Currently, the home loan interest rate offered by lending institutions is at a multi-year low. A borrower who has a decent credit history and profile can secure a loan at an interest rate as low as 6.70%*. Considering that real estate prices have not increased over the last few years, it could be the ideal time to own a property for those paying home rent. Before availing of a home loan in India, there are some essential things to make a note of. For instance, the amount of loan that a borrower is eligible to get will depend on factors, including current income. Also, a borrower has to get a fix on other things, such as the property price.
The following are a few thumb rules to help one who is about to apply for a home loan. However, these are not carved in the stone and are likely to vary based on an individual’s needs and circumstances.
#1 Types of Home Loans
The different types of home loans include a home purchase loan, a home construction loan, a residential plot loan, and a home improvement loan.
#2 The Price of A Property
The property price the aspiring buyer is looking to purchase on any home loan must not exceed five times their annual income. That way the borrower can continue paying for the EMIs without stretching the existing household budget.
#3 Credit Score
Some lenders offer low interest home loans to borrowers who have a consistently high credit score. Your credit profile helps secure a better loan deal from lending institutions. As a thumb rule, a credit score of 750 and above is considered a decent credit score by most lenders.
#4 Documents Required for Home Loan
For Salaried Borrowers:
Most lenders offer digital services, else basic requirements include a filled application form with photographs, age proof (passport, PAN, other certificates), proof of residence (passport, driving license, telephone bills, ration cards, election cards, and other certificates from statutory authority), education qualification (latest degree), payslips for previous three months, Form 16 for last two years, bank statements of salary account for last six months, processing fee cheque, and photocopy of property title documents, and the approved plan.
For Self-employed Borrowers:
Certificate and proof of business along with business profile, last three year’s income tax returns (for both self and business) with profit and loss account and balance sheets audited/certified by a chartered accountant, and bank statements for last 12 months (for both self and business).
#5 The 35/50 Rule
When applying for a housing loan in India, the lender will look into the borrower’s existing liabilities, including personal loans car loans. Lenders typically do not lend an amount on which EMIs will exceed 45-50% of the monthly take-home pay.
It is a good idea to avail of a loan where the EMI does not exceed 35% of one’s monthly income while total EMI must be limited to 50%. If a borrower does not have existing loans, they may go up to 50% with a loan. This will allow saving up for long-term big-ticket goals as well. Pro tip: Consider adding a spouse to enhance home loan eligibility as well.
#6 Types of Home Loan Interest Rates
Financial institutions offer floating/mixed or fixed/variable rates of interest-based on the borrower’s needs. The fixed-rate housing loan has a pre-specified interest rate. It is typically valid for a certain period, after which it is subject to repayment at a floating rate. In the case of a floating-rate home loan, the rate may vary throughout the loan tenor as it is tied to the current money market rate. It varies with fluctuations in the home loan interest levels.
The Final Word
Owning a home is an exceptional feeling. With low rates of properties, one can apply for a housing loan and invest in a property keeping additional factors in check. The key factors include the property location, property approval by Real Estate Regulatory Authority (RERA), and a completion certificate from the builder. This makes it easier to repay a home loan.