Purchasing a home is an important decision in life and requires a great deal of financial planning. This is because a little mistake in availing an HDFC home loan, SBI home loan, BOB home loan, PNB home loan or home loan from any other lender of your preference can hamper your dream of becoming a homeowner and can even disrupt your budget massively. Home loans by nature are long-term borrowings and are usually a huge amount. Any changes in reference to the conditions and terms and any massive changes in the rate of interest might pile up to a considerable outstanding amount.
You might go ahead and finalize your home loan deal when the construction is on, or you might consider borrowing for a readymade flat or home. You must ensure to conduct a detailed analysis of all the crucial charges and the overall amount to be paid back. You must make sure to use an HDFC home loan EMI calculator, SBI home loan EMI calculator, BOB home loan EMI calculator or a home loan calculator of any trusted lender to find out the appropriate EMI, repayment tenure and rate of interest as per your repayment potential and cash inflows.
Discussed here are some crucial questions you must ask before availing a home loan –
Do you hold a strong credit score?
Most lenders provide a rate of interest depending on your credit score. So, if you hold a strong score of 750 and above, the risk premium levied by the lenders is lower and thus the rate of interest provided by the bank would be less. In contrast, if you hold a low score, the risk premium by lenders would be more and hence the rate of interest charged would be high. You can simply improve your score by following healthy credit habits. These credit-healthy habits include repaying your outstanding dues on time by the due date, keeping your credit utilisation ratio (CUR) below 30 per cent, keeping a close watch on your co-signed or guaranteed account for their timely repayments, maintaining a balanced mix between secured and unsecured credit options, etc.
Do you hold any regular source of income?
You must be prepared financially before you place an application for a home loan. You must have the potential to repay the borrowed proceeds on time in the form of EMI. This is only possible if you have a regular flow of income with limited financial obligations or liabilities to meet.
Can you afford to repay your home loan EMI?
Opting for a home loan option is a long-term need. Before you place an application for a home loan, you must ensure to assess your existing debts before placing an application for the loan. Existing loans may restrict your potential to repay the loan amount on time. You must assess the home loan EMI as per your affordability after factoring in the future parameters and expenditures.
Do you hold the margin fund?
Before placing an application for a home loan, ensure you have the marginal fund. Usually, you as a borrower may get up to 80 to 90 per cent of the loan amount funded by the lender. This margin is usually offered by the lender when the loan proceeds requirement is low. If the loan proceeds requirement is high, funding the lender is usually up to 75 per cent. The remaining amount must be met by you i.e., the loan borrower. This amount that must be met by you is known as the margin or down payment amount.
Margin expenditure is dependent on distinct parameters like borrower’s age, loan-to-value (LTV) ratio and credit score. You as a borrower must take thorough note that there are specific expenditures such as interior decoration, property registration, etc., which may not be covered under home loan proceeds. So, you as a borrower must assess how you would form the margin fund without hampering your prevailing financial budget.
Do you need any co-borrower?
Before zeroing in on the appropriate lender, ensure you meet the home loan eligibility parameters set by the lender. If you are not meeting the parameter because of factors such as income level, credit profile, score, etc., then you must be ready for making the arrangements for the co-borrower. A co-borrower, for instance, maybe your spouse or any family member with a high-income level. This would give a boost to your chances of securing a loan at a lower rate of interest.
Are property documents authenticated?
Before placing an application for a loan or purchasing a property, you must get all documents of your property authenticated. Lenders would authenticate your property documents and would even take opinions legally before offering you the loan proceed. In the scenario of any discrepancies, the loan may be turned down and the lender might disagree to process your application ahead.
How do you know that you are over-borrowing?
Most of you want to purchase a home loan with all the recent amenities and at suitable locations. However, you must in-depth review your requirements and budget while purchasing a home. Most of you overborrow when it comes to home loans. You usually may extend your budget thinking your income would enhance over time in the future. This is not a good strategy you must go ahead with. It is because this strategy avoids the fact that expenditures would even enhance with time and thus you must consider both the parameters.
Should you opt for a home loan to purchase a home for end usage or investment purpose?
In the case you are purchasing a home for end usage, there are specific parameters you must consider. One such parameter is if the home is meeting your needs. Such needs are in reference to your amenities, infrastructure, and size. In contrast, if you are purchasing a home for investment reasons, you must consider parameters like capacity to get rental income, capital appreciation and others.