Every individual aspires to purchase a house at some point in his or her life. However, with high property rates buying one’s dream house gets delayed time and again. Even the lending process is not as streamlined as one might think as it entails detailed documented trail that requires a lot of time, patience, and effort on your (the borrower’s) part.
Here are five points you should keep in mind when applying for a home loan.
Stability of job and income
Perhaps, the most important factor that lenders tend to keep in mind is your job—and by extension—your income stability. Lenders consider your net salary, expected expenses, and your existing EMI outlay, to calculate your fresh loan eligibility. They consider 55-60% of your monthly income as the surplus available for overall loan repayments. Given that a home loan is a long-term liability and will most likely be your single largest credit exposure, it is prudent to have clarity on your future employment and income status before finalising the loan.
Check your credit score
There are multiple institutions such as CIBIL, CRIF, Experian and Equifax that provide credit scoring for individual customers in India. These bureaus measure your credit score on a scale of 300 to 900, which is assessed on the basis of your credit card usage, loans, repayments and previous loan or credit card applications, etc. Your credit score should preferably be more than 700 to improve your chances of getting a home loan approved. If your track record of paying credit card dues and loans is not stellar, then clean it up before initiating the loan application process.
Interest rates, fees, and charges
When it comes to taking a loan, the first thing that will come to your mind is the interest rate. There are two forms of interest rates—fixed and floating. The fixed rate is one that is not affected by market fluctuations, whereas floating rate changes accordingly. The fixed rate is slightly higher than the floating rate. It is necessary to evaluate the pros and cons in both cases. You should keep in mind the various fees and charges that are attached to the loan-taking process. Some of these fees and charges include loan processing fees, penalty on late payment, verification charges and service tax.
The higher the tenure, higher will be the absolute amount of interest paid. Therefore, it is recommended to keep the loan repayment period as low as possible so that you do not end up paying more than what is required. However, the loan tenure should always be calculated while keeping your paying capacity in mind.
As you go through all the loan documents, make sure you pay extra attention to all the terms and conditions of the agreement including those mentioned in small text in the document.
Lack of information regarding the home loan application process is a major reason why most people either tend to shy away from taking any loans or end up miscalculating their finances. Keeping the above points in mind may help you make a calculated decision regarding home loan.
-Manisha Lath Gupta is chief marketing & digital officer, Clix Capital