Top 5 Best Home Loan Tips For First Time Buyers

11 Sep 2020

Owning a home is not just a dream but necessary in this present era. Home has had always a significant factor in one’s life but the desire was not so great in Baby Boomer and followed two generations X and Y. Back then, most of the people thought of owning a house after their retirement or after a certain age. However, today we see once young people take up a job and get married, they start dreaming a home, and it is also justifiable for numbers of reason.

Deciding to own a house is a significant decision as it forms part of your goal to secure your financial future. Nowadays, there are lots of choices you have but it is not easy to make a decision, particularly when you have a budgetary constraint. To cater to people in need, many banks and financial institutions provide home loans to eligible people. Let’s find top 5 home loans tips if you are a first-time buyer.

1. Decide Loan Amount & Tenure

It is not wise to opt for the longest home loan tenure, maximize loan amount eligibility and minimize your EMIs. For example, you take a loan of say ₹ 40 lakhs loan at 6.95% for 15 years, you have to pay ₹ 35,841/-. So, you end up paying ₹ 24,51,454/- as interest over the course of 15 years. So, if you want to minimize your EMI, you may extend it to 20 years, then you will end up paying ₹ 34,14,085/- and, the EMI is 14% lower at ₹ 30,892/-. However, the total interest which is ₹ 39% higher than on 15 years.

Tips

Your earning every month must be in a comfortable bracket of 60:40, it means 60% of your earning you can pay for your EMI and 40% for your living expense.
You need to calculate your loan eligibility based on your income and your age. If you have other incomes, you must tell banks to strengthen your eligibility. You can also add 3 earning family members as co-applicants to increase the eligibility.
The loan amount cannot exceed 75-85% of the price of the house or market value, so arrange the balance amount.

2. Check Approval Status of the Property

You must check the builder’s credential and approval of RERA. Also, you must check whether the whole chain from the first transference of the property up to the last sale should be available. For a RERA/HIRA approved projects, builders are liable to deliver the property at a fixed time mentioned in the government’s website. Also, for an under-construction property, 70% of your amount will be safeguarded in an escrow account and 30% amount is given to the RERA/HIRA approved builder to construct the property.

3. Home Loan – Fixed or Floating Rate

In the present market scenario. A floating rate is always advisable over a fixed rate. It is because the interest rate is in a downtrend and it is expected to down over coming months. Floating rate loans also come with nil prepayment charges. Fixed-rate charges may be advisable in situations where you might think the interest rates are going to be high in future and you think you cannot take an additional burden on your monthly expense.

Tip

Always check with the bank what will be the applicable rate when the fixed-rate period ends. Most of the case, a fixed rate is rarely completely fixed. It is fixed for a certain period of time then the bank will convert it into a floating rate thereafter.

4. Choice of Bank/Financial Institution

You must choose your bank or a financial institution based on the following factors:

You must check with the interest rates and home loan prepayment and foreclosure charges
Turnaround time and customer service. You first go through all the reviews to make an informed decision and avoid common mistakes.
Check the historical base rate trend of the bank. This will give you a fair idea of the fluctuation of rates. Also, check whether the bank passes the lower interest rates to its old clients.
Compare all the offers and check on different parameters, not just the interest rates. Apart from interest rates, you need to consider foreclosure charges, processing fee, customer ratings, servicing etc.

5. Check the Disbursement of Loan

In the case of ready-to-move properties, a loan can be fully disbursed but it will not exceed 70% of the property value. In the case of under-construction property, in general, it is assessed by the lender, if not to the developer’s agreement. The disbursement is based on the progress of construction, so be clear with the developer to enter into an agreement wherein the payment is linked to the construction work and shouldn’t be pre-defined.

Tips

Prepare all the necessary documents because the bank will conduct technical, legal and valuation exercise. At the disbursal stage, you need to produce the allotment letter, photocopies of title deed, encumbrance certificate and the agreement to sell paper.
Your bank will charge the interest rate on the date of disbursement, and not the one as per the sanctioned letter. So, if the bank interest changes, you need to prepare a new sanction letter.

Advantages of Home Loans

Taking a home loan means you are taking a long-term financial commitment. However, it does offer some lucrative benefits: