Buying a home is a major life decision and needs a lot of financial planning. Even a small error in availing a home loan can spoil your dream of owning a house and also disrupt your budget. Home loans are long-term borrowings and are generally a big sum. Any changes in the terms and conditions and any major changes in interest rates may pile up to significant dues.
You may decide to finalize your loan when the construction is still undergoing or you may choose to borrow in a ready-to-move-in house. You must make a detailed scrutiny of all the charges and the total amount to be repaid. As of today, banks have reduced the interest to the lowest in decades and buyers will now take a plunge in borrowing.
Read on to take a look at the questions to be asked before take Home loan:
Do you have a good credit score?
Most banks offer interest rates based on the credit score of the applicant. If you have a good credit score, the risk premium that is levied by the banks is lower and thus the interest rates offered by the lender will be less. On the other hand, if you have a low credit score, the risk premium levied by the banks or the lender will be more and thus the interest rates offered will be high. You can improve your credit score by referring to Credit improvement services.
Do you have a regular income source?
You must be financially prepared before you apply for a loan. A long-term arrangement for a regular source of income is necessary. You must be able to pay the EMIs on time. You can use multiple sources of income for ensuring the timely payment of income and stability.
Can you afford the EMIs?
A home loan is a long-term requirement. Before you apply for a loan, you must consider and evaluate the existing debts before applying for a home loan. Existing loans can restrict your capacity to pay the home loan. You should evaluate the affordability of your home loan EMIs after considering future factors and expenses.
Do you have the margin money?
Before you apply for a home loan, make sure you have the margin funds in your hand. Generally, a borrower will get up to 90% of the loan financed from the lender. This is when the loan is low-value. In the case of high-value loans, the financing from the lender is up to 75%. The rest of the payment for these loans has to be made by the borrower. This is called the down payment or margin.
This margin expense is based upon various factors such as the borrower's age, credit score and the loan-to-value ratio. The borrower should also take note that there are certain expenses like interior decoration and registration of the property which will not be covered under the loan amount. So, the borrowers should examine how they will build the margin money fund without disturbing the existing financial budget.
Do you require a co-borrower?
Before finalizing the lender make sure that you fulfill the eligibility criteria of the lender. If you are not fulfilling the criteria because of factors like credit score, income level etc., then you should be ready to make arrangements for a co-borrower. The co-borrower, for example, can be your spouse. This will help your chances of getting a loan and also a lower interest rate.
Are property documents verified?
Before applying for a loan or buying a property, you should get all the documents of the property verified. Lenders will verify the property documents and will also take a legal opinion before sanctioning the loan. In case of any discrepancies, the loan can get rejected and the lender may refuse to process the application further.
Are you over-borrowing?
Most of us want to buy a loan with all the latest amenities and at prime locations. However, you should thoroughly evaluate your needs and budget while buying a house. Most of us over-borrow when it comes to a home loan. We extend our budgets thinking that our income will increase with time. This is not a strategy you should go ahead with. This strategy ignores the fact that expenses will also increase with time and hence you should take into consideration both of these factors.
Is your home bought for end use or investment?
If you are buying a house for end use, there are certain factors that you need to consider. One of them is if the house is meeting your family's requirements. These requirements are in terms of size, amenities and infrastructure. On the other hand, if you are buying a house for investment purposes, you should consider factors such as capital appreciation, capacity to generate rental income etc.
Above are some questions that you need to ask before you take a home loan. You must have a clear vision as to why you are buying a house, what are the requirements and expectations of you from the property etc. In short, this is a major financial decision and you must approach the same carefully.
FAQS of Key questions to ask yourself before applying for a home loan
1:What is home loan insurance?
Home loan insurance is used to cover the dependents of the borrower from any hardship if anything happens during the loan tenure. So, when you apply for a loan it is important to have insurance so that you don’t burden your family members.
2: Can you know the home loan EMI beforehand?
Yes, you can calculate the home loan EMI with the home loan EMI calculator.
3:How much is the downpayment for a home loan?
As per the RBI guidelines, 80% of the loan can be financed and 20% of the loan should be paid as a downpayment.