Purchasing a house is a massive financial decision which your family and you need to take. For first-time buyers, a home loan is the best way to bring their aspirations alive. If you are taking the credit, it is essential to understand all about it. After all, it is a commitment that will run for years, and you need to pay the entire amount.
Hence, consider the following factors before availing a housing loan:
- Eligibility criteria: You must ensure you qualify for the credit. Lenders assess your eligibility based on your income and repayment capacity. The other aspects include age, qualification, financial position, number of dependents, spouse’s income, and stable job.
- Home loan types: Home loans in India are of three kinds –
- Floating rate loan: Such credits are linked to the lender’s benchmark rate. If the benchmark rate changes, the interest rate also varies.
- Fixed rate loan: The rates here are set at the time of availing the loan. This is applicable throughout the tenure.
- Combination loan: Such loans are partly fixed and partly floating.
- Home or loan first? It is ideal to get your home loan pre-approved before selecting the house. Pre-approval means you have a fixed budget in place and narrowing your search. Pre-approval also helps you get better deals quickly. You could check with the lender for the desired properties in your preferred location. Some projects get approved by the lender, which not only relaxes the documentation process but also assures you of a quality project.
- Loan amount: Most of the lenders offer the credit ranging from 75 to 80 per cent of the property cost, depending on the loan amount. If you add a co-applicant, their income increases the loan amount. This co-applicant can be your wife, husband, or children. You need to contribute the balance amount. Use the home loan eligibility calculator to check the terms and conditions for getting the credit.
- Cost of home loan: Consider the additional charges as well while assessing its suitability. These expenses include interest payments, processing fees, administrative charges, prepayment penalties, etc. Ideally, your loan should have prepayment charges in case you have opted for floating rates. Make sure there are no other hidden charges apart from the mentioned ones. Lenders should transparently disclose all the fees on their website.
- EMI or pre-EMI: EMI or equated monthly instalments, is the amount you pay towards the lender for the credit taken. EMIs include the principal amount and interest payment. Pre-EMI is a concept meant for under construction properties. Here the loan gets disbursed in phases, which you need to pay the developer. You initially start paying the interest. In case you want to start the principal amount repayment, you can opt for tranche loan.
- Tenure: A home loan comes for a 30-year term, subject to the borrower’s eligibility. A lengthy tenure helps to reduce your burden. However, interest rates could soar.
- Insurance cover: When you apply for a housing loan, make sure to purchase a loan cover term that covers its amount as well. Do your research to find the best insurance policy in the market. This relieves your family from outstanding dues as the insurance company repays the credit in case of some unfortunate event. In fact, many lenders insist that you buy the insurance at the time of applying for the loan.