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5 things to knowbefore taking a home loan

5 things to knowbefore taking a home loan

First time buyers have, at best, a hazy idea of what they are in for when they apply for a home loan. We dispel the confusion.

Buying your first home is a process fraught with challenges. First time buyers are often confused about many aspects of the process, but the most confusing one is the home loan.

This article seeks to dispel some of the confusion; consider these points before applying for a home loan:

* Your home loan eligibility decides the loan amount.

You might decide to buy a sea-facing property in a metro city, but it is important to assess your financial wherewithal before you finalise your plans. If you are planning to take a home loan to buy the house, the first step is to check your home loan eligibility. The eligibility is calculated basis your age, income, credit history and existing liabilities. For all intents and purposes, the home loan eligibility is the deciding factor for your final loan amount – you will rarely get a higher loan amount unless you improve your eligibility by repaying existing loans or getting a co-borrower.

* You can apply for the home loan with your spouse or parent.

You can apply for the home loan with your spouse or close blood relative such as a parent or sibling. However, this co-borrower must be salaried or self-employed and have half the home loan to their name. A co-borrower is different from a co-applicant – the latter may be a spouse or close blood relative who does not necessarily repay the loan amount.

* You must make certain payments before you get the loan money.

First time borrowers often believe that they can apply for the home loan, get the money and then pay for the house. But home loan companies insist on customers submitting a registered sale agreement. For the agreement to be registered, you must first pay the stamp duty and registration costs on it. So what you need to do is: Select the house > Pay a booking amount > Pay the first instalment on the house (at least 20% of the house’s value > Pay the stamp duty > Get the agreement registered > Submit the registered agreement to the housing finance company > Get the loan money > Complete the purchase.

* The EMI calculation is crucial.

When buying a house for the first time, you might be concerned about the effect that the EMI will have on your monthly budgets. A high EMI can cut into your income and make it difficult to balance the rest of your expenses. Before you apply, do calculate the EMI for home loan by using an online EMI calculator. When calculating the EMI for the home loan, remember that the EMI must not exceed 50% of your monthly income.

* The interest is the most important component of the loan.

The higher the rate of interest, the more expensive the loan becomes. Leading banks and housing finance companies are offering home loan rates ranging between 8.5% and 10% at the moment. Choose a loan with a lower rate of interest for lower EMIs.

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