Five things you should know before applying for a home loan

Home loan interest rates have been at multi-year lows, while residential real estate values have stayed essentially unchanged in recent years. For individuals wishing to purchase a house of their own, the current chance should be taken advantage of. The low-interest environment is particularly beneficial to investors who wish to engage in real estate using a combination of their own cash and a loan, and many investors are already using finance to purchase homes in major cities around the country. But, whether you’re a first-time buyer or an experienced investor, there are a few things you should know before contacting a lender. You can go to any bank or non-banking finance company (NBFC) that offers house loans to get a loan.

ELIGIBILITY

The amount of house loan you are qualified for is determined by a number of criteria, including your income, age, credit score, loan duration, and so on. While income will play a significant factor in determining the loan amount, you may always include your spouse’s income as a co-applicant. This has a significant impact on home loan eligibility. Overall, the lender will issue you with a loan with an EMI that is roughly 50% of your take-home salary. The loan’s eligibility can also be improved by extending the loan’s term, which lowers the EMI. You can utilize online home loan eligibility calculators or ask your lender to calculate your eligibility based on your specific needs. Before deciding on a house loan amount, it is recommended that you contact at least 3-5 lenders to determine the best option.

INTEREST RATIO

If you apply for a house loan with a bank, the interest rate you are offered will be based on an external benchmark. The Bank Repo rate is tied to a bank’s lending rate for the vast majority of banks. When the Bank repo rate changes, the borrower’s home loan rate of interest may alter three months later, particularly if the home loan interest rate is variable.

As a borrower, inquire about the bank’s outside reference rate, also known as the Repo linked lending rate (RLLR), and determine how much your house loan will cost. The RLLR might serve as a floor rate for banks, with rates varying for individual borrowers depending on loan size, term, and other factors. Housing finance companies, or NBFCs, have lending rates that are mostly determined by their cost of capital but are also influenced indirectly by the RBI’s repo rate fluctuations. Look for lenders who have a lower RLLR or lending rate, and then evaluate your home loan interest rates.

CREDIT SCORE IMPACT

Your credit score is significant because it enables lenders to offer you a reduced interest rate. Lenders want a credit score of at least 750, and you may save a lot of money by taking out a house loan with a low-interest rate. Several lenders have begun to offer consumers discounted rates based on their credit scores. If your credit score is below the magic number of 750, you should take the required actions to improve it before approaching lenders for loans.

SUBSCRIPTION

The majority of lenders will lend between 80% and 90% of the home’s worth. As the down payment amount, you must arrange the remainder from your own resources. Ideally, make the largest down payment possible and obtain a smaller loan amount to keep the interest burden low. If this is not possible at first, choose a larger loan amount and return a large portion of the loan within the first year of the loan term. This will help keep your home loan’s interest rate low.

DOCUMENTS

Based on whether you are a permanent employee, a professional, or a company owner, you may need different documentation to prove your income. For salaried borrowers, lenders will need Form 16 or ITR for the last three years, as well as bank statements and other documents. You may be requested for the last three years’ worth of income tax returns (personal and business), the last three years’ worth of profit/loss and balance sheet, as well as the previous six months’ worth of bank statements and even GST, reports, according to your source of revenue.

Now that you’ve learned the basics of a house loan, it’s time to act and finish the loan by visiting a few lenders. Make the best decision you can and keep your interest rates low. A few percentage points can save you many lakhs of rupees and provide you a home to call your own.

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