Today, easy home loans have made owning your dream home, a reality. In fact banks are bending over backwards to provide home loans as they are flush with cash. However, deciding on opting for a bank loan is fraught with many difficulties. Especially if you don’t prepare in advance and conduct a thorough research about your liquidity and the loan in question. Here we will list tips to help you with the process of taking loans and simplify the process.
Make a budget: Make a budget for your purchase and stick to it. Consider things like deposits available with you (for down payment which are usually 20% of the total), your monthly outgoing, fixed and variable expenses. Also don’t forget to include any other payouts like rent and other loans) that only you will be aware of, and then decide what amount of EMI can you afford to pay every month. This will give you a fair idea of how much your budget will be.
Then consult a local bank for the loan that can be made available to you based on your annual income. If you are buying a resale property which will require renovation, include that cost estimate in your budget as well.
Make a list of the documents needed for speedy disbursal of your home loan and start collecting them much in advance to avoid any delay. The banks will check your credit history, which means all your credit cards’ payments and any other loans, which need to be either repaid or in the process without a default history.
Research the Loan:
Loans can be made to sound very attractive, especially with low EMI, and interest as well as additional/promotional schemes. In fact all you need to research is whether you prefer a floating rate or a fixed rate. Festive seasons are good for taking a home loan as banks offer lower rates or other freebies.
- A floating rate will change as per the guidelines of RBI from time to time. It can decrease as well as increase, depending upon new rules. But be cautious, as even when interest rates come down, you may not see any change in the EMI. Instead the banks will focus on decreasing your tenure. If you negotiate hard enough, they may bring down your EMI.
- A fixed rate is usually higher but is free from all fluctuations. So you may find newer customers being charged lower interest rates but there is little you can do about it.
Longer tenure means lower EMI and vice versa. However, a long tenure means you are paying more interest, thereby making your home more expensive. A short tenure may mean higher EMI but the overall interest you pay is lower. Decide this based upon your paying capacity as well as future commitments. Also, look into the fine print regarding foreclosure of your loan. Some banks levy a penalty on foreclosures. You can also switch loans between banks if you think another bank is offering a better deal. But as always, read the fine print about switching loans before signing on the dotted line.
Keeping these tips in mind will ensure a smooth loan disbursal. But since home loans are very long-term, read the “enter loan document” even if it takes some of your time. After all you don’t want to enter into a long term relationship with your lender and have differences later.