As per a report by NoBroker.com, home loan applications increased almost 25% to 40% across all major Indian cities. The reasons for this increase can be attributed to reasonable home loan rates, hike in disposable income, reverse migration due to economic uncertainties, and others.
Similarly, the loan approval rate also witnessed 17.5% y-o-y growth in August 2020. It is evident from these data that intending borrowers can now opt for a home loan from any financial institution, including NBFCs, without much hassle.
Nonetheless, individuals need to consider a few pointers for better debt management and smooth repayment before applying for this high-value credit.
Points to consider before applying for home loans
Irrespective of the loan amount, individuals need to understand a few crucial aspects before initiating the home loan online application.
- Check eligibility criteria
The first thing lenders do after receiving a home loan application is to check the eligibility of the applicant. If one fails to comply with most of the eligibility parameters, lenders either impose higher home loan rates or, in the worst scenario, reject the application. Therefore, it is vital for intending home buyers to check the eligibility criteria before proceeding to apply. Following are some factors that influence eligibility.
- Employment type
- Income stability
- Loan amount
- Type of property to be purchased
Besides, the credit profile of applicants also comes into play while sanctioning a loan. Ergo, it is important to know the best credit score for a home loan and how to improve it.
- Compare interest rates
The home loan rates determine the borrowing cost and EMI outgo associated with the credits. These interest rates vary with lenders. Therefore, it is essential for borrowers to compare the rates before settling for a home loan lender. The home loan interest rates also depend on the type of rate one chooses. Usually, individuals can choose between fixed and floating interest rates.
- Choose a suitable tenor
A home loan is a long-term liability, and the tenor ranges up to 20 years. It provides you with the liberty to choose a tenor that best suits your repayment capacity. To make things easier, you can also use an EMI calculator to estimate the EMI by choosing the right tenor. Therefore, knowing how much home loan EMI you can afford is necessary to ensure seamless repayment.
Remember that with a longer tenor, your EMI burden may reduce but the overall interest outgo increases. For instance, an individual opts for a home loan of Rs.30 lakh with an interest rate of 7% for 10 years; he/she has to pay an interest of Rs.11,79,887, and EMI would be Rs.34,833. If he/she increases the tenor to 15 years, the interest payable would be Rs.18,53,654 and EMI Rs.26,965.
- Know about additional fees and charges
Besides EMI, home loans also accompany additional charges like processing fees, part-prepayment, foreclosure, penalty charges, etc., as and when applicable. For instance, the processing charges on a home loan can range from 1% to 2% of the total loan amount. Hence, besides checking home loan rates, individuals should also consider these additional charges before applying.
Selected HFCs do not impose any additional charges on part-prepayment and foreclosure and extend other home loan offers.
They also provide pre-approved offers that can reduce the loan origination time by simplifying it. Such offers are available on various financial products like loans against property, home loans, etc. All you have to do is enter your name and contact number to check your pre-approved offer.
Being an asset-based credit, home loan paperwork is important. Intending borrowers have to present a list of documents to avail of the loan. Following are some basic documents that borrowers need to present –
- KYC of applicants
- Property documents
- Proof of income
- Employment proof
- Bank account details of last 6 months
- ITR receipts
Moreover, the paperwork does not end with the loan tenor. After the loan is repaid completely, you also need to collect NOC from the lender. A NOC certifies that you do not have a due balance, and the lender does not have any claim on the property to be purchased. Thus, first, you should know what is an NOC and what are its benefits.
These are some basic yet crucial factors that individuals need to consider besides home loan rates. It allows them to ensure a great borrowing experience.