Buying a home requires some serious deliberation, but it is also one of the most gratifying decisions we make. The smart thing to do, would be to research home loan options in parallel with the house hunt. As a starting point, consider some of these must-dos that will help get the ball rolling:
Check your eligibility
While you narrow down home options, start calculating the amount you will need to loan. The first thing to evaluate is the ability to pay a lumpsum amount for the initial down payment. This will give you clarity on the amount of loan you will need to borrow basis the cost of the home. Next, draw a list of your current monthly obligations and expenditures to arrive at the amount that you will be able to pay comfortably as EMIs every month.
Maintaining a good CIBIL score is an another important criterion which helps in acquiring a housing loan faster and at a competitive interest rate. Most lenders assess your eligibility for a loan basis a few income and identity documents and revert within a few days. Some lenders are able to provide an instant sanction within fifteen minutes for salaried customers using enhanced digital processes. It’s recommended to check your eligibility with 2-3 lenders of your choice before proceeding to the next step.
Focus on affordability
Before choosing a home loan lender, do a bit of research on how affordable is the loan being offered from each. There are a bunch of factors that you must consider besides the interest rate and the EMI, which make a loan affordable through the tenure and not just at the beginning.
- Check if the lender allows the down payment to be broken into smaller amore affordable amounts paid over a period of time rather than all at one. The larger the amount of the down payment, lesser the stress of converting the outstanding amount into EMIs. Therefore, planning ahead of time to build reserves for your own contribution is always recommended. As a rule of thumb, the EMI amount must not exceed over 45% of your total income.
- EMIs will be cheaper if the interest rates charged are comparatively lower and if the tenure of the loan is longer. However, the total cost of the loan goes up with increasing the tenure, so you may want to keep a reasonably lower tenure to not end up paying much more than the borrowed amount by the end of the loan. Even in the case of bank offered subvention schemes, the total home cost goes up in exchange of getting relief from not paying EMIs until possession. While no EMIs help with initial affordability, do you want to repay a higher amount in the long run? Finding the right balance between overall cost of ownership and monthly outflows is critical.
- Several consumers often settle for a smaller home keeping their present affordability in mind. But how about getting a bigger home and choosing a lender that can offer repayments with lower EMIs, gradually increasing the amount over the tenure of the loan? This way consumers can buy their dream home today without compromising on their current affordability.
Look for flexibility in repayments
A home loan requires a commitment of 10-30 years. But most often than not, our disposable income varies from time to time. It either changes with life events like getting a promotion, starting a family or selling an asset which helps pay for your own contribution in the home loan. While choosing a lender, check if there is flexibility to increase or decrease one’s own contribution depending on your circumstances. Additionally, at times when discretionary spending is higher, check for options to pre-plan a break in your EMI, allowing for flexibility in repayment without compromising on your credit-worthiness.
There are also some equally important don’ts to keep in mind while considering a home loan:
Don’t miss reading the agreement in detail
Very often, consumers skip reading their agreement and miss details regarding timelines, disbursal processes and hidden charges. It’s absolutely necessary to read the fine print of your agreement and clarify any doubts before sealing the deal. It’s always better to be over informed than misinformed, especially when the contract affects the payments you will have to make periodically during the tenure of the loan. Most charges include EMIs, processing fee, administrative charges and non-payment penalties. Also, one must be allowed to convert to a lower rate, paying a nominal fee and usually there should be no prepayment charges for adjustable/floating rates. Hence, it’s recommended to spend time going through your agreement than being surprised with charges you did not account for.
Don’t choose a lender only on the basis of the interest rate
Lower interest rates should not be the only criteria when choosing a lender, as these are floating rates that can gradually go up or down over time. Given that these are 15 – 20 year loans on an average, a financially strong player with a reputation for trust will help ensure these vary relatively lesser over the tenure of the loan. There have been instances where borrowers have seen their rates go up by 200 to 300 basis points due to the re-rating of the lender, who had to pass on higher borrowing costs to their customers.
Hence, lending businesses are also seeing a fair amount of consolidation where consumers put a premium on dealing with financially sound, trusted entities. Therefore, while purchasing a home, you should not only evaluate the options from reputed developers, but lenders too.
Don’t take customer service for granted
It’s important to read reviews and connect with people who have been recent customers before taking on your home loan. Understanding the lenders’ digital prowess and ability to close concerns quickly is something crucial to evaluate, considering this will be a rather long relationship.
- Often, loans are taken to buy under construction homes – where disbursals are to be made in tranches as the construction progresses. Consider how technologically advanced the lender is and how closely coordinated are the developer and the lender so that construction linked payments are not cumbersome. Often a buyer is tasked with coordinating between the two and it’s a time consuming process – something a lot of existing players can improve on.
- How easy is it to get self-help from the digital ecosystem of your lender– every time you need a loan statement, check your outstanding, apply for a top up? And, most importantly is the user interface easy to use and quick?
Get a headstart on your loan journey by creating a list of your must-haves, so that you are sure of your requirements. This clarity will also help the lender serve you better, for things that are most important to you.