What Things Should Be Considered While Taking a Home Loan?

What Things Should Be Considered While Taking a Home Loan?

Owning a home represents a significant milestone, offering stability and a place to build memories for years to come. A home loan is often the key that unlocks this dream, yet navigating the process can feel overwhelming. Interest rates, down payments, and repayment terms are just a few factors to consider. Before embarking on this exciting journey, take some time to explore the crucial considerations that will empower you to make informed decisions and secure the perfect home loan for your financial goals.

What Things Should Be Considered While Taking a Home Loan?

Here are some key factors to consider before you apply for a home loan: 

1. Find the Right Financial Partner

Selecting the right lender such as Truhome Finance is key to favourable loan terms. It is important to seek competitive rates, flexible repayment terms, and good service in India's diverse credit market. Before applying for a home loan, it is important to research the lender's reputation and customer reviews, and most importantly, the kind of processing fees the lender is charging. 

Truhome Finance offers attractive rates and flexibility on loans for residential and commercial properties all over India, focusing on the convenience of its customers. Furthermore, applying for a home loan with Truhome Finance does not require you to visit the bank. Loans can be applied in a few steps through Truhome Finance’s online website or the ACE app.

2. Credit Score

A crucial aspect that banks and financial institutions carefully evaluate prior to granting loans to customers is the credit score. Therefore, individuals aspiring to secure a home loan must uphold a commendable credit score, as it stands as a fundamental prerequisite for applying for any form of loan in the banking domain.

Usually, a credit score exceeding 700 can help get a higher home loan amount and the possibility to benefit from a lower interest rate. Upholding a favourable credit score does not have to be a daunting task. It can be accomplished by ensuring punctual payments for credit cards and existing loans without any lapses.

4. Interest Rate 

Home loan interest rate is crucial for every individual to carefully examine and evaluate the home loan interest rates offered by various banks and financial institutions. Those seeking a home loan should compare multiple lenders to secure the most favourable interest rates. Prior to this, it is essential to understand the different types of interest rates available, namely fixed and floating. 

With fixed home loan interest rates, Equated Monthly Instalments (EMIs) remain constant throughout the loan tenure. On the other hand, floating rates are determined by the PLR and fluctuate over time, proving advantageous as they are anticipated to decrease in the future.

Always ensure to do your research and the choose the kind of interest rate that aligns with your financial situation.

4. Home Loan Tenure 

Before obtaining a home loan, it is essential for every prospective borrower to decide regarding the tenure of the loan. The duration of your home loan directly influences the monthly EMIs you will be required to pay. 

When considering a home loan, the loan tenure is crucial. Stretching repayments over a longer term (up to 25 years) reduces your monthly EMI but increases total interest paid. Conversely, shorter terms mean higher EMIs but lower overall interest. 

Finding the right balance is key – a comfortable monthly payment that minimizes interest costs. If you're buying a property under construction, your loan will likely be disbursed in stages tied to construction progress. During this initial period, you'll typically only pay interest (pre-EMI). If you're eager to get ahead, you can even start making pre-EMI payments towards the principal amount.

5. Processing Fees

Upon approval of a home loan application, borrowers are required to pay processing fees to the lender. Typically, banks and financial institutions impose processing fees of up to 1.5% of the disbursed home loan amount. It is crucial to explore options and choose a bank that levies minimal processing fees or charges negligible amounts for the loan processing service.

6. Equated Monthly Instalment (EMI)

The monthly payment known as EMI is the sum that a borrower is obligated to pay each month for the repayment of their home loan. The specific EMI amount is contingent upon individual circumstances. Additionally, the EMI is influenced by the initial down payment made when purchasing the home. 

A larger down payment results in reduced stress regarding the outstanding amount, which translates into lower EMIs. It is advisable to ensure that the EMI does not surpass 45% of the total income. Utilizing Truhome Finance’s Home Loan EMI Calculator can assist in accurately determining the EMI amount.

7. Home Loan Documents

Prior to obtaining a home loan, it is imperative to thoroughly review the terms and conditions outlined by your chosen bank or financial institution. Take the time to carefully read the documents associated with your home loan before affixing your signature. 

Familiarize yourself with the various charges, fees, and penalties stipulated in your home loan agreement. Being well-informed about these aspects is crucial for a comprehensive understanding of the terms governing your home loan.

8. Down Payment

Typically, when obtaining a home loan, a down payment ranging from 10% to 15% of the total loan amount is obligatory. The remaining sum of the home loan is then transformed into Equated Monthly Instalments (EMIs) that you must consistently repay. 

Should you possess additional funds, increasing the initial down payment can prove advantageous, as it enables you to reduce future interest payments and ultimately save on overall interest costs.

9. Hidden/Additional Fees

Securing a home loan involves more than just the principal amount and its interest. Several additional costs factor into the total outlay. Processing fees, stamp duty, registration fees, and legal fees are all essential expenses to consider. 

Be sure to discuss potential discounts or waivers on processing fees with your lender. Don't forget to factor in homeowner's insurance and future maintenance costs when budgeting for your homeownership journey.

10. Pre-payment Charges 

As per the latest directives from the Reserve Bank of India (RBI), it is mandated that banks and financial institutions refrain from imposing any pre-payment penalties on home loan with floating interest rate. The absence of penalties for prepayment allows you the flexibility to make partial payments at your convenience, utilizing any surplus funds you may have, after securing your home loan.

11. Foreclosure Norms

The foreclosure of your home loan entails settling the remaining balance prior to the completion of your home loan tenure. Repaying your home loan sooner translates to lower interest payments. Financial institutions typically impose a foreclosure penalty for early repayment of home loans. However, if you have a floating home loan interest rate, your bank or financial institution will not impose any foreclosure penalty.

Conclusion

In conclusion, taking a home loan in India is a pivotal step towards realizing your dream of owning a home. It is a journey that requires careful planning and consideration of various factors. Your financial health, budget, the type of home loan, interest rates, and eligibility criteria all play a crucial role in making this decision.

Remember to assess your ability to manage the loan, set aside a substantial down payment, plan for unforeseen events, and understand the tax benefits associated with home loans. With the right preparation and the right financial partner like Truhome Finance, you can make the dream of owning a home in India a reality while ensuring your financial well-being for years to come.

FAQs

Here are some of the most frequently asked questions about home loans:

1. What factors affect my eligibility for a home loan?

There are a few factors that affect home loan eligibility, including credit score, income, property detail, preferred age and any outstanding loans.

2. How does the down payment amount impact my home loan?

The down payment amount relies on the portion of the property value covered by the home loan. According to current RBI guidelines, lenders can offer up to 75% of the property value as a housing loan. The percentage depends on the total property cost. However, it's wise to make a substantial down payment when taking out a home loan.

3. How can I prepay my home loan, and what are the penalties for early repayment?

Deciding to prepay your home loan should factor in the prepayment cost. Floating rate home loans typically have no prepayment charges. Conversely, on fixed-rate home loans, lenders often impose a penalty of up to 2 percent on the prepaid amount through refinance. However, using your own funds to prepay your housing loan incurs no prepayment penalty.

4. How can I transfer my existing home loan to another lender?

To initiate a home loan transfer, adhere to these steps:

• Finalise a new lender or banker.
• Apply for a home loan balance transfer with the new lender.
• Apply for pre-closure of your home loan with your existing lender.
• Obtain the required documents from the existing lender.
• Provide the necessary documents to the new lender.
• Receive confirmation from the current lender.
• Settle all applicable fees and commence the new loan.

5. What is a home loan pre-approval, and how does it work?

A pre-approved home loan signifies a provisional approval for a loan granted based on your income, creditworthiness, and financial standing. In the pre-approval phase, your income documents are the sole focus of evaluation. Subsequently, before the loan is disbursed, the lender verifies the property documents. By conducting credit appraisal in advance, lenders streamline the entire loan process, thereby reducing the turnaround time from approval to disbursement.