Buying a dream home entirely depends on the amount of home loan you can avail. But, before you take a final decision on borrowing, following are the things you should know before availing a home loan in India.
Banks will decide your eligibility on the basis of your repaying capability, income, expenses, surplus income, etc. Some banks even consider the availability of 55% – 60% of your monthly disposable or surplus income for the repayment of the loan. While other banks calculate income available for EMI payments based on your gross income.
The amount of the home loan will mainly depend on two things – term of the loan and the interest rate. In addition, various other variables determining your monthly expenses which again depends on your disposable income.
Your loan eligibility also depends on your credit worthiness. CIBIL (Credit Information Bureau Limited) is an authority of offering a credit score on a scale of 300 to 900 on the basis of your credit card usage, was there any cheque bounces, how you maintain your bank accounts, loan repayments, existing loans, etc.
If you have a CIBIL score of over 700, then you have more chances of getting a home loan. If you are applying for a loan time and again, you are considered as credit hungry and you may face issues while getting a loan.
Type of interest rate chosen by you really makes a difference on your monthly EMIs. Make sure you take some time out to learn more about fixed rate home loan and floating rate home loan. In case you have opted for fixed rate home loan, your EMIs stays intact over the loan term. This type is really beneficial when the interest rates are expected to rise in the near future.
As for the floating rate home loan, the interest rates get decided on the existing base rates plus a floating rate. Your EMIs will vary on the basis of the movement of the base rates. This type is really beneficial when the interest rates are expected to fall in the near future.
EMIs (Equated Monthly Instalments) gets calculated on the basis of three things – home loan amount, interest rate, and the loan term. If you have a longer term, then you will have lower EMI to pay and in case you have a short term, then the EMIs will be high.
Same is the case with the term, if the term is higher you will end up paying higher interest rate and vice-versa. You should be well-aware of the impact of your EMIs on your finances before you take a final decision on the loan term. It will be a smart move to calculate the available surplus under varied scenarios and evaluate the available monthly surplus for each scenario.
Read the Fine Print
Before you go ahead and sign on the dotted line, make sure you have read the home loan documents thoroughly. Ready the terms and conditions carefully to avoid any last minute surprise. While reading the document for terms and conditions, give special attention to varied applicable charges such as – interest rates, processing fees, late payment fee, etc. You will also get to know the documents you will need to submit such as – income proof, residence proof, bank statements, income tax returns, etc.
Taking a loan from a bank does not mean that it’s mandatory and you are stuck with that bank forever. In extreme conditions or when you are getting a better deal from another lender/bank, you have the provision of switching. Nowadays, no bank has a prepayment penalty on the floating rate loans. Therefore, you only have to bear the processing fees. You can use your negotiating skills here or you at least request for a reduction if not a full waiver.