Published on May 24th, 2022
Buying a home will help you get one of the most significant assets in your life. To buy a home, you’ll need to make several considerations for an array of assets, such as location, size, design, cost, and so on. But most importantly, you’ll need approval from your home loan lender.
When it comes to a home loan, you may think of it as a common financial procedure, which won’t need much of your attention. However, it’s not like that, as numerous aspects need to be kept in mind for home loans in India. Below are a few of these aspects described in an easy and understanding way. So, check them all.
1. Loan Amount
To determine the home loan amount, two essential factors come into consideration – the market value of the home and your ability to repay the loan.
Generally, whatever may be the loan amount, you’ll have to pay 20% of the value on your own, whereas the remaining 80% can be paid from the loan.
So, if you choose to buy a home worth INR 40 Lakhs, you can expect to get a home loan worth INR 32 Lakhs.
However, your ability to repay the home loan is also a crucial factor. Ideally, your home loan EMI amount should be less than 40% of your total income. If the EMI amount exceeds 40% of your income, you’ll need a co-applicant to get the home loan.
2. CIBIL Score
Another aspect that has a crucial role in a home loan is your CIBIL score or credit history. An excellent CIBIL score means that you are punctual to the repayment schedule and are financially disciplined.
For potential home loan applicants, a lender often considers a credit score of 650 or above as a good score.
However, a CIBIL or credit score below 650 means your creditworthiness is unreliable, and the lender may be reluctant to proceed with your application for such a hefty loan amount.
3. Eligibility Criteria
To protect themselves from unwanted financial losses, banks tend to set up a few internal criteria to determine your willingness and ability to repay the home loan. According to such criteria, the bank will typically want you to:
- Have a stable income source
- Be above 21-years of age and below 50
- Have an excellent cibil score/strong repayment history
- Have no or minimum number of existing loans
- Have a solid financial portfolio
- Although it’s not always mandatory to meet all these criteria, doing so will help you get a home loan quickly.
4. Home Loan Interest Rates
It’s imperative to learn that there are two types of home loan interest rates – fixed and floating interest rates.
Although floating interest rates can be cheaper, they will put you at an inconvenient stage of paying different EMI amounts every month. This may lead to difficulty in your financial management, especially if you’re a salaried person.
Comparatively, fixed interest rates for home loans are more expensive in the long run. However, it ensures peace of mind and helps you with financial management as you know exactly how much money will be deducted from your account as EMI every month.
5. Extra Charges
It’s crucial to check for the additional charges while proceeding with your home loan agreement. These charges typically include:
- Administration charges
- inspection/valuation fees
- Fees for changing the Loan Terms
- Print copies of your annual bank account statement
- Late payment fees
- Document retrieval charges (for foreclosure)
- Processing fees
- Legal fees
- Documentation charges
- Charges for changing the Loan tenure
- Pre-payment charges
- Recovery charges (for default cases)
With so many aspects to consider while proceeding with your home loan application, it’s best to seek suggestions from an expert financial advisor.
So, get the best use of this short guide to enjoying a hassle-free and convenient home loan process for quick approval and disbursal.