Buying a house is a huge dream and one that requires a lot of planning. With the current real estate prices, it is very difficult to buy a house without financial assistance. The most common way to cover the required funds for buying a house is to apply for home loan.
Now, while a housing loan is a great way to finance a house purchase, it is a decision that needs to be well planned. To get started, take a look at everything you need to know about housing loans:
- Maximum amount borrowers can get
Checking about home loan eligibility does not just mean checking whether you are eligible to get one, but also finding out about the loan amount you can receive. This will depend on the repayment capacity, which is based on monthly income, assets, liabilities, job stability, and so on. The higher your monthly disposable income, the higher the loan amount you can receive. Generally, banks assume 50% of your monthly income to be available for repayment. The repayment tenure you choose as well as the interest rate of the loan will also determine the loan amount.
- Interest rate
The home loan interest rate can be either of two types – floating or fixed interest. Floating interest is when the interest of the home loan will fluctuate based on the overall market conditions. Fixed interest, as the name suggests, will remain constant and will not fluctuate over the course of the tenure. Usually, floating interest rates are 1% to 2% lower as compared to fixed interest rates. It is advisable to go for floating interest rates when the economic climate is indicating a drop in interest rates and vice versa.
- Repayment tenure
The repayment tenure of a home loan is usually long-term and extends up to a period of 20 years. As a borrower, you need to decide whether to opt for a short-term or long-term repayment tenure. Going for a long-term repayment tenure will make it easier to pay the monthly instalments, as they would be in smaller amounts. However, if the aim is to save on interest, going for a short-term repayment tenure is effective as it cuts down the number of EMIs, ultimately reducing the interest outgo.
- Associated charges of the loan
Many borrowers make the mistake of thinking that the interest of the loan is the only thing they have to pay for. However, it is important to know that lenders also charge processing fees, foreclosure charges, and late payment fees. Check with your lender regarding all these charges before taking the loan.
- Home loan documentation
The documentation process is a lengthy one, as lenders need to first collect and then verify all the details. To make this process easier, make sure to keep all the following documents required for home loan ready:
- Identity proof
- Residence proof
- Latest salary slips
- ITR form
- Bank statements (last 6 months)
- Documents regarding collateral
Lastly, always make use of a home loan EMI calculator to get an estimate of the home loan’s monthly instalments. This will help in making sure there are no problems during the repayment period.
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