One of the biggest financial decisions one makes in their life is purchasing a house. Those who want to own one, opt for a home loan. Availing one is simple nowadays, either online or offline. However, many are still unaware of the formalities involved in getting the credit. The first-timers should know about the basic elements such as interest rates, credit score, the hidden charges, documentation process, and more.
Here are some basic things to consider before you apply for home loan:
Credit score: It is the most vital factor which all lenders consider before offering the loan to the customers. Any applicant who is applying for housing finance should maintain a decent score. The score range is between 300 to 900. If your score is closer to 900, you not only grab an excellent deal but also receive affordable interest rates. Maintaining a decent score is not challenging. Timely payments of credit card bills and existing EMIs is essential.
Interest rates: You must conduct a window shopping before zeroing down on any scheme. Compare and opt for the one who offers the lowest interest rate. Before that, understand the different types of rates the lenders are offering. There are two kinds – floating and fixed interest rates. Under fixed one, the rates do not vary over the house loan duration. Under floating rates, they change over time.
Tenure: It is crucial to decide the term before getting the credit. You can use the EMI calculator to check on the same. Lenders prefer those applicants who opt for shorter repayment tenure. Short period decreases the interest burden on your EMIs. Although the monthly instalments are high initially, eventually it lowers the total loan cost.
EMIs: It is the repayment that a borrower makes towards the home loan. Again, EMI depends on you. The more the down payment you make, the lesser the stress of the EMI. Make sure the EMI does not exceed 40 per cent of income. Calculate them using the EMI calculator that every lender has at our perusal on their portal. The parameters included in EMI are interest rates, tenure, and the principal amount.
Documents: The best part about this credit is the documents are minimal. ID proofs, address proofs, income proofs, and property papers should be accurate. Your half of the task gets done if the materials are in place.
Down payment: Generally, lenders offer 80 per cent of the property value while granting the loan. You need to pay the balance. If you have the surplus amount available, direct it towards your down payment. It saves your interest payment in the future.
Hidden charges: Read your agreement between the lender and you carefully. Check for the expenses such as application, processing fees, etc. It could increase your total housing finance. In case of any query, discuss them with your lender or financial institute.
Prepayment and foreclosure norms: If you have opted for a floating interest rate, you do not get charged for prepayment. Hence, you can make a partial payment whenever you have surplus cash available. Foreclosure, on the other hand, is where you repay the outstanding amount before the house loan tenure ends. The sooner you repay, the lower the interest you pay. Some lenders levy foreclosure charges.
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