All you need to know before taking a home loan

Even home loan interest rates are at a multi-year low and home prices have remained largely stagnant over the last few years. This is a perfect time for those looking to buy their very own home to make the most of this current opportunity. Investing in real estate is also easy with the low-interest rate environment since investors can finance the property through a mix of own funds and home loan and many investors are already buying properties through financing across major cities in the country.

A house is a major purchase, and most of us will need some financial assistance – in the form of a home loan – to buy the property. If you would like to own a house, a housing loan gives you the opportunity to do so without the need to strain your finances. It remains, however, an important financial step to take when taking out a mortgage. When applying for a mortgage, prospective borrowers must be vigilant because it’s a long-term commitment, which will constitute a sizeable part of their disposable income in years to come.

Nevertheless, whether you are taking a home loan for personal use or as an investor, there are a few things to remember before approaching a lender. It is possible to obtain a home loan through a bank or a non-banking finance company (NBFC).

The first requirement is eligibility The amount of home loan you will be able to afford will depend on many factors, including your income, age, credit score, tenure of loan etc.The benefit of this is to enhance the home loan eligibility to a large extent. The lender will provide you with a loan whose EMI you can service using around 50 percent of your incoming home pay. By extending the period of the loan, you can also increase your eligibility since the EMI is reduced.

For borrowers, online eligibility calculators are available, or they can ask their lenders to provide the calculation based on your individual requirement. Before making a final decision, it is best to approach at least 3-5 lenders in order to estimate the optimal home loan amount.

The interest rate offered by a bank will be tied to an external benchmark. The RBI repo rate is used by most banks as a basis for determining the lending rate. As RBI repo rates change, borrowers may see their home loan interest rates change as well, often with a time lag of three months, especially if you have a flexible home loan interest rate.

Ask your bank for the repo linked lending rate (RLLR), which is the bank’s external benchmark rate, and then see how much is the home loan the interest rate applicable to you. The RLLR may be the floor rate for the banks, above which the rate may differ for individual borrowers depending on the amount of loan, tenure etc.

The lending rate of housing finance companies or non-banking financial companies is primarily determined by their cost of funds, and is still indirectly impacted by the RBI’s repo rate movements. Compare home loan interest rates from lenders with lower RLLRs to see which loan fits best for you.

It is your Credit Profile that allows lenders to offer you a lower interest rate. Credit scores above 750 are preferred by lenders so you can save a lot of money by availing home loan at a competitive rate of interest rate. A lot of lenders now offer lower interest rates to borrowers with better credit scores. You may rectify a credit score that is under the magic figure of 750 by improving it and then approach lenders for loans.

The majority of lenders will lend 80 to 90 percent of the price of your home. It’s your responsibility to arrange the remaining balance as the down payment amount. Choose a icici home loan amount with a low down payment and a lower interest rate to keep the overall loan amount and interest rates ridden lower. If this is not possible at the beginning, consider a higher loan amount and plan to repay a significant chunk of the debt in the initial period of the loan tenure. As a result, the home loan interest rate will be low as well.

The document list Documentary evidence about your income will differ depending on whether you are a salaried employee, a professional, or a businessman. Salary borrowers will need to furnish lenders with Form 16 or ITRs from the last three years, bank statements, etc.

Once you know the essentials of a home loan, it’s time to get started by approaching a few lenders. Maintain a low interest rate and make the right decision. By making a few percentage points of difference, you can save several lakhs of rupees and have a home you can call your own.

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