Wednesday, April 24

10 Important Tips To Consider Before Taking A Home Loan

Buying or building a dream home requires enough supply of funds. Putting all the liquidity into one avenue at a time can be a risky investment as well. To skip such issues, you can opt for home loan available on easy terms from several banks. The banking sector is one of the primary providers of liquidity when you need it.

Home Loan Planning

Several banks offer home loans at different interest rates and other associated terms. You should always run thorough market research before settling for any of these.  EMI is another factor you should consider while picking a home loan.  Here are some of the aspects you need to take care of before finalizing the home loan settlements with a bank or financial institution. 

  1. Research The Available Loan Options

When options are countless, your level of researching ensures the best pick. The market has a plethora of choices to offer for home loans. If you need one, there are hundreds of banks and financial institutions offering home loans today. But, choosing one randomly without considering the essential aspects can be harmful to the future. 

Always remember that loans are liabilities. And, the house you will make with the loaned sum can only turn into an asset when you repay the loan in full. Suppose you have taken a loan of Rs. X from a bank to purchase a house. Until you repay the entire amount along with interest in full, you will not be eligible to sell the house. 

On repayment of the loan, the ownership of the property would be completely yours.  The terms of the loan vary from one bank to another. Check the rate of interest and other terms associated with the loan process thoroughly to settle for the best deal.  The more the loan offers you will consider, the better would be your choice. 

  1. Affordability

The interest payment is always an expensive component. Before you settle for any home loan, make sure that the fixed EMI would not burden you much. Even if you have bought a home, you need to carry on the rest of the monthly expenses. 

This requires an EMI that would not cut your essential expenses considerably. Putting your standard of life on stake is never a good idea. Also, ensure that you have a steady income flow and the same will not turn dry any time soon.  

Plenty of banks offer low EMI schemes for home loans, along with tax benefits. Opting for such a loan deal would be the best for all. If you feel baffled by the variety of loans in the market, discuss with experts to reach feasible solutions. 

  1. Restrained Spending

When you apply for a home loan, your expenses increase. The EMI you start paying every month becomes an ongoing expense for the next few years. However, your income flow does not increase overnight to match this expenditure rise. You end up accommodating your expenses within the same budget along with the EMI payment. 

Critical Factors for Home Loan Decisions

Restrained expenses can be one way to ensure no leakage of liquidity when you are paying fixed EMI every month. Find out the expenses that are not essential and put those on a halt before applying for a home loan. This expenditure check would ensure that you do not have to face financial difficulties owing to the payment of EMI. If you think you can stop a few expenditures, for the time being, don’t think twice and restrict your outflow of income. 

  1. Pick The Best EMI

EMI depends on several factors. The first and most important aspect is surely the amount of down payment. The higher the down payment, the lesser is the burden of EMI. Experts say that your EMI amount should not exceed 45% of your income or else your monthly finances might suffer. 

Another factor is the time for which the EMI is applicable. The higher the period, the lesser is the EMI. Nonetheless, the experts always suggest opting for short period EMIs to shorten the tenure of carrying a financial liability. 

Always check the amount of EMI you have to pay for the loan before finalizing a deal. The banks generally offer a varying range of EMI for the same amount of loan. This ensures that everyone finds a deal suitable for them. 

  1. Repayment Tenure

The period of time for which the repayment process continues is the repayment tenure of a home loan. The EMI calculations primarily depend on the tenure of repayment. If you opt for a long tenure, the same might offer you a low EMI, but the interest rate would be more.

Ultimately with a long term loan, you end up paying double the loan amount and sometimes even triple. On the flip side, a short tenure loan repayment seems more burdensome in terms of EMI amounts. But, in reality, you do not end up paying an amount way higher than your sanctioned loan sum. 

This is the reason why experts always vote for short term repayment tenure over the long ones. Check both the options carefully before choosing any. If you can afford the EMIs for the short run repayment deals, settle for the same to pay less in total. 

  1. Check Your CIBIL Score

CIBIL score is nothing but your credit score for the loan provider. The better your CIBIL score, the higher are the chanced for you to get your loan sanctioned. Before you apply for a home loan, check the previous loan repayment status and record to comprehend your chances. 

Regularity is interest payment and transparency during the period determines your CIBIL score. A person with poor CIBIL score is less likely to get a home loan from a bank.  A poor CIBIL score can also be a source of a higher interest rate for you. 

If the loaning institutions find you to be a loan payment defaulter, your credibility would be questionable.  On the other side, a fair CIBIL score ensures easy loan sanctions and flexible payment terms. 

  1. Foreclosure Norms

Foreclosure refers to the process of repaying the entire loan amount before the specified date. If you have managed to gather the sum required to pay it off in full before the tenure, foreclosure rules become applicable. The RBI changes the norms related to the foreclosure of home loans from time to time. 

Keep yourself updated with the changes and get to know about the new norms. If you think that foreclosure will not offer you any financial relief, don’t opt for it. But, in most cases, it does. If funds are available, foreclosure can save you from paying a huge amount of interest. 

  1. Eligibility Criteria

To get a loan, you must be eligible for it. The sanctioning of your home loan depends on your eligibility for it. The RBI has specified certain rules for home loans. If you are not aware of all of those, check the website of any reliable bank. 

You will find a detailed list of the eligibility criteria for applying for a home loan there. If you fail to understand any of the mentions, check with an expert to comprehend. Without understanding and going through the eligibility criteria, do not apply for a home loan randomly. Random applications often face rejection. 

  1. Extra Changes

Apart from the settled EMI based on a down payment, outstanding balance, and repayment tenure, home loans also involve extra charges. Some of the banks keep this extra charges component pretty low while some charge substantially. 

The administrative charges, processing charges and the one time charges are some of the varieties of additional charges the loan seekers face. To avoid any hidden charges, talk to the lender about these costs before finalizing a deal. 

Also, check if the charges are recurring or one time. Different banks charge differently for these additional components. Keep the same in mind while choosing a home loan. 

  1. Pay Attention To The Documents

Loan documents need your attention the most. Anything and everything related to the loan terms remains clearly mentioned in the loan documents. If you need to know the terms of the loan clearly, read the offer document carefully. 

If you fail to understand any part of it, look for an expert opinion. Plenty of the terms used in these documents relate to the financial market directly. A layperson with little to no knowledge of the banking sector might find such terms incomprehensible. The concerned bank can also help you figure out the meaning of the documents in detail.  

With the rising level of real estate prices, home loans have become essential for purchasing homes. A little care in choosing the right home loan can save you plenty of hazards in the long run. 

Read the offer document carefully and keep the aspects above in mind to seal the best deal.  If you find it difficult to decide on your own, seek the help of the experts. Do not hurry while applying for a home loan. Thorough research of the loans available in the market would be the best way to find the most suitable one.

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