The Reserve Bank of India (RBI) has maintained the repo rate at 6.50%, keeping it unaltered in the recent monetary policy decision. The decision gives relief to existing as well as new housing loan borrowers, as it indicates no major changes to the home loan equated monthly installment (popular as EMI) payments. Typically, home loan costs, including month-on-month interest payments on a home loan, go up when the RBI raises the overall repo rate, as it affects the rates at which a commercial lender can borrow from the central bank. Since the RBI has not increased the repo rate in the past few monetary policy reviews, there have been no upward adjustments in housing loan interest rates by the lenders in this period. Now, how would you make the best out of the current scenario? Read the top home loan tips for a better understanding.
Top Tips for First-Time Home Loan Buyers
If this is the first time you are purchasing a home, you are likely to have explored several home loan options available in the market. You might also be getting overwhelmed with the numerous factors to be taken into consideration like the home loan interest rates, the home loan amount, the margin, etc., as a housing loan is a very long-time commitment that may stretch up to even 40 years. Do not get worried, as we have some great tips for you below that will help better your understanding of home loans in India.
First and foremost, you need to keep a tab on your financial health before you buy a home, the first thing most of us do, possibly, is scrolling through property listings and searching for a dream home. This is crucial but the first thing we have to do is evaluate the financial health and check if we can comfortably afford to repay the equated monthly installment (EMI) of the availed loan. Take a look at the savings and see if you have enough amount to make a down payment. Do not consider availing of a home loan unless you have accumulated enough savings for emergencies as well.
Shop Around
If you want to secure the ideal deals on home loans in India, you have to shop around in the wider market to check for home loan interest rates that several lenders are currently offering. This will allow any borrower to compare all the benefits, including home loan interest rates, and help make a more informed decision. Once you decide on the lender after comparing the advantages, it is a wise decision to use the home loan EMI calculator tool so you can calculate the EMI you will need to pay towards the home loan. Doing so will help assess if you can afford to pay EMIs.
Take Advantage of Various Affordable Housing Schemes Available
Under the Pradhan Mantri Awas Yojana (abbreviated PMAY), you can take full advantage of the Credit Linked Subsidy Scheme (abbreviated CLSS) offered by well-known lending institutions on a home loan in India.
The best thing about the scheme, besides a subsidy on home loan interest rates, is that it is available to first-time home buyers. Yet another advantage is that under PMAY it is not needed for you to pay the processing fee.
Save Sufficiently for a Down Payment
As stated earlier, you must have adequate savings to be able to make a significant down payment for a housing loan after keeping some amount aside for emergencies. Besides, before you get the home loan, you will need to pay somewhere from 10% to 25% of the property value as a down payment.
For example, if you have been looking to purchase a property that is worth Rs. 35 lakh, you might have to make a down payment of about Rs. 7 lakh.
Do Not Opt for a Longer Repayment Tenor
Choosing a longer repayment tenor will lower the burden of significantly high EMIs but in the long term, you will end up paying higher loan interest.
Hence, you must opt for a tenor that is relatively shorter but for which you may afford to pay EMIs comfortably. The money that you would save on the home loan interest can instead, be used to invest in mutual funds, fixed deposits, etc. Investing in such products might help earn good returns.
Purchase a House Within Budget and at a Convenient Location
Do not get too carried away by flashy exteriors and interiors of a property and purchase a house that is beyond budget.
Besides, opt for a property that has enough facilities and is reasonably priced so that paying EMIs does not strain the pocket. Also, make sure that the property you purchase is at a convenient location and the builder of the property has a good reputation in the market. Lending institutions will check the builder’s reputation before approving a home loan.
Be Aware of the Required Documentation for Home Loan
The documentation required to apply for a home plan can be put into three categories:
1. KYC Documents
These will include your address and identity proof like an Aadhaar card, voter ID, passport, etc.
2. Income Documents
These papers are needed for the lender to assess home loan eligibility. One can submit payslips if you are employed, or you can also submit income tax returns for the past three years if you are self-employed.
3. Property Documents
These typically will include the property deal documents.
Go through the Loan Agreement Documents
You must make sure that you have gone through and understood all that is written in the loan deal before going ahead and signing it. All terms and conditions must be looked into.
Understand the Foreclosure Norms
Currently there are no foreclosure penalties on floating interest rates. You must know this while foreclosing the loan so that you do not end up paying more.
Maintain Credit Score During the Home Loan Processing Period
Do not think that just because lenders verified your credit before accepting your home loan application, they will not do so again. Before your loan closes, lenders may search your credit record again to check if anything has been altered. So, make sure you have your credit in good standing throughout the loan processing phase. To accomplish this, you must refrain from obtaining multiple credit cards or applying for further loans. To keep credit in check, you must also regularly pay all your expenses on time.
Concluding Thoughts
With the numerous benefits of home loans and so many players in the market offering different housing loan offers, it may become difficult to choose among the various housing finance offers. It is always advised to opt for credible lenders such as reputed financial institutions that are transparent at each stage.
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