For many homebuyers, availing of a home loan generally is the only route to becoming a homeowner. However, availing a loan has become extremely convenient. There are specific things that borrowers must ensure before applying for a home loan.
∙ Having a thorough understanding of loans.
∙ Knowing the conditions of the loan.
∙ Reviewing your home loan eligibility.
∙ Knowing the kinds of home loans available in the market.
∙ Knowing the availability of home loans.
Checking all of this is extremely necessary while availing of a home loan. This is because a home loan is a long-term commitment as you are liable to repay EMIs for years along with interest. Thus, here are some of the points that you must consider asking yourself when applying for a home loan:
Do you have adequate funds for the down payment?
While getting the funds from the bank to purchase your home, you are still required to make a down payment from your own pocket. According to the guidelines by RBI, financial institutions can approve at least 75 percent of the home cost via home loan. So, as a borrower, you must pay the rest of the 25 percent from your own pocket. And as property price is skyrocketing, repaying 25 percent of it from your pocket is impossible for many. Thus, before you place an application for a home loan, it is crucial to first review yourself to know whether you can afford the down payment. Additionally, other expenditures like processing charges, registration fees, stamp duty etc., are required to be paid.
Do you have knowledge about your home loan insurance?
When you avail of a home loan, your bank lender may ask you to get the home loan insurance. It is true for most lenders during the loan approval time. However, you must make the decision just if you hold thorough knowledge regarding it. What is home loan insurance? What is its functionality? And why is it important? – These are a few of the common questions which you must have the answer for a fair decision.
Well, there is no doubt that having a home loan insurance vitally covers the borrower’s dependents from financial hardship in case something happens during the repayment tenure. However, before you conclude, it is equally crucial to know about other important options, which offer equal cover to your dependents and life in your absence. Such options involve life insurance and term insurance. When comparing, you require to keep both the premiums and benefits in mind. Thus, while you place an application for a home loan, it is crucial to add in a cover so that it does not become a massive burden for your dependents.
Do you hold sufficient funds for your financial emergencies?
Before proceeding further with the application, as mentioned above, you require analyzing your funds for a down payment. But do you have any idea that it is not adequate? After managing the funds for a down payment, it is even crucial to have sufficient funds for your financial exigencies. Life is filled with uncertainties and hence investing all your money just in a home loan is not a recommended decision.
Do you know negotiation is permitted?
Whoever you select as a home loan lender, do not forget that you have all right to negotiate on your home loan rate, processing charges and loan proceeds. However, banks usually hold an upper hand, but still holding a strong cibil score and low CUR (credit utilization ratio) makes you eligible for negotiation. So, for being in this position, you must review your CIBIL before you place an application for a home loan. Note that every lender requires a good business, and having a strong credit score endows you with the bargaining power.
Do you have knowledge about the estimated EMI?
EMI refers to Equated Monthly Instalment. This is one of the crucial factors that determine your borrowing cost. It is the amount you must pay until you make full repayment of the loan. Thus, knowing the estimated EMI will assist you in analyzing your affordability. For this, you can use the home loan calculator. You can find the calculator easily on any of the online lending portals free of cost.
Do you know your credit score?
A credit score is an important parameter considered by the lender. Thus, it is important for you to review your credit score before you place an application for a home loan. For an HDFC home loan, a CIBIL score is crucial. Note that for an SBI home loan, a credit score is important. Likewise is the case for other lenders. Ensure to check your credit score at least 6 months before placing your home loan application. Doing so will allow you to know your credit score in advance and take the crucial measures in the case of a lower score to ameliorate it.
What is the formula for computing your loan eligibility?
Ask your home loan lender what parameters it considers for computing your home loan eligibility. The standard thing that all the lenders state you are eligible for is a loan that is around sixty times your net income each month. Also, banks look at your ongoing commitments and deduct this amount to compute your net available income. But banks do not include things like your medical allowance or leave allowance when computing your net disposable income every month. Thus, you must understand what crucial parameters are considered by the lender while determining your loan eligibility.
Can the rate of interest be customized to match your requirements?
You might be aware that there are 2 major kinds of rates of interest that are provided to the home loan seekers. The first is the fixed rate of interest, and the next is the floating rate of interest. However, there are various variations and sub-variations in the rate of interest, known as the hybrid rate of interest of home loans. In case you are a first-time home loan borrower, it makes complete sense to discuss all the available options and the rate of interest that the bank is providing as per your risk profile.