Navigating the Home Loan process: 6 key considerations

As per the Reserve Bank's Financial Stability Report (FSR), the share of Home Loans in total advances has increased over the last eleven years to 14.2 per cent in March 2023 from 8.6 per cent in March 2012. Purchasing a home is a landmark achievement and a significant financial commitment. For most, it involves securing a Home Loan. To navigate this process efficiently and secure the best possible terms, it's essential to understand the Home Loan landscape.

Here are six crucial factors to consider before applying for a Home Loan:

1) Evaluating your credit score and understanding eligibility criteria

The credit score is a critical determinant of the interest rates offered to you on a Home Loan. A robust credit score of 750 or above signals to lenders that you are a reliable borrower, which could lead to lower interest rates. Ensure you maintain a good credit score by making timely payments on any existing loans or credit cards and avoiding any actions that could negatively impact your credit history.

Before applying for a Home Loan, familiarise yourself with the lender's Home Loan Eligibility criteria. These criteria typically include your income, job stability, age, and number of dependents. If you are applying for a joint loan, the lender will also consider the co-applicants income. By understanding these parameters, you can assess your chances of loan approval and work towards improving your eligibility.

2) Comparing interest rates and determining the loan tenure

Interest rates significantly affect your monthly repayments. Compare rates offered by various institutions and understand the difference between fixed and floating rates. Additionally, choose your loan tenure wisely. While longer tenures mean lower EMIs, they also result in higher interest payouts.

Also Read: Can Home Loans be offered on the cost of the property?

3) Preparing comprehensive documentation

Applying for a Home Loan requires thorough documentation. These typically fall into three categories:

• KYC Documents: These include proof of identity and address, such as your Aadhaar card, voter ID, or passport.

• Income Documents:These help the lender assess your home loan eligibility. This may mean salary slips for salaried individuals and Income Tax Returns for self-employed individuals for the past few years.

• Property Documents: These include the sale agreement, property title deeds, and others.Ensure you have all the necessary documentation for a smooth loan application process.

4) Planning for down payment and assessing property value

Lenders typically require a down payment of 10-20% of the total Home Loan amount. If possible, consider increasing this amount to reduce your overall loan and interest. Additionally, the property's value and the Loan-to-Value (LTV) ratio can influence your loan amount.

5) Choosing the right lender and considering Home Loan insurance

Some banks may offer lower interest rates, but may take time to process the loan. While some others may offer better services and fast processing and disbursement of the loan. Weigh the pros and cons of different lenders and select based on your need. Also, consider Home Loan insurance for added financial protection, but be clear on its terms and costs.

Also Read:Strategies to lower Home Loan EMI burden

6) Planning for future financial changes and loan adjustments

As a borrower, you should be prepared for future changes in interest rates, especially if you have opted for a loan with a floating rate. Make sure you have room in your budget to accommodate potential increases in EMI due to rate changes.

For a convenient way to calculate your home loan EMI, consider using an online Home Loan EMI Calculator. This tool lets you determine your monthly repayments based on the loan amount, interest rate, and tenure.

Moreover, consider a Home Loan Balance Transfer if you already have a home loan and are looking for better interest rates or loan terms. This lets you transfer your home loan to another lender offering better terms.

For non-resident Indians (NRIs) seeking to invest in property in India, understanding the NRI Home Loan Interest Rate can be beneficial. These rates are usually competitive, enabling NRIs to conveniently make property investments in India.

Remember, financial institutions like Axis Bank offer customised Home Loan solutions with flexible tenures, competitive interest rates, and easy application processes to make your home-buying journey smooth and hassle-free.

Conclusion

Acquiring a Home Loan is a significant financial decision that requires careful planning and consideration. Consider factors like credit score, eligibility criteria, interest rates, loan tenure, documentation, and down payment. For convenience, use online tools like a Home Loan EMI Calculator and consider a Home Loan Balance Transfer for better loan terms.

Understanding these factors enables you to make informed decisions and secure the best possible loan terms. Remember, a well-planned loan can make your dream of owning a home a hassle-free reality.

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision