One of the most essential goals we strive for in life is to own a home. It is one of the most significant investments, both financially and emotionally , but if you are low on funds or choose not to relinquish your holdings, a home loan might be extremely beneficial. It is a standard sort of loan that people can get from a bank or a housing financial institution to help them achieve their dream of owning a home. With simple monthly payments and the flexibility to customise the loan term to meet your needs, a home loan is a simple way to live your dream of owning a home.
However, before you start applying for a home loan, consider the following important home loan factors that may assist to simplify the process.
Research on Home Loan Options: With the internet's easy access to information, conduct a comprehensive study on the possibilities accessible prior to applying for a home loan. Your study should also cover the three critical loan components: down payment, instalments, and repayment period. Researching these three characteristics before applying for a house loan allows you to select an ideal home loan from a reputable bank at appealing interest rates.
Types of Home Loan
There are several types of house loans available, including:
Adjustable and Floating Rate loan: The interest rate on this form of loan is connected to the lender's benchmark rate. When the benchmark rate changes, the interest rate adjusts proportionally.
Fixed rate loan: A fixed rate loan has an interest rate that is fixed at the moment the loan is taken out. This interest rate will be in effect for the duration of the loan.
Combination loan : These loans have a fixed interest rate on one portion of the loan and an adjustable or flexible rate of interest on the other.
These are important factors affecting home loan approval.
Maintain CIBIL Score: By upholding a good credit score is a must when asking for a loan in the banking industry. Consistency pays off in any situation, either it's a cyclic credit card payment or a loan repayment. If your CIBIL Score is greater than 750, you may be able to get even lower rates on the home loan. This is accompanied by a far higher possibility of speedier loan processing and release.
Interest rates: House Loan Interest rates on your home loan is a major factor in determining whether or not you should take out a loan and which lender to go with. You all must be aware that one should conduct thorough research before settling on a loan. Aside from that, you should be informed of the various interest rates that banks & housing finance institutions charge.
Repayment tenure: The span of time it takes you to repay a house loan is referred to as your repayment term. While in a longer term can result in reduced EMIs, it also increases the rate of interest charged, forcing you to pay maybe double triple the initial loan amount owing to excessive interest. A short repayment time with high EMIs is beneficial if you have a consistent and rising wage and keep to a strict budget.
Processing fees: The processing fee is usually levied then after your application has been granted. It is a cost that you must pay to banks or NBFCs in order for them to process the loan request. It is a one-time cost that is normally paid beforehand – that is, you must pay it to the bank.
Prepayment charges: Prepayments can be either part-payments, in which you make a lump sum amount towards the principal amount, or foreclosure, in which you return the whole amount of the loan before the loan term expires. Making part-payments wherever feasible can allow you to save money on interest and thus become debt-free quicker.
Eligibility criteria: The most crucial thing you can do is make sure you are qualified for a loan. Banks will initially examine your house loan eligibility based on your income and repayment ability. Other key factors to consider are education, age, financial status, family size, partner's pay, and job security are all factors to consider.
These home loan documents are classified as:
KYC Documents: These include documents of your identification and address. A valid passport, voter ID card, Aadhaar card, and other papers are acceptable for the criteria.
Documents of Credit/Income: These documents assist the lender in determining your loan eligibility. If you are employed, you can send your past three months' wage slips; if you are self-employed, you may submit three years' worth of income tax returns.
Property Documents: The documents include the sale agreement, title deeds, and so on. Based on these documents, the lender conducts due diligence on the property.
Calculate the EMI: The monthly instalment amount is calculated by you. House Loan EMIs are also greatly influenced by the down payment you make when buying a new house. The larger the down payment, less the stress of having the outstanding money turned into EMIs.
The other important factors affecting home loan approval are:
Loan to Value (LTV) Ratio: In a house loan, the loan-to-value (LTV) ratio is the proportion of the value of the property that a bank can lend to a buyer. Before approving a house loan, lenders look at the LTV ratio to guarantee that they are not lending more than the property's true value. A higher LTV ratio increases the borrower's perceived risk, whereas a low LTV ratio can earn you better loan conditions, including lower interest rates.
LTV Ratio Calculation
LTV Ratio (%) = Borrowed Amount/Property Value X 100
*The monthly instalment amount is determined by you.
Other associated charges: Aside from the EMIs, banks may collect various administrative, processing, or service fees on customers at the time of loan request application. Make sure you address this with the lender before submitting a loan application. Check if they are one-time or monthly expenses; if they are recurring home loan charges, they must be considered alongside your house loan EMIs and your monthly budget must be arranged accordingly.
Principal amount: When it comes to calculating the amount owed on the loan, the EMI is calculated using an uneven combination of interest and principal. During the first few years of the home loan, the majority of the EMI is made up of interest paid by the borrower. The remaining loan amount decreases when the loan expires and the principle is gradually paid off. As a result, the interest component grows less than that of the principal, and eventually zero.
Insurance cover: You must obtain a loan cover term insurance policy that covers the loan amount. It is critical to conduct research to obtain the finest home loan coverage available. This will release your family from the burden of an outstanding loan, as the loan will be reimbursed by the insurance provider in the event of your death. In fact, some lenders will require you to acquire insurance when you apply for a house loan.
Purchasing a home is a significant financial and emotional choice, you should evaluate all the key factors affecting home loan and home loan approval and select the appropriate house loan type and amount which will not burden you afterwards.