If you want to buy a property and are planning to take a loan for it, then taking a home loan is the best option. But however, each loan has its own pros and cons and hence you carefully need to analyze the risks involved before applying for the loan. It may seem that all banks are eager to lend a loan, but getting it sanctioned can be a tedious task. Hence, here are eight things you need to know about applying for a home loan.
1. Balanced credit score: Banks usually consider the consumer’s credit score very seriously. Credit scores give the bank an idea of your payment history, outstanding debts, and credit history, to name a few. Based on this, the bank decided whether or not you are eligible for the loan. Hence, paying bills on time and maintaining a good credit score is quite essential, since that decides your eligibility for the loan.
2. Loan history: Banks consider several things before sanctioning a loan to the customer. If you have existing loans or debts, then that might be a problem. This is so because, banks are careful about the loans or liabilities you have; so, if you have the higher number of dependants then chances of getting loan reduces further.
3. Employment status: Your employment status and income play a key role while applying for a loan. People with stable income find it easier to get a loan in comparison to self-employed individuals. Fixed income ensures that you can pay an EMI every month, whereas, for a self-employed person, the assurance is quite low.
4. Read the fine print: Always read the fine print- a home loan agreement, because there are some underlying details that you must know. For example, you may think that you will be a defaulter if you fail to pay the EMI; however, that is not the case. If the borrower dies or is involved in any civil or criminal offense, then the bank marks that person as a defaulter. Apart from this, some banks also have a clause that entitles them to demand additional security along with your loan amount in case property prices fall. If you fail to pay up, you’ll be marked as a defaulter. Hence, reading the agreement before taking the loan is necessary.
5. Bank judges the property and gives you a loan accordingly: You may know the exact value of your property but will not get the loan as per that value. Because every bank has its own experts, and real estate index to judge the price of the property. Depending on that price, banks offer loan up to 80 percent of its value.
6. You can switch banks: Most of us think that we have to stick with one bank forever, but that’s not the case always. In some cases, if you get a better deal from some other bank, then you can always switch. However, you have to bear the additional cost of the processing fee, which can be negotiated.
7. Documents required: Having all the documents at the place is essential. Tax returns, proof of income, bank statement, credit history, and photo ID are some documents that you need. However, documents differ from bank to bank.
8. Loan tenure: Your monthly EMI is calculated based on the amount of your home loan. So if the tenure of your home loan is longer, then you end up paying lower EMI, and if it’s shorter, then you end up paying higher EMI. Not only this, but the interest also depends on the tenure. So, the higher the tenure, higher is the total interest paid, and vice-versa. Hence, it is essential to calculate your EMIs and tenures before applying for a loan.
9. Type of Interest rate: Interest rate directly impacts the EMIs you pay. Hence you need to know the difference between the fixed rate home loan and floating rate home loan. So if you choose a fixed-rate home loan, the EMIs remain the same over the tenure. But in the case of a floating rate home loan, the interest rate is determined by the base rates and floating rate. In this case, the EMI changes as per the rates.
10. The fixed rate is not always fixed: While sanctioning the loan, the bank tells you that the loan will be sanctioned at a fixed rate. But if you read the fine print you will find a clause which states that the rate is subject to revision. This clause differs from bank to bank and is invoked when the rate of interest increases. Hence, the borrowers feel cheated when the rate of interest increases suddenly. So reading the agreement is very important.
You need to keep all these points in mind and then take the loan wisely.