you should be aware of different types of home loans and choose the one that suits your needs. Home loans are usually classified into different categories based on the interest rate.
- Adjustable or floating rate loan: This is the type of home loan where the interest rate is linked to the lender’s benchmark rate. The interest rate is also changed whenever there is a change in the benchmark rate. Additionally, along with a change in the interest rate, EMIs also change.
- Fixed-rate loan: As the name suggests, in a fixed-rate loan, the rate of interest remains unchanged throughout the tenure of the loan. The interest rate is fixed at the time when a loan is approved.
- Hybrid or combination rate loan: This is the type of instant home loan where a combination of both floating and fixed interest rates is charged. Many lenders offer the home loan at a fixed interest rate for a specific period of loan tenure and then switch to a floating interest rate for the remaining period.
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3) Loan amount:
Almost every bank offers home loans ranging from 70% to 90% of the total cost of the applicant’s property. For instance, if your property is valued at Rs 60 lakh, a bank can grant you the Best home loan of Rs 54 lakh. And this is only the case when a bank provides a loan at 90% of the property’s value. To increase the home loan amount, you can include a co-applicant. Co-applicant can be your children, parent, or spouse whose income can be considered by the bank to increase your home loan amount.
4) Down payment:
As discussed above, most banking institutions lend 70% to 90% of the property value you want to purchase to build your home. The remaining balance, i.e., 10% to 30%, will be provided as a down payment from your finance sources. Ideally, getting the Cheapest home loan and arranging the maximum amount for a down payment is always better. Opting for a lower home loan amount will reduce your burden of paying interest and EMIs for a long.
5) Cost of the home loan:
The home loan cost is one of the most important considerations to consider when assessing if the loan is suitable for you. The home loan cost often includes interest payments, processing fees, administration charges, penalties for delay or pre-repayment, and more.
You should try to get a Low-interest home loan with flexible loan repayment tenure. In addition to this, make sure that your home loan does not charge you for pre-payment. You should bear in mind to check if a home loan includes any hidden charges. According to regulatory bodies, lending institutions must disclose all details about fees, interest, and other charges on their websites.
6) Home loan tenure:
The best home loan lenders can sanction the loan for a maximum tenure of 30 years per regulations. It is to be noted that the longer your home loan tenure, the lower your burden will be to pay EMIs. For instance, if you are getting a home loan of Rs 10 lakh with 20 years tenure at a 10.40% interest rate, then your EMI for 20 years will be Rs. 9,917. However, if you opt for longer repayment tenure, say 30 years, with the same loan amount and interest rate, your EMI will reduce to Rs. 9,073.
7) Documents:
Your lender will ask you for some documents when you Apply for a housing loan. These documents include KYC, credit or income, and property documents. KYC documents include your identity and address proof such as PAN, passport, Aadhaar card, etc. Credit or income proof documents vary for an employed and self-employed person. For example, an employed person must submit salary slips for the last three months, and a self-employed person should submit the balance sheet for the last three years. Property documents include title deed, property agreement, etc.
Conclusion:
With a home loan, you can borrow money from a financial institution to purchase a home. It is not just any home, but a home that you wish to purchase. Buying a property is one of the biggest investments you will make financially, and emotionally. A home loan is ideal for supporting this decision. The longer the loan and the lower the rate of interest, the better the deal is. Now as you know the important things to consider for a home loan, it’s time to research, choose the right lending institution, and get the required loan amount. Low-interest costs and longer loan repayment tenure are the two considerations that can help you save several thousand or lakhs of rupees.
