5 Things to Keep in Mind When Taking a Home Loan
Your home is probably the biggest asset of your life. Not only does it require ample deliberation at your end regarding a wide array of assets such as cost, design, size, location, and so on, but also needs to get a thumbs up from your mortgage lender.
It is only after everything that relates to this property come together, does your dream of owning a home, that you can all you own, can be fulfilled! When we speak of mortgage for your home, you may think of it as a fairly common phenomenon, something that you needn’t think about twice. However, that isn’t the case. In fact, there isn’t just one but numerous aspects that you must know of, before Taking a Home Loan.
Let us take a quick look at each of them!.
1. Home Loan Amount
There are two factors which play a major role in the determination of the Home Loan amount. One of them is the cost or market value of the home that you are willing to purchase. As a rule of thumb, you ought to pay 20% of the price on your own, and can take the remaining 80% of the value from the bank as a loan. Hence, if your chosen property costs 50 Lakhs, you can expect the bank to offer you a credit worth 40 Lakhs.
However, there is yet another factor that the bank will consider – your ability to repay the loan! In an ideal world, your Home Loan EMI (equated monthly instalment) should not exceed 40% of your total monthly income. Hence, considering you have a salary of 1 Lakh per month and want a loan for 40 Lakhs as discussed above, at a rate of 10.5% for a period of 20 years, the bank may be reluctant to approve your application.
The reason? Your Home Loan EMI is 49,919, much higher than the 40% of 40,000. In such a case, if you want a credit, you may want to have a co-applicant. Considering your spouse is also an earning member, and brings home 80,000 a month, your combined home loan eligibility will enable you to pay an EMI of up to 72,000 thus implying that your Home Loan Application will get swift approval.
If you wish to calculate the ideal Home Loan amount for you, you can do so with the help of MyMoneyMantra’s Home Loan EMI Calculator.
2. Your Credit History
Yet another aspect that plays a crucial role in your Home Loan application process is your credit history. A good credit history indicates a respectable financial discipline on your part. Generally, lenders consider anything above 650 as a good score for a potential Home Loan candidate. A score below that might put a question mark on your creditworthiness and may lead the lender to be a little reluctant about lending you such a hefty amount.
However, there are numerous ways to improve your credit score, one of which is getting a small loan under your name, and paying it off dutifully. You can also get one or more Credit Cards, and remain upfront about your payments to see a steady rise in your credit score. Once your score has reached the optimal level of 650 or above, you will be able to get a Home Loan, rather easily.
3. Eligibility Criteria of the Bank
To safeguard itself from any unsolicited losses, your bank would most likely have some internal criteria in place to gauge your ability as well as willingness to repay the loan. As per these criteria, the bank may usually want you to:
- Be above the age of 21 and below the age of 50
- Have a steady source of income
- Have the minimum possible number of existing loans
- Have a strong repayment history
- Have a decent financial portfolio
While it may not be necessary for you to meet all of these criteria, the more you do, the better will be your chances of getting a quick go ahead on your application.
4. Home Loan Interest Rates
There are two types of Home Loan interest rates:
- Floating interest rates (varying throughout the tenure as per market rates)
- Fixed interest rates (remain fixed throughout the loan tenure)
The former is usually cheaper but puts you at an inconvenience of paying different EMI every month, which may be difficult to manage, especially if you are a salaried individual. Fixed rate Home Loans prove to be comparatively more expensive in the long run, but helps you enjoy the much-needed peace of mind that comes from knowing exactly how much amount do you need to pay for every EMI.
More often than not, Home Loan interest rates in India range from 8.50 to 11.50%. However, some lenders may offer Home Loans at up to 17% interest rate. The rate usually varies depending on numerous factors such as the type of employment, gender, location and market value of the property and type of bank (private, public or corporate), amongst other factors.
5. Additional Charges
When you are looking at a Home Loan agreement, you should watch out for additional charges. These charges usually include:
- Processing Fee
- Administrative Charges
- Legal Fees
- Valuation Fees / Inspection Fees
- Documentation Charges
- Fee for Changing the Terms of the Loan
- Fee for Changing the Loan Tenure
- Copies of Annual Account Statement
- Pre-Payment Charges
- Late Payment Charges
- Recovery Charges in case of Defaults
- Document Retrieval Charges in case of Foreclosure
Considering that there is a wide range of aspects that you need to take into consideration, before applying for a Home Loan, and during the process of procuring the same, we recommend that you seek the assistance of an expert financial advisor at MyMoneyMantra. This simple step will help you in enjoying a holistic view of the deal, thus ensuring that you enjoy a hassle-free home loan approval, disbursal, and repayment.
Also Read: 5 Best Home Loan Providers in India
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