Buying a house stands as one of the most significant financial commitments a person will make, and for the majority of individuals, a home loan is crucial for turning that aspiration into reality. However, without the proper understanding of the process, applying for a loan can result in confusion, significant delays, and even potential application rejections. In order to streamline the process and minimize stress, 10 key considerations will be presented to provide essential knowledge that will ultimately enhance the loan application experience.
1. Look Over Your Credit Score
A critical measure that lenders assess in a loan application is how high or low the applicant’s credit score is. A score of 750 and more is considered adequate and will result in a loan approval more easily, as well as lower interest rates.
- If your score is low, take steps to improve it. repay credit card dues, close unnecessary loans, and do not make any late payments.
- A strong credit score not only provides a loan applicant more options regarding the loan, it ultimately gives the applicant the ability to hold the lender to the lower interest rates.
💡 Tip: Note that credit scores are accessible to individuals for free, and, are able to be viewed, once a year, on sites like these: CIBIL or Experian.
2. Comprehend Your Loan Eligibility
Loan eligibility is calculated from the income, repayment ability, age, job position, and existing debts of the applicant. Understanding these parameters will help among other things, loan applicants be successful in obtaining the loan.
Do not simply submit an application without consideration. Lenders gauge eligibility according to the following criteria:
- Income and Job Stability (having a salaried position or being self-employed)
- Current Financial Obligations (like a vehicle loan or personal loan)
- Age (younger people get more options for tenure)
There are many online home loan eligibility calculators. These can help you assess your potential eligibility. If you apply for a higher amount than you are eligible for, you may get a rejection.
3. Focus on Interest Rates
While some banks and NBFCs may offer some rates, from bank to bank, rates will vary. A small difference may translate to a significant savings within your loan period, so it is important to always consider this when electing a bank to use.
- Rates at public banks tend to be lower.
- Private banks typically offer higher rates, but may offer more timely service.
- NBFCs may be lenient, but typically offer higher rates.
💡 Consider this: a loan for ₹50 lakhs at an 8% interest rate over a period of 20 years will carry an interest amount of ₹24.8 lakhs. If this was lowered to a 7.5% interest rate, the interest amount is reduced to ₹23 lakhs, thus saving you ₹1.8 lakhs.
4. Understand the Different Interest Rates
The following are a few options for interest rates you may be offered when you are lent money to pay for your loan:
- Fixed Rate – If you have a fixed interest rate, the amount you will pay each period will always be the same. This works for those who do not want to have to adjust to a new amount each month.
- Floating Rate – With a floating interest rate, the amount you pay will vary depending on the interest rate of the market. This means the amount you pay can start lower than a fixed interest rate, but can later rise to be more than a fixed interest rate.
Some loan providers will grant you a combination of these options. You should evaluate your own comfort level and select the interest rate that you feel is most beneficial to you.
5. Check Processing Fees and Hidden Charges
As well as interest, other charges include: processing fees, legal fees, and prepayment penalty charges. Read the fine print.
6. Choose the Right Loan Tenure
A longer tenure lends itself to a lower EMI but increases the total interest paid. Conversely, a shorter tenure increases EMI but saves overall interest. Find the right balance for your situation.
💡 Example: A ₹40 lakh loan for 20 years @ 8% = EMI ~₹33,458. For 10 years, EMI ~₹48,485 but you save ₹19 lakh in interest.
7. Arrange for the Down Payment
Most lenders finance 75-90% of a property’s value. You will need to cover the rest as a down payment.
- For a total value of ₹50 lakh, you will need to cover at least ₹5-12.5 lakh.
- Also, budget for extra costs, including stamp duty, judy registration, and interior work.
8. Get Pre-Approved if Possible
A pre-approved home loan gives you a clear idea of your budget and also makes property hunting faster and easier.
9. Verify Property Documents
A pre-approved home loan shows you your budget and property hunting will also be easier and faster.
To avoid loan rejection, make sure the property is legally clear and has all the necessary approvals.
Ensure:
- Title is in seller’s name
- Local municipal authority approvals
- Rera registration (for under-construction properties)
- No pending litigation
💡 Tip: Get legal verification done before making the token payment.
10. Know About Tax Benefits
Tax deductions on home loans can save you money while you are repaying the loan. Sections 80C and 24(b) of the Income Tax Act offer home loan tax benefits.
- You get a deduction of up to ₹1.5 lakh under Section 80C for principal repayment.
- Deductions of up to ₹2 lakh can be claimed under Section 24(b) for interest repayment.
- If you are a first-time buyer, you can obtain additional benefits under Section 80EE/80EEA.
This can reduce your tax liability and increase your savings.
✅ Conclusion:
Home loans can appear complicated, but don’t have to be. With the right knowledge and preparation you can make the right decisions and save money as well as be able to move into your home quickly.
✨ With the right advice and planning, you’ll be one step closer to your new home.