5 Things to Check before Applying for a Home Loan

Updated on: 18 Jan 2024 // 4 min read // Home Loans
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Finding a home that meets all your needs, or building one that replicates your dream haven is one of the biggest blisses you can revel in. However, in order to soak in this bliss, you may need some outside help in the form of excess funds. Thankfully, you can now conveniently Apply for a Home Loan Online, which not only helps you acquire these funds, buts also offer you with attractive repayment terms. To make the most of your Home Loan, you should carefully analyse the following aspects:

1. Income

Before applying for a Home Loan, you should always calculate your total household income on a monthly basis. Once you do that, you must check that the EMI (Equated Monthly Instalment) your loan will attract should not exceed a maximum of 28% of the monthly income. Also, your total debt repayments, including that towards your car, business or any other EMIs combined with your home loan EMIs should not be more than 36% of your monthly income. While this is not a mandate, it will help you keep your financial health in good shape, and will also encourage the lenders to approve your loan application swiftly!

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2. Eligibility

When it comes to analysing your eligibility for a Home Loan, more often than not, lenders look at that part of your income which can be used to pay your EMIs. Hence, rather than giving due consideration to your CTC (cost to company) which may include medical allowance, LTA, and so on, lenders only take into account your in-hand income. It is best that you do these calculations beforehand so that there are no surprises during the process of applying for a Home Loan.

Here, you must also remember that your Home Loan eligibility is calculated on the basis of your monthly income. For a monthly CTC of 50,000 your maximum Home Loan eligibility is calculated as 50 times of the CTC. This keeps on increasing with the subsequent rise in your monthly CTC. For instance, for CTC between 50,000 and 1 Lakh, the eligibility will be 55 times, for income between 1 to 2 Lakhs, it will be 60 times, and for the revenue of more than 2 Lakh, your Home Loan amount will be determined to be 65% of the monthly income.

Of course, there are some other criteria that you need to meet in order to be eligible for a Home Loan. These include:

  • A credit score of 650 or above
  • Age between 21 to 65 years
  • A steady source of income

3. LTV

As a rule of thumb, banks and housing finance corporations offer up to 80-90% of the total value of the home as a loan. This concept is known as LTV or Loan-To-Value. In accordance with this aspect, if you are looking forward to purchasing a house worth 50 Lakhs, you can expect to receive a maximum loan of  
40-45 Lakhs. So, make sure that you have at least 10-20% of the cost of your new home readily available with you, before filing your application for a loan.

4. Interest Rate

The interest rate is one of the most significant aspects of loan repayment. The higher the interest rate, the higher will be your repayment value, which will directly impact your EMI value as well as the tenure of your Home Loan. It is for this very reason that you must pay more heed to this aspect than any other. To begin with, you must understand that lenders offer two types of interest rates:

Floating Rates

As the name suggests, in this case, the interest rate is calculated on the basis of the prevailing base rate, in addition to a floating rate. This type of interest rate is recommended in case the rates are speculated to fall in the foreseeable future.

Fixed Rates

In this case, the value of EMIs remains constant throughout the tenure. This type of interest rate is recommended in case the rates are expected to rise shortly.

5. Credit Score

As must be evident by now, your credit score plays an imperative role in determining whether or not your Home Loan application gets approved! To be sure of this aspect, before filing your application, you must order a copy of your credit report, and check if your credit score is at least 650 or above. If so, then you must feel free to apply for a credit to build your dream house. If not, you must adopt some ways which can help you increase the score. These ways include:

  • Analysing your credit report carefully, and ensuring any discrepancies are corrected.
  • Consolidate your debts, and pay off as much as possible.
  • Ensure that all your Credit Card bills are paid well within the time.
  • Avoid opening any new bank accounts, or acquiring more than one Credit Card under your name.

Even if it means waiting for about six months to get your credit score to a respectable level, we recommend you do so. Not only will this help you in getting a quicker approval on your loan, but will also help you get the credit on the most competitive interest rates. We hope that with these points in mind, you will be better prepared to apply for a Home Loan while having the appropriate expectations from your lender!