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TOP 5: Things to consider while taking a home loan
Young and going for a home loan? Aditya Prasad tells you about the 5 things you absolutely must remember.
Buying a home is no longer a distant dream, for most families owning their dream house is well within reach thanks to the ubiquitous availability of credit in the form of home loans. There are offers galore in the real estate market and at times quite tempting.
Almost every builder attempts to offer you your dream home and there is always a good chance to find one in the bargain. The next step is getting the money and banks roll out the red carpet for the relationship they expect to last no less than a decade or two.
Going for a home loan may seem daunting and times an intimidating process. However, it may not be so if we just keep in mind few simple things. Read on!
The author is chief evangelist, Perfios.com
1. Affordability
While decision to buy your own home may be an emotional one, its affordability should be more objective decision. The property purchase should not make you sweat and hence it is imperative to check whether down payments as well as the EMIs are within your comfortable reach.
The down payment money should not make you vulnerable to contingencies and hence do not touch your contingency fund for the same. Your EMIs should follow the cardinal rule of not exceeding 45% of your total income, including all other EMIs, if any.
2. Choosing the lender
Well, it is a buyers market at the moment. So you should go shopping for your lender. Do not just talk to one bank or housing finance company. Evaluate at least 4-5 of them.
Check for the terms they are offering and what suits you the best. While evaluating the lenders consider both quantitative and qualitative aspects.
For example, while the interest rate is important, it may not vary too much between the banks but the customer service, internet banking facilities and more may vary extensively. Remember, these are the things you have to live with for rest of the tenure of your loan.
3. Interest Rates
In the current scenario, it still does make sense to go with variable rate loans, so not too much to think about there. However, it would certainly help to have a clear understanding on the interest rate calculation.
For instance what is the base rate and what is the mark up on same to arrive at the lending rate.
This would help you determine the change in your liability, as and when the base rate changes. A timely follow up with the bank can save you lot of interest burden, when the rate changes in your favour.
4. Loan Tenure
This is a tricky one. We tend to go for the longest tenure as the EMIs look more affordable. While this is true, it also means that you end up paying more interest and hence the cost of your property is much higher.
During early stages of working life, it is fine to take long tenure as affordability would be a concern.
Also you have a long working life ahead and there are high chances of prepaying the same within half the time frame as the income goes up. During later years one must play more within means and considering future income prospects.
5. Credit score
Every bank looks for your credit score before approving the loan. Credit score is nothing but the score card of your financial life so far. It helps bank judge your financial credibility and as such risk associated with their loan disbursement.
A bad credit score can bring your cherished home dream crashing down at the last minute leaving you with no time to correct the situation. Hence, it is important to get your credit score known yourself from the CIBIL website, before bank does. This will help you rectify any mistakes in the score by taking it up with CIBIL.
Taking a home loan entails a long term relationship with your lender. Hence, keep these pointers in mind while you hunt for the right home loan for your dream home.