While reaching a decision to buy your own home brings on feelings of euphoria, the process of applying for a home loan brings you back to earth with a bang. As paying the entire amount for a home out of your pocket is rarely feasible, a majority of people approach banks and finance houses for home loans. While the banks appear to be bending backwards to help you get a home loan, you need to be wary of what’s at stake and do your homework properly first.
As with all financial products, you need to get down to the nitty-gritty on how these home loans work so that there are no nasty surprises waiting after the deal is done. The good part of the story however is that home loans have become cheaper of late, making this the ideal time to enter the home-shopping arena. Here are some important tips to consider before applying for a home loan.
Even though home loans are considered the safest, banks sanction loans based on your credit history, repaying past loans as well as you annual income. You will need to know how much you can give away each month in the form of EMI, without upsetting your bandwagon. Banks usually expect you to chip in about 30% of your monthly income as EMI and offer around 80% of the value of the home as loan – although there is no rule declaring it!
Make sure that your credit bills are paid up and any other loans you may have taken are on track for repayment. If you have too many liabilities, your credit score goes down, as these effects your ability to pay off home loan EMIs.
Chose your lending bank with care and go through their terms and conditions with a magnifying glass. Most banks differ in their loan amounts, interest rates as well as tenure and customer service and rules for early termination.
These are of two types – fixed and floating; as can be deciphered, the EMI and tenure do not change in fixed interest rates while in the latter, they change with changes in interest rates over the years.
The EMI is inversely proportional to loan tenure, so weight your repaying capacity before finalizing.
Finally, find out about any extra charges, processing fees and any other terms and conditions – could save you expensive grief in the future!