Things to Consider When Getting A Home Loan

Home loan is an important source of finance for buying a home. It is important to ensure that your home loan is affordable for you and you are comfortable to repay them. If you are not, it may lead to poor or bad credit history. Here are some points or factors to consider when getting a home loan.

Image Courtesy: Vakil Housing Development Corporation

Factors To Consider When Getting A Home Loan:

• Loan Amount
  It is not always wise to borrow huge sum or apply for different loans as huge debt will make your repayment a challenging that leads to debt trap. Decide your loan amount depending or considering your monthly income, Job stability, your age, other debts and financial commitments. Remember, when applying for a loan, borrowers have to pay down payment or margin money which may be 8 to 20 per cent of your loan amount. You must also arrange the same when applying for a loan.

• Tenure or Period of repayment:
  Borrowers always want to pay off their loan or debts as soon as possible and opt for short tenure loans. When your loan tenure is for short period, your monthly EMI will be very high. Longer tenure is generally chosen to enhance the loan eligibility of borrower but longer the tenure greater is the cost of borrowing. If you are close to retirement, you will not be eligible for longer tenure loan. If EMI for short term is not affordable and you want to pay off your loan as soon as possible, you can consider middle path for the period of 10 to 15 years.

• Hybrid Loan:
  When considering home loan it is important to consider interest rate. You can either consider fixed rate or fluctuating rate of interest. Fixed rate of interest remains fixed for the entire tenure of loan irrespective of change in interest. Floating rate is chosen by borrowers who expect the rates to fall in the future and want to benefit by it. A hybrid loan is a combination of fixed and floating loans. Borrower can lock a portion under fixed and leave the remaining under floating rate. It is suited for borrowers who seek to benefit from the predictability of fixed rates and at the same time want to gain from a falling rate. This loan is a blessing for borrowers who are confused about the direction of rate movements.

• Insurance for Home Loan:
  Home loan insurance enables you to insure your loan and repay your loan in cases of accident, death, sickness or loss of job. If your home loan is insured and in future if you are unable to repay your home loan due to sickness, loss of job or death, your insurance company will payoff your loan and avoid burden of home loan. It is highly recommended for home loan insurance to ensure that your family still has a home in case of your death or sickness or loss of jobs.

• Penalty and Charges:
  Before applying for home loan, know the rate of charges, penalty or fee charged by your lending company or bank for default in monthly EMI. Know the processing charge and in case you decide to switch your loan from current lender to new lender, current lender will charge penalty or fee for pre-closure of your loan.

• Tax benefit:
  If you borrow your home loan from recognized lender such as banks and leading lending company, you can get tax relief on your principal amount and interest paid along with monthly EMI. If you are away from your property or city due to your business or employment, you can get tax relief for loan paid and you will be eligible for HRA provided by your employer in that city. Know more on Saving Tax from Home Loan.

Loan Eligibility

When computing loan eligibility, banks take into account the age of the applicant, his salary, repayment/credit history, savings, profession, location of property, and other debts. Some professions are categorized as negative or risky by the lenders while some jobs fall in the preferred list. As a thumb rule, the EMI for your home loan must not exceed 40 percent of your gross monthly income.

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Improving Your  Loan Eligibility

When applying for home loan, you can use following methods to enhance the availability of home loan from your bank or lending company.

• Maximum Down payment: You can enhance your loan eligibility by paying maximum down payment for the loan. This will add confidence in your bank or lending company to provide loan needed for you.

• Clubbing Incomes:Clubbing income is simplest way to enhance loan eligibility. You can club your income with your father, mother, spouse or son and jointly apply for the loan. Clubbing income enables you to get home loan as your monthly income will increase by clubbing the income.

• Longer Tenure: When applying for long term loan or bigger loan amount, you can opt for longer tenure. A longer tenure will make you eligible for a bigger loan for the same income level.

• Co-applicant: Co-applicant helps you to apply for home loan. You can either apply for home loan jointly with your spouse, family members or you can apply with your friends or other relatives. Co-applicants enable both to get tax benefit and get a higher loan amount sanctioned from your bank or lender.