Owning a residential property could be a once in a lifetime financial decision for most of the people, including first time owners or existing buyers. It has now become convenient to buy a home, as the Indian banking sector offers a wide range of home loan products for investment and residential purposes at competitive interest rates. First time buyers could get perplexed regarding which loan product to choose from several loan options offered by leading private and public sector banks, NBFCs, and other financial institutions. Thorough research and rigorous effort is required before making any decision regarding the purchase of your property. To make it simple, consider the further mentioned tips before applying for a home loan.
9 Tips To Consider Before Applying for Home Loan
Check your CIBIL Score
Your CIBIL score is a crucial determinant factor in availing a home loan, as home loans are usually of higher loan amount and longer repayment tenure. Thus, a higher CIBIL score is required by the lenders to check your creditworthiness and repayment capability. It is recommended to check your CIBIL report regularly to identify errors, if any, and resolve them at the earliest.
Check for Lowest Home Loan Interest Rates and Eligibility
Check for minimum interest rates offered by Housing Finance Companies (HFCs), Private and Public sector banks, NBFCs and other financial institutions. Also, make sure that you are eligible to apply for a home loan by fulfilling the defined criteria by the lender. Basic eligibility criteria set by most of the banks is age criteria, minimum CIBIL score required, work experience for salaried, business experience for self-employed, minimum salary and nationality.
Opt for favourable Repayment Tenure
The maximum loan repayment tenure exceeds up to 30 years, and any loan offered up to 5 years or less is considered as a short-term loan tenure. To avail low interest rates, you may apply for long-term tenures as longer time to repay the loan makes the interest rates lower. Choose a suitable EMI that aligns with your monthly budget considering the repayment tenure.
Know the Additional Charges
Apart from the normal registration and documentation charges, there are various other additional charges that you should be aware of like processing fee, administrative or service charges. These hidden charges are levied by the banks on the borrowers at the time of loan application.
Read the Foreclosure Norms
Foreclosure charges refer to the amount the bank levies on the borrower if he/she wants to close the loan before its defined timeline. The foreclosure charges are different from lender to lender and shall vary between 2%-5% plus applicable taxes. It is suggested to try to keep a watch on the changing RBI norms related to home loans, as the norms may turn out beneficial in a way or another.
Read the Cancellation Policy in advance
Most of the lending institutions, such as banks/NBFCs or HFCs have their specific and structured cancellation policy. Therefore, always read the cancellation policy before signing any home loan application form, as after loan approval there is no chance of loan cancellation. Do check for the cancellation charges levied by various lenders.
Check Home Loan Balance Transfer (HLBT) options
Home Loan Balance Transfer is the best practice followed by many borrowers, if they have an existing home loan and want to reduce their interest rates on the balance loan amount with additional benefits. The existing lender does charge some additional fees for the balance transfer option, as the borrower is shifting his/her entire loan from the existing bank to a new one, but the perks that may come with home loan balance will be worth the risk in the long run.
Start saving for the down payment
Usually, lenders require a minimum down payment of 10% and maximum up to 30% (depending upon lenders) of the total purchase value of the home, as down payment depends on the total loan amount. So, start saving now for the down payment before initiating your loan application. Making small changes to your monthly budget can make you save at least 10%-40% of your income. You can also open a new savings account, especially for home loan down payment purposes.
Perform thorough Research
As it is one of the most crucial financial decisions, it is required to perform a thorough research among various home loan products offered by leading banks and NBFCs at competitive interest rates. All the research steps should be taken with patience and cautiously, as any mistake could result in major losses.
As you already know that buying your dream home is one of the most important financial decisions, so choose the right type of loan, loan amount and repayment tenue after comparing the home loan options from various banks and NBFCs. Also, try maintaining a good CIBIL score (700+) to increase the chances of your loan approval. Do not forget to consult your existing bank where you have built up a strong relationship, so you can negotiate to get the best deal. Moreover, consider the discussed measures before applying for a home loan.