Read this before applying for a home loan


These days new age real estate developers and housing societies are offering multiple home-buying options, and due to many choices home buyers needs to be very cautious as one bad decision can cause significant capital loss, as well as waste of your time. To fulfill your long awaited dream to buy or build your own home, there are plenty of home loan providers offering loans at competitive interest rates.

What you should care about before applying for a home loan?


About one thing you should be very clear from the very beginning and that is getting a loan sanctioned is not an easy job though it may seem that lenders are eager to lend. It is essential to know how your home loan works, be acquainted with it to avoid nasty surprises later. Factors that you should take care of are:


1. Eligibility: You can roughly calculate your eligibility by calculating your EMI. The installments are normally limited to 40%-50% of the borrower's salary, i.e., basic plus dearness allowance excluding reimbursement and other allowances. Eligibility varies in case of the stable source of income and self-employed where the income is erratic. It is also dependent on the members dependent on you and your existing liabilities. The tenure of the loan is dependent on your age and how many earning years are left.


2. Type of Loan Interest: Generally, there are two types of interest on the loan you know, i.e. fixed and floating. In a fixed rate loan, the interest rate doesn't change with market fluctuations while floating interest loan, on the other hand, varies as per the market conditions. A fixed interest rate may seem more attractive, but the fixed nature of the interest itself is a disadvantage in a long-tenure loan. In long-term home loan interest rates are high initially but automatically come down later. In case of fixed rate loan, even if the interest rates reduce, the borrower has to repay the same amount every time. Moreover, fixed-rate loans are subject to revision (‘reset clause’). Therefore, unless there is a sharp rise in interest rates in the near future, a floating rate makes more sense.


3. Loan Agreement: The agreement of a home loan is a legal document and therefore often incomprehensible. You should read and understand every detail carefully. It’s not that ‘default’ occurs if you do not pay the EMI. There are several other cases like the death of the borrower, divorce in case of joint-loans, or there is any civil litigation or a criminal offense against the borrower.


Again in case of fall in property prices, the bank may demand additional security along with your loan amount. If you fail to provide one, you become a defaulter. Also, be careful about the add-on charges and penalties.


4. Rate Negotiation: You must know that you can negotiate on the interest rate irrespective of the option you choose. If you are an old customer and have a clean credit history for paying on time, you can utilize these points to negotiate loan amount and the rate. A high credit score gives you bargaining power. You can pursue at the end of the month as banks become more flexible due to their monthly targets, and they do not want to lose business.


5. Tenure of Loan: Always remember that longer the tenure of the loan, the loan becomes costlier. Unless you are in a desperate situation, request the bank to bring down the loan tenure.


6. Switching Lenders: It’s not that you are stuck with a bank forever as you have taken a loan. You can always switch if you are getting a much better deal from some other lender. The processing fee is the only additional cost you have to bear, and you can try negotiating on that as well.

Risks associated with loans


There are always risks associated with any bank loans, both for the bank and for the borrower.


The risks for a bank include:

• Credit risk that the loan won't be paid back timely or at all.

• Interest rate risk that the interest rates are too low to earn them enough money by the bank.

• Liquidity risk that deposits will be withdrawn in a large amount in a very short time, leading to the situation when the bank will be short of immediate cash.


There is always a risk on the part of the borrower that if something goes wrong, he/she won’t be able to pay back the loan. Again, if as a borrower you have put any asset as security, there is a risk of losing the asset if the loan goes bad.


What to do in case users don't have a good CIBIL score


Your credit score is perhaps the only significant determinant in case of availing a loan, and at the same time, it is critical to maintaining our credit scores. A good score not only improves our chances of getting a loan/credit but if you can act little smart, you can get a better deal regarding interest rate. It is essential to do your homework of credit score before approaching any lending organization.

Reasons for Low CIBIL Score may be outstanding Credit Card balance, high credit usage, using too many loans/Credit Cards and delay in repayments. Now, how can you improve your CIBIL rating? Follow these guidelines:


• Check your Credits Reports regularly

• Do not apply for new credit in case you have a bad credit score, or bank has rejected your application. Wait for your score to improve

• Try to keep the frequency of the application for loan low and the borrowing minimum.

• Do not utilize more than 75% of your credit limits. Make wise use of your cards.

• Make payment for your credit cards on time

• Be prompt with the payment of your loan

• Get a mixed bag of credit of both secured and unsecured loans to balance your portfolio.


Types of home loans that you can tap into


Once you are all set, now is the time to hunt for types of loans and best rates. Following are the types of loans that you should know about.


Loans for Purchasing Land: You can take a loan to buy land. It is a flexible option. You can build the house later when your savings allows, or you can acquire land just as an investment. Banks like ICICI Bank and Axis Bank provide up to 85% of the cost of the land.


Loans for Purchasing Home: Purchasing a new or a pre-owned home is the most popular type of home loan. The rate of interest is either floating or fixed. Many banks offer up to 85% of the total amount.


Loans for Construction of a House: This is for the people who want to construct a house on their own. From a rough estimate of the construction cost, banks decide the loan amount and disburse at one go or in installments.


Conversion Loans - If you have taken a loan and already purchased a house but now want to move to a new house; still you can avail Conversion loan. In that case, you can transfer the current loan to the new home. But this is very expensive as it offers the convenience of converting the old loan to the new one.


Loans for Renovation - These loans include renovation and external and internal repair works, painting, overhead water tank construction, and electrical renovation. You can avail specialized home improvement loans from Union Bank of India, ICICI Bank, and Vijaya Bank.


Balance Transfer Home Loans - This type of loan gives you the opportunity to transfer the home loan from one bank to another bank for lower interest rates or better services.


Home loans for NRIs - NRI Home Loans are specially designed to support NRIs to buy a residential property in India.


Bridged Loans - If you are an existing homeowner but planning to purchase a new property, then there are short-term loans like bridged Loans for you.


Stamp Duty Loans - Bank offers stamp duty loans to cover the stamp duty charges during the purchase of a property.


It is crucial to identify your requirement and apply for the right type of loan to enjoy the loan at low-interest rates, simplify the loan approval process, and reduce the paperwork.


3 home loan providers with the best rates in 2018


There are some major key points which help to compare the offerings of lenders and make the best possible choice. These are the following.


• Eligibility

• Loan amount

• Security

• Interest rates

• Processing fees

• Loan Tenure/Turnaround time

• Lowest EMI

• Loan to property value ratio

• Prepayment charges

• Other charges, e.g., legal charges

• Documents required


Remember, study the outcome of the entire package in detail of every lender, not just any individual factor. You may find the interest rate of any bank for the home loan is very low, but it may have a very high fee structure.


Currently, banks that are favorites of home loan borrowers as per ICRA are the ones that are offering the best rates in 2018.


SBI

· Interest rate for SBI home loan is 8.70% onwards.

· The rate for women is 8.30% to 8.60%.

· The processing fee is nil till 31.12.2018.


HDFC

· Interest rate for HDFC is 8.80% onwards.

· The processing fee is 0.50%, the minimum is Rs 3000 and maximum Rs 10000 plus service tax.


ICICI

· Interest rate for ICICI is 8.80% onwards.

· The processing fee is 0.50% to 1.00%, and the minimum is Rs 10000 and maximum Rs 25000.


Please note that before approaching any lending institution gather information about them as much as possible. These days plenty of information is available on home loan on the internet. Read them thoroughly to become aware of the pros and cons. Think wise and act little smart to get the best deal to fit your requirement.

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