10 Home Loan Tips To Make Your Buying Easier

For many, building or buying a home is the fulfilment of a lifelong dream. However, the excitement of homeownership can quickly turn into frustration when faced with the complexities of loans, banks, and legal procedures. This blog gives you 10 home loan tips you need to know before availing of a home loan.

In India, numerous financial institutions offer home loans at varying interest rates. This blog serves as a checklist to guide you through the home loan process steps and factors involved in getting a home loan easily.

1. Credit Score/CIBIL Score

If you are thinking about how to get a home loan easily, then think about your credit score because it’s definitely going to be your advocate. Your credit score, also known as your CIBIL score (Credit Information Bureau India Limited score), is a numerical representation of your creditworthiness. It reflects your past loans and repayment and significantly impacts your eligibility for a home loan and the interest rate you are offered. Generally, a higher credit score leads to a lower interest rate on your home loan. You must try to maintain a score of above 750 for the most favourable terms. You can check your credit score online through various platforms like your mobile banking app, CRED and more, free of charge.

2. Verify Your Home Loan Eligibility

Before applying for a home loan, it’s essential to understand your eligibility. This will involve factors like your income, employment status, existing loans, and credit score, all of which play a role in determining the loan amount you qualify for.

3. Types of Loan

There are various types of home loans available to cater to different needs. Some common options include:

• Purchase Loan: This is the most common type of home loan used to finance the purchase of a new property.
• Construction Loan: This loan is used to finance the construction of a new home.
• Renovation Loan: This loan is used to finance renovations or improvements to an existing property.
• Transfer Loan: This loan allows you to transfer your existing home loan to a new lender, potentially securing a better interest rate.

One of the biggest home loan tips is to understand clearly the different types of home loans and their features. This will help you choose the one that suits your requirements.

4. Down Payment

A down payment is a lump sum of money you pay upfront towards the purchase of the property. A higher down payment reduces the loan amount you need and also lowers your EMIs (Equated Monthly Installments) and the overall interest you pay over the loan term. While a 20% down payment is ideal, some banks may offer loans with a lower down payment, but this will come with a higher interest rate.

5. Documentation

One of the important home loan process steps is documentation. The home loan application process typically involves submitting various documents like proof of identity, income tax returns, salary slips, bank statements, and property papers. Ensure you have all the necessary documents in order to avoid delays in processing your application for a home loan at the time of registration.

6. EMI/Pre EMI

EMI, or Equated Monthly Installment, is the fixed monthly payment you make towards your home loan. It includes both the principal amount, which is the actual loan amount taken, and the interest you have to pay until the loan tenure ends. Understanding your EMI amount is crucial for budgeting purposes. Some banks may offer a pre-EMI scheme, where you pay only the interest component for a specific period before the regular EMI kicks in. This home loan tip should help you manage cash flow during the initial stages of ownership.

7. Tenure

The loan tenure refers to the total duration in which you have to repay the loan completely. A longer tenure translates to lower EMIs but ultimately means you pay more interest overall. On the other side, a shorter tenure results in higher EMIs but allows you to become debt-free sooner and save on interest costs. Choose a tenure that balances affordability with your financial goals.

8. Interest Rates

The interest rate is the cost you pay to take the loan. It is a crucial factor impacting your monthly EMIs and the total cost of your loan. Home loan interest rates can be fixed or floating. Fixed interest rates remain constant throughout the loan tenure while floating rates are subject to change based on market fluctuations. You must carefully consider your risk appetite and financial goals when choosing between fixed and floating interest rates.

9. Cost of Your Loan

The cost of your loan is not just your principal amount and interest rates; it goes much beyond that. There are plenty of additional charges associated with home loans, such as processing fees, valuation charges, legal fees, and documentation charges. Make sure to consider all these additional costs and different financial institutions when comparing different loan options.

10. Foreclosure Norms

Foreclosure is a home loan process step, which is a legal measure by which the lender repossesses the property if you fail to make your loan repayments. It’s essential to understand the foreclosure norms associated with your home loan, including the penalties and timeframe involved.

Additional Home Loan Factors

While the previous section covered the essential aspects, here are some additional home loan tips to consider for a smooth home loan experience:

1. Home First or Loan First?

This is a crucial decision. While securing your home first might seem the right choice, getting pre-approved for a home loan can be advantageous. Pre-approval allows you to:

• Know your budget: Understanding the loan amount you qualify for helps you narrow down your property search to homes within your budget.
• Stronger bargaining position: A pre-approval letter is proof for the sellers that you are a serious buyer with the financial backing to complete the purchase.
• Faster closing: Pre-approval streamlines the home loan process, potentially leading to a quicker closing on your chosen property.

2. Insurance Cover

Home loan insurance is not mandatory in India, but it’s highly recommended. There are two main types of insurance to consider:

• Loan Protection Insurance: This insurance safeguards you and your family in case of unforeseen circumstances like death or disability during the loan term. It ensures your loan repayments are covered, preventing foreclosure.
• Homeowner’s Insurance: This insurance protects your property against damage caused by fire, theft, natural disasters, and other issues.

3. Defaults and Repercussions

Missing loan repayments can have severe consequences. Late payments can damage your credit score, making it difficult to secure loans in the future. Continuous defaults can lead to foreclosure, resulting in the loss of your property. Make timely EMI payments a habit to avoid these issues.

4. Processing Fee

The processing fee is a one-time charge levied by the lender to cover the administrative costs associated with processing your loan application. Processing fees can vary depending on the bank and the loan amount. Be sure to compare processing fees when choosing a home loan provider.

5. Additional Charges

There are various additional charges associated with home loans, including:

• Valuation charges: The bank may appoint a valuer to assess the property’s market value.
• Legal and documentation charges: These cover the legal fees associated with document verification and property registration.
• Technical charges: Some banks may levy charges for loan processing software or technical services.

Understanding these additional charges upfront helps you to add them to your overall budget.

So, are you ready to find your dream home?

While this blog is more focused on what is the home loan process, we understand that finding the right property is equally important. Sterling Developers offers a variety of home options to suit your needs and budget. We can also help with your documentation and loan process. If you are ready to own a home, then choose Sterling Developers.