Buying a home is nothing less than a dream come true. If you are thinking of buying a house, as well as want to take a home loan, then it is important to keep some things in mind before that. Home loan helps the buyer to take advantage of his finances or future income and buy his dream home. Apart from increasing the purchase budget, it also provides the benefit of tax deduction to the home loan borrowers. However, before you take a loan, it is very important to understand the important factors that can help you get a better home loan deal.
1. Check Credit Score
When you apply for a loan, the first thing that all the lending institutions look for is your credit score. Whether it is your eligibility for the loan, the loan amount that can be sanctioned or the interest rate, it all depends on your credit score. With an excellent credit rating, you can avail large home loans at better interest rates. A credit score above 800 basis points is considered excellent. Lending institutions like banks prefer loan applicants with good credit scores as such creditors are considered to be honest and qualified customers who will repay the loan on time. You can build and improve your credit score by making timely payment of existing EMI and credit card bills.
Once you know the credit score, make sure that all the documents such as identity proof, address proof, income tax return, salary slip, bank statement, employer proof and similar documents are present. If you have already finalized the property you want to buy, keep documents related to the property, such as seller’s identity and address proof, property title, map, completion certificate, etc. ready.
2. Take a Joint Home Loan
There are many benefits of taking a joint home loan. Your home loan eligibility increases when you add a co-applicant, as the lending institution takes into account the income of all the applicants while deciding the loan amount. A joint home loan also enables all applicants to claim tax deduction benefits on home loan repayment. Some banks even offer to reduce the interest rate by half a percent if one of the applicants is a woman. Apart from these benefits, the home loan repayment responsibility can be shared by both the individuals if the loan is taken jointly.
3. Least interest rate
Different banks offer different interest rates and are ready to negotiate. Even a small reduction of 10 to 20 basis points can help you save a significant amount of money per month, especially over the long term. As a borrower, identify the best lending banks or NBFCs at the lowest interest rates. If the applicant is buying a property that is under construction and has a pre-approved banker to provide the loan, then the buyer can avail such loan as the lending bank or company can process it quickly. Apart from this, you can get loan at a low interest rate as compared to other bank or company.
4. Read all the details of the documents
Lending institutions will ask you to sign a number of documents before disbursing your loan. Though it is a difficult task to read all those documents thoroughly, but try to read as carefully as possible. Clauses written in small font should be read carefully as they usually contain terms and conditions which may be against your interest.
5. Maximize Down Payment and Minimize Tenure
Usually at least 20% down payment is expected or mandatory to be paid by the borrower. However, financial prudence dictates that the borrower should try to pay 50-60% of the value of the property as a down payment and the remaining amount can be financed through a home loan. The larger the down payment, the lower the interest burden. Many lenders offer longer loan tenures up to 30 years for repayment, but try not to choose a tenure of more than 20 years. This is because over a longer period a borrower has to pay a lot in the form of interest on the loan and also faces the risk of interest rate volatility.
