Want to buy a house but worried about paying it back? Do not worry, here’s a quick guide to help you out. A home loan is a big and risky financial decision. Banks and NBFCs conduct background checks, verify documents, and inspect your income sources thoroughly before giving you a home loan. Read on to know more about home loan application processes, home loan duration, home loan interest rates, and other information that will help you to choose the best loan product for yourself.
Things to know when applying for home loans
- Home loans are the best way to avail of tax benefits
Under Section 24B of the Income Tax Act, you can claim tax deductions for interest payable on renovation, repairs, and loans. You can get deductions up to 2 lakh rupees per annum on home loans. If you have two properties, the rent amount from one of them would be taken into account for tax deductions under Section 24 of the Income Tax Act.
- Check the home loan eligibility criteria
Your debt-to-income ratio, past history of paying back loans, current income sources, existing assets, and CIBIL score are some of the factors that decide whether you are eligible to apply for home loans. For example, if you have an excellent credit history but do not have sufficient income to pay the monthly installments, you won’t pass the home loan eligibility criteria.
- Only take as much as you can pay off
Make sure to bite off only what you can chew. If you do need funds to pay monthly EMIs or have a poor credit history, it is best to steer clear of any home loans, despite the tax benefits. The golden rule to ensure that a loan is paid back safely is to invest only 40% of your total monthly income on EMIs. On the other hand, do not stretch it too much to fit more EMIs, for it is not sustainable to live on stringent monthly budgets in the long run.
- Do not be fixated on fixed home loan interest rates
Fixed home loan interest rates are only applicable for a specific number of days within the tenure period. It is best not to choose a home loan solely based on its fixed interest rate, as the rest of the tenure will follow floating interest rates anyway. Please consult your lender to discuss viable home loan options, considering your income and assets. You can also browse through different loan options at Andromeda
- Make sure to read the home loan fine print thoroughly
Some lending institutions ask for pre-payment charges during the first 3 to 5 years of your tenure. In case you want to repay the loan amount with your savings, most banks allow 25% of the outstanding loan amount to be paid in one financial year. You should go through the home loan fine print thoroughly to check if they have added property insurance because if they do, you will have to pay back more than the loan amount.
- You do not have to pay it back as soon as possible
You do not have to exhaust all your savings to pay off the home loan. If you keep your home loan running for a while, you receive tax benefits. And, it is much easier to pay off small monthly amounts. Some banks charge prepayment penalties, so you do not have to rush to pay it off as soon as possible.
- You may have to pay property insurance
It is expected that you will want to protect your home from fires, earthquakes, and other disasters. Some banks and NBFCs attach property insurance along with the loan amount. The most crucial step in the home loan process is reading through the lending institution’s terms and conditions to understand what you agree to pay back.
- You can apply for home loans online
To kickstart the home loan process, head to the official website of a bank or NBFC. Browse their website and check out their different loan offers. Then, you will find an option called ‘home loan registration online.’ Open the form and fill in the basic, income, and property details. After you submit the form, your profile will be evaluated. If approved, you will receive clearance to avail of a home loan.
- Check the EMI amounts on the home loan calculator
The home loan calculator is the best way to check if you will be able to pay off the loan amount quickly. Ideally, you should not be spending more than 40% of your total monthly income on EMIs. Enter the details accordingly and see for yourself.
- Take your time to make a decision
Buying a house is far more complex than deciding on which dress to buy. It is a long-term decision and depends upon your income and assets. Make sure to evaluate your income and check if you can pay off the monthly EMIs. Do ascertain if you will have extensive purchases in the next 5 to 10 years, and plan your finances accordingly.
The home loan application process can be long and tedious. It is best to consult your bank or NBFC to discuss home loan eligibility and make an informed decision regarding such a necessary purchase. When purchasing a house, keep some money aside to invest in furniture and decorative elements as well.