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2014

Points to be considered before applying for a housing loan

Its worth to take advice…why!!!…Checkout points mentioned below…

  • There are many things you need to consider before buying a house and applying for a home loan. Here are some points you should consider before taking the taking a home loan.

1. Know you loan eligibility:

  • The loan amount to be sanctioned by the banks depends on your past record of repaying loans and/or credit card dues and/or your income. How much amount you can spare to pay the EMIs from your stated income? Before taking up the loan, you should be clear in your mind of the EMI you are willing to doll out every month.
  • Usually banks give loan up to 80 percent of the total cost of the property. However, in some market where transactions are happening well below market rate, banks can lend upto 150% of total cost of property (restricting upto 80% of market value).
    Interest Rate EMI PER 1,00,000/-
    Years
    10 15 20
    10.25% 1335 1090 982
    10.50% 1349 1105 998
    10.75% 1363 1121 1015
    11.00% 1378 1137 1032

2. Check your credit score:

  • Check with Credit Information Bureau (India) Limited (CIBIL) to know your credit score. It gives you a credit score on the scale of between 300 and 900 points. The points are given on the basis of your credit card bill payment, existing loans or liabilities, loan repayments and how many times you have applied for loan till date.
  • If you are paying the processing fee to at least three to four banks to know your maximum limit, then you are considered ‘credit hungry’ in the eyes of CIBIL and your chances of getting the loan reduces.
  • CIBIL rating, net salary excluding some variable heads and existing loans and EMIs being paid towards existing loans are the vital components which decide the repayment capacity of the applicant.

3. Chose your lender:

  • Do a detailed research to find a bank or financing company for home loan. Check with at least 4 to 5 banks and companies to know their terms and conditions of offering a loan, interest rate and tenure.
  • While the interest rate is important, you should also look at other aspects such as the customer service, charges for early termination of the loan and more before deciding the financier.
    Basic features of Various banks
    Nationalized Banks Private Banks NBFC
    Advantage
    • Lower Interest Rate
    • Less/no processing fee
    • Bank charges are less
    • Funding to any profile and any area on case to case basis
    Disadvantage
    • More time consuming for loan approval
    • Less loan eligibility
    • Required registered mortgage
    • No funding if returned not filled
    Advantage
    • Lower to medium Interest Rate
    • Less processing fee
    • Bank charges are moderate
    • Equitable mortgage
    • Fast processing of loans
    Disadvantage
    • Loan eligibility is less than NBFC
    • Funding restriction to some profile and area
    • No funding if returned not filled
    Advantage
    • More eligibility of loan
    • Funding to any profile and any area on case to case basis
    • Funding despite of no return filled
    • Equitable mortgage
    Disadvantage
    • More interest rate
    • More processing fees
    • More time consuming to process loan than Private Banks

4. Type of interest rate:

  • There are two types of interest rates on loans – one is fixed rate and other is floating rate. In case of home loans with fixed rate of interest, the amount of EMI does not change during the tenure of repayment while in the latter it changes along with the change in interest rate. It is good to have floating rate if interest rates are expected to fall in near future.

5. Tenure of loan:

  • The EMI of the home loan is calculated on the basis of amount of loan, interest rate of loan and loan tenure. The amount of EMI is inversely proportionate to loan tenure. If the loan tenure is long then the EMI amount will be low and if the loan tenure is short, the EMI amount will be high. So weigh all your alternatives before finalizing anything.

6. Know about Extra charges need to be paid:

  • Get complete information about the extra charges that you will have to pay to take a home loan like processing fee, service and administrative fee, etc. These charges are a percentage of your loan amount that is actually sanctioned to you, and not on what you actually take home. Making modification in any of these later may come at a cost.
  • So it strictly advisable to get the complete information about these charges before finalizing on the loan agreement.

7. Read the document of agreement:

  • Read the complete document of loan agreement before signing it. Yes, they can be quite a handful to read in one go, but take your time and read every word carefully to ensure that all the terms and conditions are the same as what you agreed upon.
Financial Management