Property is an asset that can become a sanctuary for you and your family and it can also give you various financial benefits. The housing finance sector provides many loan opportunities that are affordable and beneficial. There are many variables one considers when purchasing a home. It is important to keep in mind all the variables when going for a Home Loan too, that will help ease the loan application process and simplify repayment of your loan.
1. Research your Loan Options
Easy access to information on the internet has empowered even the most marginalised to make an informed choice. This access to information has empowered each and every one with a plethora of options to choose from and even customize their requirements. Use the internet as a tool to research companies, both banks and non-banking finance companies that offer home loans. Most companies have EMI and affordability calculators on their website. Use these to calculate key parameters that formulate a loan, namely, down payment, EMIs, and repayment tenure. Home loan amounts are also usually larger than other loans, so make sure you explore all the details and uncover every detail that comes along before, during, and after the home loan application.
2. Calculate Affordability
While there are plenty of options in home loans for you to choose from, affordability is a large contributing factor that you need to consider before applying. Once you calculate the fixed monthly EMIs, match them with your expenses and savings that you want to aim for every month. Calculate your affordability in such a way that it helps you maintain a steady balance to meet any unforeseen emergency.
3. Maintain a good CIBIL Score
One of the first criteria for an institution to offer you a home loan is your credit score, popularly also known as CIBIL score. Typically, companies factor in policies for offering loans basis profile of customer, foremost among them being the CIBIL score. This score a representative of your ability to repay a loan. Higher the score, higher is your ability to repay and higher is your propensity to get approved for a loan. A CIBIL score of more than 750, makes one eligible to extract even better interest rates on the home loan, besides higher chances of quicker loan processing and disbursal. Read our blog here to know how to maintain a healthy credit score.
4. Make a Choice
Once you have calculated your affordability factor and made sure that you have maintained a good credit score, you can choose a home loan product that matches your expectations. Start budgeting your expenses and pay off any outstanding debts, including credit card bills. Following these hygiene factors will help you maintain a healthy balance and timely payment of EMIs to maintain credibility and also gain full ownership of your home in due course of time. The size of your EMI will also depend on the sum of down payment. Higher the down payment, lesser will be the stress of the outstanding amount being converted into EMIs. As a general rule, it is best to ensure that your chosen EMI amount does not exceed 40% of your total monthly income. Another important factor that will help you in making a choice, is the repayment tenure – total number of years that you will take to pay off the loan once divided into down payment and EMIs. While opting for a longer tenure might result in smaller EMI amounts, it adversely increases the interest rate, causing you to pay back double or triple of the loan amount due to high interest. If you have a stable and recurrently increasing income, and plan a strict budget, it is advisable to choose a short repayment tenure with higher EMIs. Interest rates for such tenures are considerably lower to encourage faster repayment.
5. Keep an eye on the Policies & Charges
Keeping a watch on the changing regulatory norms will be a good idea. Any change in regulatory norms that could be advantageous to you, can be availed of. For example, a simple foreclosing of your home loan by repaying the outstanding amount before the committed time, brings you lot of savings. Apart from the EMIs, there might be other administrative, processing or service charges that housing finance companies levy upon borrowers at the time of loan application. Make sure that you discuss these with the lender prior to loan application. Check whether they are one-time charges, or monthly; if they are monthly charges, then they need to be taken into consideration along with your EMIs, and your monthly finances planned accordingly. Study the loan documentation carefully before making the commitment formal.