Home loan : keep these things in mind while taking a home loan

Indian people have a history when it comes to buying a house, the main objective has been roti-kappa-makaan. One thing that has been common from generation to generation is the preference to buy a home. Despite the pandemic, it has changed its priorities to invest in home instead of mutual funds and SIPs as a safe mode of investment. Buying a home can be one of the most satisfying experiences. However, before one embarks on this rewarding process, they should take a step back and do their due diligence for the home loan process.

With the digital advancement, the overall timeline for home loan approval and disbursement has reduced, but the documentation remains the same. Moreover, loan approval basically depends on your credit risk valuation by the lender based on your credit score, income, job profile, etc. Choosing the right lender is also important as the interest rates and fees charged by them can vary greatly. It would be wise to analyze home loan options along with looking for a home. As an initial attempt, one should consider some of the dos and don’ts given here that can help them:-

What to do:-

Analyze your property and check eligibility

Individuals need to be financially secure for a home loan. From job to investment, credit score, everything should be fine and in good condition. Once the self-assessment is done, the whole process will seem smooth. After the appraisal, we have to assess the capital that will be required to start the loan process. As a standard protocol, banks and HFCs offer funding ranging from 85% to 90% (agreement value) on households below Rs 30 lakh (subject to credit score and company profits) and 80 per cent for households above Rs 30 lakh. Providing funding of up to %. The challenge here is to arrange the remaining 10% or 20%.

Focus more on Affordability

While selecting a lender, do a little market study to see how affordable the loan being offered from each is in comparison. There are several factors that you should consider apart from the interest rate and EMI to make the loan affordable during the tenure and not just in the beginning. EMIs can be cheaper if the interest rates are low and the tenure of the mortgage is long. However, the total loan charges tend to skyrocket with the increase in tenure, so you might choose a tenure short enough not to spend a large part of your life paying more than the amount borrowed by the end of it. Would like

Understand the risks involved before signing up

Taking a home loan limits your assets in case of dilution. If you already have your finances in order and pre-planned, no problem, however, it is good to be careful and be prepared for a bad situation. Also, very often people skip reading their mortgage agreements and overlook details related to timelines, disbursement processes and hidden charges. It is important to read your agreement and clear any doubts before deciding it.

what not to do

Don’t over-pledge an amount that you think will be difficult to pay back

Do not pledge the maximum amount you are eligible for; Instead plan to spend only what you can practically manage to pay in monthly payments, for example, 30% of your take-home pay. Overvaluation of your Equated Monthly Installment (EMI) stretch can increase the risk of EMI default due to financial requirements. Such repayment defaults incite heavy penalties and can also adversely affect your credit score.

Don’t choose a bank on the basis of interest rates only

Low interest rates should not be the sole criterion while choosing a lender, provided they are mortgaged for an average of 15-20 years, a major financially backed lender for reliability can ensure this. There have been several occasions when borrowers have seen their rates increase by 200 to 300 basis points due to re-rating of lenders who had to pass on higher borrowing costs to their customers.

(The author of this article is Mr. Rohit Poddar, Managing Director, Poddar Housing and Development Ltd.)
(Disclaimer: This article is for informational purposes only. It should not be construed as investment, financial or other advice)