With the easy availability of housing loans, owning a home is simple today. The government of India is also encouraging people to have their own homes and has been continuously bringing home loan interest rates within the affordable range. Just like any financial commitment, a home loan also requires due diligence.
Since it is a long-term obligation, the borrower must be prepared with all the necessary information before opting for the loan. Being informed can help make the loan journey smooth and help you have a hassle-free loan experience. So, as a borrower, you must have a checklist ready before applying for a home loan.
Handy Checklist Before Applying for a Housing Loan
As taking a home loan is an important decision capable of affecting the financial health of the borrower, one must make such decisions carefully. Keep the following in mind while applying for a home loan:
Know and Choose the Best Lender
Before selecting a lender for your home loan, it is best to do thorough research and compare all the top lenders. The current home loan interest rates should not be the only factor considered when choosing the right lender.
It is best to finalize the lender only after taking into consideration other important criteria like processing fee, prepayment or foreclosure charges, late payment penalty, loan tenor, loan-to-value ratio, etc. Once you are satisfied with all the parameters, you can go ahead and fill the application.
Select Home Loan Interest Rates Carefully
Most lenders offer home loans on two different types of interest rates: floating and fixed interest. The floating interest rate varies with changes in the market while the fixed interest remains fixed as mentioned in the loan agreement.
Know and plan which type will work out best for you while negotiating with the lender so that you can have the home loan at reasonable interest rates. It is also a good idea to take the opinion of an expert before availing of a home loan.
Maximum Loan Amount
While applying for a big loan like a home loan, it is very important to understand your financial standing. It is advisable to limit home loan EMIs to 40% of your net income. You should have a very clear idea about the maximum loan amount that will be available and how much down payment you will need to make.
This will help to know the exact EMI amount that will need to be paid each month. The housing loan eligibility will also help to understand whether you are eligible for the given loan amount or not.
Get Your CIBIL/Credit Record
As a borrower, one should know that if you have a high or a 750+ CIBIL or credit score, then your home loan eligibility criteria are affected favourably. It is advisable to get your CIBIL score for the home loan report ready at least 6 months prior to applying for the loan.
CIBIL records show that 80% of the home loan approvals are given to customers who have a credit score of 750 plus. A low CIBIL score could be the cause for the rejection of your home loan application, or it could attract higher interest rates from lenders. So, if your CIBIL score is low, work on bettering it first and then apply for a loan.
Documents Required for the Loan
Last-minute hassles while applying for a home loan can be avoided by planning in advance and keeping all the documents required for the home loan application ready. KYC-related documents, such as ID proof (PAN Card, Aadhaar Card, Voter ID, passport), address proof (electricity bill, telephone bill) along with photographs of the borrower must be kept handy.
Keep ready the last 3 months’ salary slip, 3 years’ Income Tax Return statements, the latest form 16, the last 6 months’ bank statement as proof of income and all ongoing loan statements. For property-related documents, keep an original copy of the Sale Deed or Agreement to Sale, Commencement Certificate, latest tax receipts, Development Agreement, NA certificate, and Building Completion Certificate (if available).
Associated Charges & Fees
No one likes to pay surprise surcharges on top of big expenses, but the truth is, home loans often come with several additional costs. Make sure you read your lender’s policies before approaching them, so you get a realistic idea of how much you will need to pay upfront.
While most lenders do not charge a penalty for prepayment or foreclosure of a loan, you should check to see if closing your loan early could cost you money, as sometimes it could be a significant amount.
Keeping a home loan checklist handy will make the process of the home loan application easy and smooth for you and the journey hassle-free. So, if you are thinking of buying a home on credit, do not rush into it, but instead, fulfil all the eligibility criteria on home loan and make an informed decision keeping in mind the given above factors so that you can enjoy the benefits of a new home without any worry.