Buying a home is one of the biggest commitments one makes in a lifetime. Since the decision is massive, so comes the financial aspect. Most of the average salaried or self-employed, middle-income individuals’ resort to a home loan for buying the home of their dreams.
However, home loans are different than personal or business loans and come with a great deal of commitment. Now that you’ve finalized buying a home and taking a home loan, it’s time you get prepared to know the nitty-gritty of a home loan. it is crucial to be well prepared of the factors to keep in mind before taking out a home loan.
Planning To Take A Home Loan? Here Is What You Should Consider
To be on the safe side, we advise you not to overlook the following 10 points while applying for a home loan:
1. Credit Score
A credit score is a 3-digit number computed by the credit bureaus in India based on the applicant’s credit history, repayment history, loan default occurrences, and more. In very simple terms, the credit score conveys a borrower’s creditworthiness to the lender, i.e., it quantifies the borrower’s ability to repay the loan. Maintaining a credit score of at least 750 is important if one wants to avail of a home loan at affordable interest rates.
2. Income Generation
Before taking a loan, one must give serious thought to their income generation ability, at least for the tenure of the home loan. Home loans can be quite hefty in quantum, and the interest levied adds to that burden. A stable income is a must if one has to take and successfully pay back the loan on time. The income and prospects of an increase must be considered before deciding on the amount to be taken. Also, your income shows your loan repayment capacity to the lenders which decides the fate of your home loan application.
3. Home Loan Interest Rates
A financial institution charges interest on the amount borrowed as a home loan. This interest is added to the principal amount and has to be repaid along with it. It is advised that before finalizing a lender, one must compare the many home loan interest rates and schemes that other lenders offer and settle on the one that seems to be the most suitable to their needs.
4. Processing Fees
Once the home loan process is completed, and the approval is given, the borrower has to pay the lender a small processing fee, roughly around 1-2% of the loan size. Before applying, it is advised to compare processing fee requirements as well.
5. Existing Debt Condition
Perhaps one of the most important factors to consider is the existing condition of debt that the borrower is in. Piling on credit would make it harder for the borrower to pay everything back and adversely affect their credit score. It is better to opt for a personal loan for debt consolidation to pay off multiple, smaller debts and maintain one or two loan liabilities.
6. Home Loan Tenure
The tenure for the repayment of the home loan is a crucial factor to consider. Going in for the longest possible tenure might seem like a good idea but can create issues later. Similarly, a smaller tenure would wreak havoc with huge EMIs. Repayment capacity must be kept in mind before fixing a tenure.
7. EMI Affordability
Home loans are payable via Equated Monthly Installments, and while that is a relief for the borrower, sometimes EMIs can become too cumbersome to handle. A borrower is advised to look at the calculated EMIs, and check if they’ll be affordable comfortable or not.
8. Foreclosure Norms
Being in touch with RBI foreclosure norms is helpful in the long run. One can try to pay as quickly as possible to avoid paying extra charges.
9. Pre-payment Penalty
As per RBI norms, banks are forbidden from charging any pre-payment penalties from the borrower.
10. Home Loan Documents
Lastly, keeping all the essential documents in check is vital. Not conforming to the rules regarding home loan documentation will only delay the process or might reject the home loan application too.
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