10 Important Things to Consider Before Taking a Home Loan

home loan

The Indian financial market observed renewed demand for housing after the 2020 economic downturn, which has led to an increase in the sanctioning and disbursal of home loans. As per stats:

  • Housing credit applications noted a 25% to 40% increase across Indian cities
  • The demand for house purchase also led to an approximately 200% Y-O-Y increase in housing loan sanction and disbursal on a particular portal between December 2020 and January 2021

While home loan continues to gain momentum amid increasing demand for residential properties, it also entails a crucial financial decision with liability creation lasting up to decades. One must, thus, consider all essential aspects related to this advance when sending a home loan application to ensure proper financial planning. Here’s a quick look at some of these considerations.

10 factors to consider when availing of a housing loan

  • The interest rate applicable

As housing loans are long-term advances, they usually come with affordable interest rates. The RBI’s decision to cut down the repo rate has further prompted lending rate reduction for this credit segment.

  • In March 2020, the RBI slashed the repo rate by 40 basis points, bringing it down to a new low of 4% from 4.4% in a long time. Repo rate is the external benchmark that a majority of lenders today use to determine their home loan interest rates.

Nevertheless, you must consider the interest rate/s charged by your selected lender/s to determine personal affordability. Make sure you compare loan offers across the lending market to select the lowest available rate. You must also know about the important home loan fees and charges to determine the cost of borrowing.

  • LTV available and personal eligibility

Before proceeding with the home loan process, you should also understand the concept of LTV, which caps your maximum loan amount eligibility. LTV, or loan-to-value ratio, indicates the maximum amount a financier is ready to extend as a percentage of the current market value of the property to be mortgaged. Housing loan providers agree to an LTV of up to 90%, capping the maximum loan amount at a high proportion.

Once you have checked your lender’s LTV, you can proceed to select a suitable loan amount based on your eligibility fulfillment. Use a home loan eligibility calculator available online to determine the maximum loan amount you can avail as per your income and other eligibility fulfilments. Once checked, you can move forward with the home loan procedure.

  • Credit score

Although not an essential eligibility parameter for housing finance, a high credit score is crucial to securing a home loan at affordable rates along with other favorable terms. For instance, your credit score can determine your housing loan EMIs. When applying for the advance, make sure you meet a minimum credit score requirement of 750 to stand a better chance at lender negotiation.

  • Other eligibility requirements

You must also ensure you meet other home loan eligibility requirements laid down by your selected lender. These parameters range across various factors, including an individual’s age, employment status, employer, residential status, minimum property value as per the city of residence, etc.

  • Home loan offers

Lenders also extend personalized housing loan offers to their existing customers. You can run market research to find out a suitable offer that enables easy housing credit application and improved affordability.

For instance, when availing of a Bajaj home loan, existing customers can apply through pre-approved offers that simplify lending and reduce the time taken to process loans. These offers are available on a range of financial products, including home loans and loans against property. Provide your name and contact details to check your pre-approved offer.

  • EMI affordability

The EMIs payable primarily depends on three critical factors, namely the loan amount, tenor, and interest rate. You can easily determine your EMI affordability by entering the three values in a customized home loan EMI calculator. This will help you plan beforehand on how to close your home loan effectively.

  • Document requirement

Minimum document requirement is always the ideal scenario that enables quick verification, loan processing, and disbursal. Apply with a lender that asks only for essential documents to confirm your eligibility.

  • Tenor flexibility

Some of the best lenders provide tenor flexibility of up to 20 years to help applicants choose a suitable term that keeps repayment within their capacity. Nevertheless, the tenor you select must also be based on assessment related to the total interest outgo for an informed borrowing decision.

  • Balance transfer facility

The housing loan balance transfer facility allows you to switch your loan outstanding to a new lender offering lower interest rates. It also comes with several other benefits, such as a top-up loan and repayment flexibility. Look for similar benefits while opting for a balance transfer.

  • Application processing

Always select a lender reputed for swift processing of housing loan applications to simplify the process and keep it hassle-free.

With these considerations in place, you can proceed to send your home loan application to a selected lender. Keep the required documents handy for streamlined loan processing and improved chances of quick approval.

Check for inaccuracies in the credit report

Individuals should check their credit reports frequently to identify any discrepancies in the same. Certain inaccuracies may reflect poorly on the report and, in turn, lower the credit score. For instance, the most common types of credit report mistakes include an inaccurate payment date, error in loan closure date, or current loan account status. Such inaccuracies can erode the CIBIL score, delay loan approval, and even become a cause of loan rejection.

Indeed, these are some sound advice to follow before taking a home loan online in India. By following them, individuals will make their overall borrowing experience smooth and less cumbersome.

Individuals should check their credit reports frequently to identify any discrepancies in the same. Certain inaccuracies may reflect poorly on the report and, in turn, lower the credit score.

 

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