Things to Consider Before Taking a Home Loan

No matter at what stage of your career you’re planning to buy a house, it is one of the biggest financial decisions you will ever make. It is a considerably large investment, and most of us need financial assistance, in the form of a home loan, to make the purchase. A housing loan comes as an extremely lucrative and easy option that allows you to fulfill your ambition of owning a home without putting your savings at risk. 

Whether you’re looking to buy a property for investment or to call it your ‘new home’, there are several loan options available for you. Even with the plethora of financial institutions eager to extend a loan to you, it is not as easy as it looks. A single miscalculation can cost you both money and peace for the next 15-20 years. 

Below is a detailed guide on what to look for when shopping for a home loan. 

1. The types of home loans available

Before narrowing down on one option, make an effort to find out about the types of loans offered. The floating-rate loan & fixed-rate loan are the two basic types of house loans offered in the market. A fixed-rate loan as the name states, is given on a fixed rate of interest that stays constant throughout the tenure of the loan. A floating interest rate on the other hand, keeps fluctuating. Find out about the various lenders available in the market that offer such loans and carefully understand their offerings before finalizing on one. 

2. The repayment tenure

While time might sound like a small thing, it plays a crucial role in understanding the final EMI amount. A longer tenure equals smaller EMI making it easier on the pocket, while on the other hand, a shorter tenure will mean higher EMIs and could prove to be unaffordable. Make the right choice based on your financial capability so that you don’t regret it later. 

3. The interest rate

The rate of interest is factored into the principal amount and is calculated on a reducing balance basis, or in other words, the principal amount comes down with every EMI you pay, which is why it is important to check the interest rates several lenders offer and choose the one which is the lowest. Another key piece of information to keep in mind is the type of interest being charged: fixed and floating, and choose accordingly.

4. Your credit score and eligibility criteria

One of the first things you need to do after you’ve decided you want a loan is to check your credit score and see if you meet the basic eligibility criteria. A CIBIL score of more than 750 can easily fetch you good interest rates on your home loan, and it’s not too hard to maintain. You can easily start building your credit score in the months leading to your loan through timely payment of your existing loans or credit card bills without fail. Having a good CIBIL score comes with significant advantages like faster loan processing and disbursal. Some other criteria include your age, repayment capacity which are sometimes determined by the number of dependents you have, your existing liabilities, your source of income, etc.

5. Processing fees

Some additional charges need to be paid when you’re getting a home loan. Apart from the EMI, you will be paying several other administrative and processing service charges that need to be paid when getting a home loan. Though the Reserve Bank of India doesn’t allow banks and other financial institutions to levy heavy charges on floating-rate home loans, they can however be imposed on fixed-rate home loans. It is important to discuss this with your lending institution regarding the details of your charges, i.e. whether they are yearly, bi-yearly or monthly. Since a home loan is often of longer tenure, minimizing these extra charges could go a long way. 

6. Getting the documents ready

The processing of a loan requires multiple and involves multiple documents. Some of the must-have documents for a home loan include:

1. KYC documents: These are primarily your identity and address proof. You can submit any government-approved IDs like Adhar card, Voted ID card, passport, etc.
2. Credit/Income Documents: These documents help the lender or your financial institution assess your loan eligibility. If you’re salaried or employed you can go ahead and submit your salary slip for the last 3 months, or if you are self employed, you can submit income tax returns along with computation of income of the last 3 years.
3. Property Documents: The title deeds, agreement to sell are some of the property documents that are mandatory for your home loan to be approved. Since you need to submit these documents in original for your home loan to be approved and are mortgaged with the financier, you need to have trust in the institution you’re taking it from. You need to also consider and almost ensure that your financier allows safe storage, as well as easy retrieval of the documents so that it’s easy to take them out when you need them.
   

Before signing the agreement, it is advised to thoroughly read and understand the terms in the document so that you can make a fully informed decision. 

FAQs:

What should be kept in mind while getting a home loan?

• Try maintaining a good credit history right from the beginning
• Do not make a rushed decision. Compare the interest rates in the market and choose the one that’s the lowest
• Assess all costs involved around your loan so that you know exactly what you’re stepping into
• Do not take the loan for an amount higher or lower than needed. Assess your needs and choose the right loan amount. 
• Evaluate your ability to repay the loan and choose the EMI plan accordingly

Should you take out a home loan even if you have enough money to do it without a loan?

Financial experts suggest that taking a home loan is always a better idea rather than liquidating all your savings in one go. Instead of spending it all at a go, you can opt for higher EMI’s so that it ultimately brings down the amount you would have originally paid. 

Should you go for a larger or a smaller downpayment?

Though an offer with a higher down payment might help you with a stronger offer and give you some added benefits, you might have to liquidate a lot of your savings to do so. Though lenders usually want you to give 20% of the amount as a down payment, it is entirely based on your choice and affordability.  

What is the minimum tenure for a home loan?

Generally in India, the minimum tenure is 2 years and goes up to 30 years. It’s your choice if you want to pay it off at the earliest in two huge EMIs or take your time to pay it back. 

How long does it take for a home loan to be approved?

It can take anywhere between days to several months for a home loan to be approved based on your lender. So start the process keeping in mind this timeline so that you don’t need to push back your dreams of owning your dream house.