Given the disparity between income and property rates in India, almost all middle-income individuals looking to purchase a property have to rely on a home loan. As a financial tool that provides access to a substantial sum for a lengthy period of time. Applying for a home loan is the easiest way to being a homeowner.
But a home loan is a long-term commitment that requires one to take several factors into account and plan well in advance. Read on to know some of the key things to keep in mind before applying for a home loan.
Save for the Down Payment
As per RBI guidelines, lenders can extend funding up to 75–90% of the property value.
- For properties valued up to Rs.30 lakh, lenders can offer up to 90% of the property value as a home loan
- In-case properties valued from Rs.30 lakh to Rs.75 lakh, lenders can offer up to 80% of the property value as a home loan
- For properties valued above Rs.75 lakh, lenders can offer up to 75% of the property value as a home loan
Borrowers need to bear the remaining 10–25% of the property value. Thus, it is important you save well in time to accumulate this sum. You can also refer how to reduce the home loan burden for more informative purpose.
Consider the Cost Benefit from Tax Savings
Most borrowers plan well in advance before applying for a home loan, allocating sufficient time to save as well as research. However, one should conduct a thorough cost benefit analysis to decide the right time to avail of a home loan.
For instance, individuals can avail of up to Rs. 2 lakh of deduction on home loan interest under Section 24 of the Income Tax Act. In other words, individuals over a given income level can benefit from home loan tax benefits. An individual paying this sum as income tax can stand to save when s/he avails of a home loan.
Get Your Documentation in Order
All credible lenders will request thorough documentation to process your application. These include KYC, income related, and property related documents. If you plan to apply for a home loan in the near future, it is advisable you get all the necessary documents in place beforehand, so as to expedite your application.
Check Your CIBIL Score & Work to Enhance It
Your CIBIL score is a key factor lenders assess when processing your application. Since your CIBIL score highlights your credit history and your creditworthiness as a borrower, lender prefer applicants with a higher score. Those with a score of 750+ are typically offered the most favorable terms.
To maximize your chances of home loan approval, apply for one only when your score is above 750. Those with a score of 700–750 may be offer a sanction, but chances are that this will be at less than favorable terms.
If you are looking to avail of a home loan in the near future, it is important you check your CIBIL score online. And if your score is less than ideal, work towards enhancing it before you apply.
Plan for a Rainy Day
While most people account for their current income, obligations, and expected EMIs, many forget to account for a rainy day. A home loan EMI is a commitment you must meet every month, without fail. Thus, it is advisable that borrowers have some savings to fall back on in case of situations when you are stretch thin financially.
Consider the Existing Home Loan Interest Rates
Home loan interest rate is one factor that can determine how affordable or unaffordable your loan is in the long run. In the case of a home loan, interest is compounded monthly over a repayment tenor of up to 30 years. Thus, your total interest outflow can be substantial.
Consider the prevailing interest rates in the market and compare them against the historical trend over the last few years. In case the current interest rates are relatively lower, you stand to save by applying earlier rather than later.
Select a Tenor and an EMI Based on Your Repayment Capacity
Lenders consider a number of factors when extending a home loan offer. One of these is, of course, your repayment capacity. Lenders will check your income and obligations, such as other loans, to determine how much you can spare every month towards the repayment of your home loan. Thus, it is ideal you repay any other obligations, where possible, before you apply.
Look for Properties with the Best Resale Prospects
Lenders offer their most favorable terms on certain preapproved projects. When looking for a property, check which projects are include in a given lender’s list to enjoy quicker approval.
Moreover, not only do you benefit from favorable borrowing terms, you also benefit from a property that is likely to fetch a high resale value. This is because lenders finalize the list of approved projects on the basis of the developer, location, and other criteria. These are likely to safeguard your investment in the future.
Above all, it is important to thoroughly research lenders before finalizing one. Pick a reputed lender to enjoy hassle-free processing and competitive terms when applying for a home loan.
Bajaj Housing Finance Limited, a 100% subsidiary of Bajaj Finance Limited, is one such lender. The HFC offers home loans starting as low as 6.75%* p.a. for salaried and professional applicants; with 5,000+ approved projects, a repayment tenor of up to 30 years, and EMIs from just Rs.649/lakh*.
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