Congratulations on your big move! Planning to buy a house is everyone’s biggest dream, and home loans come as a lifesaver as they help you buy a home of your choice with much ease and comfort. Today, there are several banks and financial institutions that offer real estate loans to home buyers at affordable rates of interest.
But ‘wanting’ to apply for home loans in India and ‘being ready’ for a home loan are two different things. Many times, property loan applications get rejected due to poor credit history or insufficient funds and/or income. Therefore, before applying for real estate investment loans, you must do a thorough self-analysis to ensure that you are fully prepared to buy a home and are home-loan-worthy.
Here is the list of 7 things that you must consider before jumping into the home loan bandwagon:
1. Check your Credit Score
A good credit report is a golden ticket to instant property loan approval. It demonstrates your credit history, responsibility, and worthiness. It can also greatly impact your mortgage rate – the higher the credit score, the lower the rate of interest.
Therefore, it is important to check your credit score and clean up your credit report to ensure that your property loan plea doesn’t get rejected. To improve your credit score:
- Put a check on your spending – keep them below 30% of your earnings.
- Consolidate your debt.
- Repay all your pending loans or transfer your long-standing credits to another bank that offers better installments and friendlier repayment terms.
Home loans in India have made it easy for buyers to buy the property of their choice. However, getting a property loan is not as easy as it seems to be. You need to carefully understand bank requirements and maintain a healthy credit history to be home-loan-worthy.
2. Review your Budget
When you plan to buy a home, it’s quite easy to get over-ambitious and overestimate your capacity to repay the loan amount. However, before you plan to apply for a real estate investment loan, it is important to do a strict analysis of the monthly installment you can afford.
For this, put your monthly budget on hard assessment. How much do you earn? How much do you spend? And what are your monthly savings? You need to carefully determine your monthly earnings and expenditures to understand your debt-to-income ratio and how much loan EMI you would be able to afford. Fine-tune your budget, reduce your spending, and try to make room for a bigger mortgage payment. As a rule, your loan EMI should not exceed 45% of your total monthly income.
Also Read: 5 Types of Home Loans You Need to Know
3. Consolidate your Down Payment Amount
No bank or financial institution will give you a 100% home loan. You need to shelve out at least 20-25% of the total property value from your pocket. Check if you have that much money in your bank account or accumulate all the down payment money before proceeding with your loan application.
4. Determine the Tenure of your Loan
This is the actual deal breaker. Tenure of your house loan will help you decide whether you want a ‘lower EMI but a higher rate of interest’ or ‘higher EMI but a lower rate of interest’. Basis your EMI affordability, choose your EMI tenure. In case you decide to go with lower monthly installments, you may end up paying more interest but this can easily be compensated later by pre-paying a part of your loan amount, once you get a raise in your income.
5. Keep your Tax Records Clean
Pay your income tax on time to avoid being a defrauder. Most banks and financial companies ask for income tax returns of the past 3 years before processing your loan request. Thus, make sure your tax records are clean and in order. Without proper tax records, you won’t be able to get your real estate loan approved.
6. Understand the Interest Type
Most banks levy two types of interest on real estate investment loans – fixed and floating. Choosing between the two could be the trickiest. While fixed interest rates remain constant for 5-10 years, floating rates of interest change from time to time based on Government policies and market conditions.
Carefully understand the pros and cons of both types of interest and carefully choose the one that best suits your needs.
7. Find out about Bank Charges and Penalties
Most banks do not impose any extra charges on your loan amount, except the processing fees, legal verification charges, stamp duty, and switching charges if you plan to transfer your loan to another bank. However, you may be charged a certain penalty if you default your EMI. Make sure you are fully aware of all these charges and have everything in writing.
This will help you stay safe during your entire loan tenure and you will not have to pay a single penny in addition to what you had committed to the bank at the time of loan approval.
Last but not least; never hustle into a home loan decision based on a single factor. Carefully read through the loan application terms and conditions of different banks and check for their interest rates, charges, and penalty fees to strike the real estate investment deal, get maximum discounts, and enjoy debt-free retirement.
