Home loans are decreasing and banks seem more eager than before to lend to their customers. There is a greater focus on mergers and acquisitions as banks rely on new acquisition funnels to sell their loan products. While the availability of these kinds of loans may be high, you must still check for facts and factors affecting your decision to fund your next real estate purchase with a mix of your funds and a home loan.
- Eligibility: How much home loan you will get depends on myriad factors including your age, income, credit score, loan tenure, etc. If you think that your income does not suffice the loan applicant, you can add your wife as a co-applicant to the loan amount. Having your wife as your loan co-applicant will not only increase your chances of getting the loan but also help you save on various kinds of taxes owing to tax deductions granted exclusively to women taxpayers. A lot depends on your income as the lender will approve a loan, the payment of which in equated monthly instalments (EMIs) can be served with 50 per cent of your income. You can also ask for an increased loan amount by simply increasing the loan tenure. This will give you access to a greater loan amount that can be repaid through easy EMIs. Almost all lenders have loan eligibility calculators on their sites. All you have to do is to fill in the necessary details including loan amount, age and income to know how much EMI you would have to shell out for a given loan tenure.
- Interest rates: Chances are high that most banks would offer the same home loan interest rate. This is because every bank’s lending rate is linked to the Reserve Bank of India repo linked lending rate (RLLR). This means that every time there is a change in the RBI repo rate, the home loan rate would go up or down within a span of three months, especially, for those who have opted for flexible loan interest rates. Before applying for a loan, ask for the lending bank’s external benchmark rate. Banks decide the lending rate over and above the RLLR depending on the loan amount, tenure, etc. Some people prefer to seek loans from non-banking finance companies (NBFCs) where the lending rate has more to do with the cost of funds than the RLLR. Look for lenders with lower RLLR and then compare the lending rates of each before deciding your choice of lender.
- Credit score: Your credit score mirrors your financial credibility and tells a lot about your ability to repay the loan. Lenders offer lower interest rates to borrowers with higher credit scores. This means that if your credit score is equal to or more than 750, you can save a lot on your interest amount by availing of a home loan at lower interest rates. However, if your credit score is less than 750, you may tweak the same by paying off your other liabilities like credit card debt, personal loans, etc quickly. This can enhance your credit score and help you get a home loan at competitive interest rates.
- Loan tenure: A longer loan tenure may translate to less EMI burden, but will eventually increase the total cost of the loan. Currently, the RBI’s monetary policy favour low-interest rates, which may not continue in the long run. This means that those who have opted for flexible home loan rate options might have to shell out more on EMIs every month. Many people cannot afford to bear the burden of such a loan and, hence, seek a higher loan repayment tenure. While this may seem like an immediately available easy option, it will increase the loan burden on you in the long run.
- Documents: Lenders would like to learn about your source of income. For this, they would inquire if you are salaried or a self-employed professional or running a business. To check for the source and regularity of your income flow, lenders will ask you to submit Form 16 or the ITRs filed in the last three years, bank statements, etc. If you are running a business, chances are that the bank would also seek access to the Profit & Loss statements of your business along with your company’s balance sheets, GST returns and cash flow statements over the past three years.