To get a home loan sounds easy but it is not. But getting a loan sanctioned is a different ball game altogether. When you decide to take a loan, it’s best to know all the costs associated with taking the loan to avoid any surprises later. Hence we have some important tips for you to keep in mind before taking a home loan.
- Factors affecting your eligibility criteria:
Banks/NBFC usually will limit your EMI installments at a maximum of 40-50% of your salary. The salary is only computed only as basic + dearness allowance. If you have another loan prior to this then your eligibility goes down even further. Also, you having more dependents in the family might hamper your loan eligibility because the Banks/NBFC imply higher dependents to lower repayment capacity. One more thing noticeable is that people with a stable salary had a more chance to get a loan than self-employed people.
Age is one main factor. While getting a loan, the Banks/NBFC defines how many years you have left to earn and understands if you can repay the loan on time or no. If you are nearing the retirement age or the loan tenure surpasses your retirement age then its best to have a younger co-applicant. Having a younger co-applicant will allow you to get a bigger loan as his/her income will be clubbed with yours while applying.
- Loan Type:
There are two types of home loans i.e. floating and fixed. A fixed rate of interest will not change with the fluctuations in the market. For the floating interest loan, the rates will change as per the changes in the market. Usually the fixed rate of interest is higher than that of floating rate.
- Fine Print:
There are many details in your legal agreement which you don’t pay attention to. Like the meaning of “default” is not just when you don’t pay the EMI. Some Banks/NBFC define a defaulter as a person who has expired, someone who is involved in a crime or civil litigation and for those with a joint loan, a person with a divorce becomes a defaulter.
Few Banks/NBFC have a security clause where they can demand you to pay a certain amount in case your property rate falls. Failure of paying that amount turns you into a defaulter. Charges like pre-payment of the loan, administrative and processing charges exist. Hence do keep a track of these charges.
- Rate Negotiation:
Always try to haggle for a lower rate. The Banks/NBFC will not want to lose their old customer. If your credit score is really good and your credit history is clear, you can use it to negotiate for a lower rate. One good technique would be to take a loan at the end of the month. Banks/NBFC have targets to achieve and you can use this to your advantage.
- Longer the tenure, costlier the loan:
Whenever there is a rate change by the RBI, customers with loans fall prey to them as they now have to pay more EMI than before. To avoid paying more, they request the Bank/NBFC to increase the loan tenure. All you need to know is that longer then tenure, more the amount. Mostly, you end up paying interest more than your principal amount.
Eg: A home loan was taken for 50 lakhs at 20 years at 10%. At the end of 20 years you would have paid around 66 lakhs as Interest and 50 lakhs of principal amount.
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