As per a report in the *Economic Times, property price to monthly income ratio in India is as high as 61.5 times, as of March 2019. By availing a loan to purchase your dream home, you can avoid this one-time financial burden on your pocket. Along with this, you can also enjoy the comforts of your new home while you earn to repay the loan.
Here are the steps you can follow to become eligible for your home loan.
Step – 1: Budget Your Home Purchase and Loan
Simply stated, it means checking your loan eligibility, the interest rate on offer, and the costs associated with a home loan.
- Interest Rate: The home loan interest rate depends on your credit score, monthly income, joint borrowers, etc. Checking the interest rates offered by various institutions beforehand gives you an edge during negotiation.
- Home Loan Eligibility: Your loan eligibility depends on the monthly income, loan tenure, and the interest rate charged.
- Margin Money: Your lender doesn’t offer full property value as a loan. Hence, you need to bring in margin money upfront. Generally, lenders follow a differential Loan-to-Value ratio. Consider the following table to understand the concept.
|Property value||LTV ratio||Loan amount|
|Up to Rs. 30 Lakhs||90%||Up to Rs. 27 Lakhs|
|Rs. 30 – 75 Lakhs||80%||Rs. 24 – 60 Lakhs|
|Above Rs. 75 Lakhs||75%||Rs. 56.25 Lakhs or more|
- Loan & House Purchase Charges: Generally, costs incidental to a home loan include:
- Processing Charges
- Stamp Duty Charges
- Mortgage Charges
- Registration Charges
- Valuation Charges
- Title Investigation Charges
- Documentation Charges
- EMI Charged: You need to repay the loan by paying monthly instalments. Usually, banks follow an EMI to income ratio of 50%, but you pay a higher EMI if you want. However, neither can the loan amount be increased, nor can you be charged more.
Step – 2: Improve Your Credit Score
Your home loan eligibility and the interest rate charged are directly linked to your credit score. Usually, lenders accept 750 as a good credit score.
You can ensure a good credit score by:
- Managing your credit and repayments well
- Always repaying your debts on time
- Not applying for too many loans at the same time
- Maintaining a credit utilization ratio of up to 30%
Step – 3: Go for a Floating Rate Loan
Home loans are for a long tenure. So, it is beneficial to opt for a floating rate loan. As a result, whenever the RBI reduces its benchmark rates, your interest rate also reduces.
Step – 4: Research Carefully before Choosing
Many lenders misrepresent the loan charges to attract customers. Due to this, you have to bear many hidden costs on the loan. By comparing home loans offered by various lenders, you can choose the one who provides the best deal.
Step – 5: Become a Co-borrower to Your Wife
Banks and NBFCs provide an interest rate concession to women borrowers. Hence, if you make your wife the co-owner, you can get a reduced interest rate from your lender.
Step – 6: Negotiate
Interest rates offered by lenders are negotiable. Whether you get a discount or not, depends on your creditworthiness. Hence, you should negotiate the interest rate.
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*Source: Housing affordability worsened over past 4 years, reveals RBI survey – Mumbai being the least affordable | The Economic Times (indiatimes.com)