Buying a house in India is one of the most significant financial decision that one can make. For many individuals, owning a new home is a dream come true. People save money their entire lives in order to buy the house of their dreams. For many people, buying their first house symbolizes financial freedom and serves as the basis for future objectives.
However, due to India’s high real estate prices, many people have to take financial support in order to purchase their ideal home. Fortunately, in India there are wide range of financing choices available which help an individual to think about purchasing a house. Choosing the option of a home loan to buy your dream home is a great choice as saving on the total cost of the home can take longer. A house loan allows an individual to fulfill all their dreams and desires without sacrificing other objectives. Well, getting a home loan is not easy, especially for the middle class section. For an individual taking out a home loan is easier said than done. Well, it may seem like all banks all willing to help or ready to lend you a loan very easily but obtaining a loan approved from a bank can be a time-consuming process and a daunting task. Before applying for a home loan, there are several factors or aspects to consider in order to make the application process smoother, simplify the loan payments, and avoid unpleasant surprises later on.
Choosing an ideal property is crucial, but so is finding the perfect home loan. The home loan you pick will be a long-term commitment until you can return the total loan amount. Here are 5 important some things you should know before applying for a home loan:
1. CRITERIA FOR ELIGIBILITY
The first step is to ensure that you are eligible for a home loan or not. Checking the lender-specific qualifying requirements is a critical thing to consider when applying for a house loan. At first, lenders will initially examine your eligibility for a home loan based on your income and repayment ability. Financial organisations use a variety of elements when determining loan repayment. One of them is age. Also, if the individual applying for the loan has a big number of dependents in their family, his prospects of securing the loan goes down further because some banks are serious about the number of dependent’s a person have in his/her family. A spouse’s salary, employment/job stability, and certification are all important considerations. Furthermore, having another loan pending reduces eligibility even more.
In addition to an individual’s financial strength, his/her profile influences how much the bank is willing to lend. For example, person with a stable source of income find it simpler to secure a loan than self-employed people with fluctuating incomes. Loans typically last no more than retirement age, unless you have a younger co-applicant. The co-applicant must not be a minor and must not be over a specified age. Banks have policies in place to reduce ownership disputes. Before approving the loan, the appraised worth of the property is also reviewed. Banks often restrict loan amounts at 70-80% of the property’s value.
Calculating EMI is the easiest technique to determine loan eligibility. Banks limit the instalment at 40-50% of the borrower’s salary.
2. TYPES OF HOME LOANS
Based on the interest rate, there are basically two types of house loans:
1. Fixed Rate Loan– A fixed rate loan, as the name implies, is one in which the interest rate does not fluctuate in response to market movements. This rate is typically 1-2.5 percentage points higher than the variable rate house loan. The interest rate in fixed rate loan is fixed and remains constant for a period of 10-15 years or for the whole loan term. Believing that a fixed rate may appear more appealing in a high interest environment, experts advise against it for a variety of reasons. First, the fixed nature of the interest rate is a disadvantage in a long-term loan such as a home loan, where certain interest rates will go down for a while, even if they are currently high. In such instance, even if interest rates fall, the borrower must always return the same amount.
2. Floating Rate Loans– The interest rate in Floating type of loan is related to the lender’s benchmark rate. When the benchmark rate changes, the interest rate adjusts proportionally. In a floating type of loan, interest rates fluctuates based on market conditions. Because it is subject to current lending rates, a floating interest rate, also known as a variable interest rate, may vary during the loan term. Your EMIs will alter when the interest rate changes. With the current trend of lower home loan interest rates, it is best to go with a variable interest rate.
3. INTEREST RATE
If we contact for home loan in a bank the interest rate provided will be tied to an external benchmark. The RBI Repo rate is the rate to which most banks’ lending rates are tied. When the RBI repo rate changes, the borrower’s house loan interest rate may vary with a three-month lag, especially if you have a variable home loan interest rate. As a borrower, we can a request the bank’s external benchmark rate, also known as the Repo linked lending rate (RLLR), and then determine how much the home loan interest rate relevant to you is. The RLLR might be the bank’s floor rate, over which the rate may vary for specific borrowers depending on loan size, term, and so on.
4. THE EFFECT OF CREDIT SCORE
Credit profile of an individual is very crucial because it allows lenders to offer you a reduced interest rate. Lenders prefer a credit score of 750 or above, and you may save a lot of money by getting a house loan at a cheap interest rate. Many lenders have begun to offer cheaper interest rates to consumers depending on their credit score. If your credit score is less than 750, you can take the required actions to improve it before approaching lenders for loans.
The documented verification of your income will differ based on whether you are a salaried employee, a professional, or a company owner. For salaried borrowers, lenders will want Form 16 or ITR for the last three years, as well as bank statements, among other things. Depending on an individual’s source of income, a person can be requested for the last three years’ income tax returns (personal and business), the last three years’ profit/loss and balance sheet, as well as the last six months’ bank statements and even GST reports.
After all of this, if a person is aware about all the essentials of home loan, now it’s his time to act and finish the loan by approaching a few lenders. Make the proper decision to keep your interest rates low.
During the process of availing a home loan, a person need to KYC papers and credit/income records with your house loan application to be approved, you must also submit the property documents in original to be disbursed.
So, if you’re looking for a suitable property, keep these five points in mind when you are applying for a home loan.
With real estate prices rising and most important the high interest rate regime in the market, buying a home in all of these situations is becoming a big decision for many people in our Country. Therefore, choosing the right home loan for buying a home in the market becomes essential to avoid unpleasant surprises later. Do not hurry to get a home loan based on just one aspect. Analyze all of the variables thoroughly. Consult with at least three or four banks or housing financing businesses before making a decision. With all of the above factors in mind, acquiring a home loan becomes much easier.
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