Taking a home loan is a big task in itself and one of the biggest financial decisions, as it is the longest debt in most lives.
It doesn’t make sense to take Loan if you don’t need or take a long term loan to enjoy the tax benefits available on the interest you pay.
Although there are easy ways to secure home loan, it is necessary to choose the right one that saves your money. Every year, banks update their home loan schemes and introduce new loan options that suit the economic trend of the country.
Compare banks before zeroing in on one to avail your loan from. Every bank has different rates and different criteria for granting loans. The public sector banks offer the best repayment schemes but the private banks might make more attractive offers on interest rates and initial processing. So choose wisely.
1. Make a wish-list
Prepare a wish-list of what you would like your ideal home to be. Decide on space, the neighbourhood, security, priorities like proximity to transport, school and hospital and amenities like for kids etc. Determine how much house you can afford. Your monthly outgo towards all your loans put together should not be more than 50% of your monthly income.
Buying a home is a major decision that should not be taken hastily. Check with your friends who have recently purchased a house, browse through local newspapers to know the availability of houses for sale, or ask the local brokers. A cheaper property that is not nearby to basic transport facilities like rail or road can cost you more in the long run due to recurring traveling expenses. Hence it makes sense to buy a house that meets all such practical issues
2. Take stock of your savings
Before you start looking for your new home, evaluate your savings. Prioritize your expenses and be ready to compromise on expensive vacations or one big ticket dream. Try and pay off your outstanding long term debts before taking a Home Loan. Down Payment is the amount of money that the home buyer has to contribute, in addition to the loan sanctioned. The down payment amount usually lies between 10% to 25% of the property, depending on how much loan has been sanctioned.
Banks do not give loan on the entire value of house. Previously they were giving upto 85-90% of the house value but after RBI restrictions it has come down to 75-80%. So the remaining amount you have to fund yourself. Get into the habit of saving prudently to raise the maximum down payment.
3. A safe and secure background
Do a detailed research to find a bank or financing company for home loan. Check with at least 4 to 5 banks and companies to know their terms and conditions of offering a loan, interest rate and tenure. While the interest rate is important, you should also look at other aspects such as the customer service, charges for early termination of the loan and more before deciding the financier. Always ask for a comparison between at least 6 major lenders from your mortgage adviser.
4. Interest Rate, Fees and Charges
There are two types of interest rates on loans – one is fixed rate and other is floating rate. In case of home loans with fixed rate of interest, the amount of EMI does not change during the tenure of repayment while in the latter it changes along with the change in interest rate. It is good to have floating rate if interest rates are expected to fall in near future. Enquire about different Home Loan lenders, check costs, prepayment clauses and interest rates to shortlist the best Home Loan deals. Look out for simplified documentation and doorstep service features.
EMI is the abbreviation for Equated Monthly Installment. Home Loan EMI is the monthly repayment that borrower should make to repay the home loan as per amortisation schedule. Each EMI repays a part of principal i.e. the borrowed amount and the interest due on the borrowed amount. Your EMI amount should not be more than 75% of the salary.
6. Time taken for credit / loan appraisal
This may sound unimportant, but my noting it last doesn’t indicate that at all. When the builder starts sending you delay-penalty notices or the seller withdraws from the deal or increases the sale value, trust me, this becomes the top priority on the chart.
7. Loan Tenure
Usually people tend to go for the longer tenure seeing that the EMIs are more affordable. However, it also means that you finish off paying more interest. The maximum home loan tenure offered by all major lenders is 30 years. The longer the tenure, the lower is the EMI, which makes it very tempting to go for a 25-30 year loan. However, it is best to take a loan for the shortest tenure you can afford. In a long-term loan, the interest outgo is too high. Consequently, your dream home becomes more expensive.