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Important Things to Know Before Getting a Housing Loan

These are specially designed so that you do not miss the opportunity to make such dreams come true without having to pay all the money up front. However, taking out a home loan can seem like a complicated process. There are many factors that you should know before taking out a loan regarding a housing loan. The most prominent ones are listed below:-

1. Factors that can affect eligibility criteria: The best way to calculate your home loan eligibility is to calculate the EMI. Generally, banks limit the amount to 40% to 50% of the borrower’s income – including basic salary and severance pay. It also takes into account a borrower’s credit history. Therefore, if you have existing credit or your credit score is low, the loan amount will decrease further or you may have to pay increased interest on the housing loan. People with a stable income, strong repayment ability, and good credit scores find it relatively easy to get a loan compared to people with irregular earnings and bad credit history. Also, being a co-applicant allows you to get a home loan easily.

2. Understand your loan type: Banks offer two types of home loans, fixed rate loans and floating rate loans. A fixed rate loan is a type of home loan where the interest rates stay the same and the borrower has to pay a fixed EMI for the duration of the loan. On the contrary, in the case of a floating interest rate, it more often changes according to market conditions causing the EDI amount to fluctuate. For this reason, fixed rate housing loans have a higher interest rate between 1% and 2.5% compared to variable rate loans.

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3. Interest rate: Whatever type of home loan you choose, remember to negotiate the rate. While banks always have an advantage, you will have to bargain about it, especially if you are a loyal customer of the bank and have a savings account at the same bank. Negotiation will be much easier if you have a clear credit history. You can also benefit if you apply for a loan at the end of the month. Since banks have business goals, they can be more flexible this time if they want the job.

4. Fine print: A home loan agreement is a legal document that contains all the details of the loan. If you think that not paying the EMI on time will only cause troubles, you are wrong! There is a lot of substance hidden in the fine print. It is therefore recommended that you carefully read the final papers of the loan agreement before signing the dotted line. Credit processing fee, penalty fee, confidential provision, service fee and prepayment penalty etc. Pay attention to the matters. Any negligence in this context will lead to bigger problems in the future.

5. Longer loan terms mean more costly loans: As a general rule, the longer the loan’s tenure, the more interest you’ll pay over a given period of time. Many can afford this increase, but not everyone can. Therefore, it would be wise to apply for a loan amount that you can easily repay in a shorter term. You may have to pay huge EMIs this way, but for a shorter period of time and without backing up more interest rates.

These are just a few things to consider when applying for a home loan. Remember that getting a loan from a bank doesn’t mean you’re stuck there until your loan is fully paid off. You always have the option to switch. During this transition period, you only need to pay the transaction fee and also the prepayment penalty (if collected by your current bank).

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