A housing loan is a long-term investment. It is advisable and wise to do some research about the home loan facilities available in the market while taking the plunge. Few points to know and avoid that can help in easing out the process of opting for a housing loan in India.
Know Your Status
Important factor while taking a home loan is to understand your own financial liability- how much money is save from your monthly take-home income, allocate funds for emergencies or planned events, availability of funds for making a down payment, and the capacity to absorb the monthly Equated Monthly Instalments (EMI).
It helps you develop an understanding of your eligibility for a home loan as well as your home loan repayment capacity.
If you are not sure of this, take the help of a financial counsellor or simply visit a home loan website that has tools such as EMI calculators that can easily summarise the financial obligations against a fixed amount of home loan.
Compare the Market
We hop through brokers while finding our dream homes, we should look various channels and options while opting for a home loan. Different lenders provide loans at different interest rate ranges for the same loan amount. These loan amounts and interest rates vary based on the cost of funds and the credit profiles of loan applicants.
Compare the market interest and tenor of repayment for the loan offer should done on the basis of your own monthly income and many more.
The aim should be to find a lower interest rate and go for the optimal tenor of repayment of a loan.
Know Your Credit Score
Home loan applications are either rejected or charged at a higher interest rate when applicants have a low credit score. A better credit score could boost your chances of availing of a home loan at better interest rates.
Fetching and analysing your credit report before making the loan application will allow you to take corrective measures to improve your credit score.
Look for Flexibility in Payment
Important to know if lender will allow some freedom or flexibility in terms of repayment of EMI and down payment.
Check if the lender will allow you to make a large down payment as a large down payment amount will help in reducing the EMI, tenor, as well as interest rate. Make sure to know priorly if you can increase or decrease the EMI based on your circumstances. Your disposable income can change due to job promotions, a job switch, or any untoward reasons that could lead to a decrease in your earnings. In such a scenario, flexibility in repayment will help you without compromising your creditworthiness.
Avoid Visiting Multiple Lenders Directly
Lenders can fetch your credit report from credit bureaus whenever you submit a credit application. Such enquiries by lenders are termed as ‘hard enquiries’ and your credit score by lowering your points.
Thus, in order to compare the home loan interest rate, it is advisable that you visit online financial websites rather than making direct loan applications with multiple lenders. The online marketplaces will also fetch your credit score, but they are termed as ‘soft enquiries’, and thus won’t hamper your credit score.
Don’t Forget to Avail Tax benefits
Home loan applicants in India are exempt in various tax categories. Know your income bracket and the exemptions that you are eligible for.
You can claim an additional deduction for interest of Rs.1.5 lakh paid for a loan taken for the purchase of an affordable house, under section 80C of the Income Tax Act, 1961.
Don’t Forget to Read the Agreement in Detail
Agreement details are often written in fine print, which we tend to skimp through without paying attention. It is advisable that you read through the agreement details before closing the deal. Hidden charges and special terms and conditions popping at the last moment might be a turnoff, making your experience unpleasant. Look for details of lender’s funding norms so that the process goes smoothly and without hassles.
Don’t Look Only for Lower Interest Rate
While a lowest home loan interest rate can be tempting for home loan, basing your decision only on interest rate can turn to risky financial decision if you overlook other factors, like fees, tenor, flexibility in repayment, etc.
A lenders’ reputation in the market should also be checked through their existing customers and customer support feedback. Look for a lending partner who is technologically capable and who will handhold making your journey of home loan stress-free.
Understanding loan market by doing basic research can facilitate smooth financial transactions and make home buying experience easy also help to avoid last minute disappointments.