With all time low interest rates, applying for a home loan has become affordable as well as prudent for anyone who has been waiting to purchase a dream home. However, as everything has changed drastically post Pandemic, it is crucial that you weigh ins and outs of home buying on home loan.
Any financial decision should be backed by a thorough financial plan and back up. Home loan being a long term loan thus calls for a due diligence.
To ease your borrowing journey we have outlined 7 key points or thumb rules that you should know before applying for a home loan.
Factors affecting eligibility for a home loan
The eligibility for a home loan amount is assessed as a percentage of market value of property. Further certain factors such as applicant’s age, take home income, CIBIL score and existing liabilities will impact your loan eligibility. An applicant who has good numbers in all of these parameters can easily grab the best rate of interest on home loan. As a home loan is a long term commitment, it is recommended to avail of the best offer and save your interest liability. Even if it calls for adding a co-applicant for the better rate of interest, you should find one.
Budget home purchase or home loan decision
After understanding the basic factors that impact home loan, you must look inwards at your financial health and budget your home purchase decision. A clear budget will help to keep your finances on track. You should be prepared to pay a loan down payment, preferably around 10-30% of the LTV, from your funds. The readiness to pay for down payment or loan margin amount boosts up the lender’s confidence and you will be able to attract a good rate of interest. Though many lenders will be willing to offer you a personal loan for down payment, but it would only come at a higher cost. So, do your home work, know the numbers before you contact a lender.
Debt to income ratio
Your existing debt to income ratio, is one of the important factors that impacts your loan eligibility. As a rule of thumb, the sum of your all EMIs should not be more than 50% of the take home monthly income. So if you have any existing loans or card balance outstanding, your home loan eligibility will be reduced.
Further as we all have other commitments and aspirations apart from home, such as Car, foreign trips, latest mobile phones and other fancy purchases, it is recommended that you do not opt for a home loan EMI over than 30-35% of your salary/ income.
Credit score is the preliminary check of a loan application. With a good credit history and score your application is accepted more readily. Though the minimum requirement for home loans is 650 only, it is always better to have a good score for locking up the best rate of interest.It is recommended to pull out your own CIBIL report online or use a loan marketplace for free credit information report. Assess your score and then apply for loan. In case your CIBIL is low, you can work on it and apply for a lower rate after a few months.It is always useful to obtain professional advice before applying for a home loan.
Decision on loan tenure
Home loans are available for up to 30 years. You do not need to apply for such a long tenure. For, a longer tenure will result in higher interest rate and thus cost of borrowing will be more. A majority of home loans are applied for 10-20 years. Choose your tenure carefully as per your budget.
Opt for affordable EMIs
As home loans are long term commitments, it is possible that your business or job goes through distinct phases during the loan tenure. Thus, always opt for an affordable EMI. Do not stretch out your budget when deciding on loan EMI. Do your calculations and choose loan EMI and tenure as per your affordability. You can use free online home loan EMI calculator for the purpose.
Home loan pre-repayments are generally not capped and there are no restrictions if you prepay or foreclose your loan. So opting for a low EMI basically keeps your compulsive monthly liability low. You can prepay as per your cash flows and continue reducing interest rate on your home loan.
Compare & apply for the best offer
Always compare the available options and choose the lender that offers best rate of interest and best-in-class post disbursal services. Opt for exceptional online support as in the case of ICICI Home Loan and choose comfort and ease for yourself. You can instantly check loan statement and print or download home loan interest rate certificate online from comfort of your home or office.
All in all, keeping check on all these points will ensure a good home loan deal along with a stable and secure financial future.