6 tips for customers to avail home loans from banks

• Buying a home is a very complex process with the quantum of documentation that needs to be analysed and executed.
• Multiple people such as a property broker, lawyer, registration agent and a home loan counsellor/bank officer are involved during the entire process.

Buying a home is a very complex process with the quantum of documentation that needs to be analysed and executed. Multiple people such as a property broker, lawyer, registration agent and a home loan counsellor/bank officer are involved during the entire process.

Appended are the tips to reduce the complexity in the process of getting a home loan:

• Check your credit ratings:
  It is very important to have a good credit bureau score such as CIBIL or EQUIFAX to apply for a home loan at an attractive rate. An unrated customer may have to pay a premium, so it is important to maintain a good credit profile.
• Getting an in-principle approval or a pre-qualified loan:
  Before one sets out to look for a home, it is important to know if one’s budget matches the loan eligibility and the down payment in hand.  Many make the mistake of choosing a home first and then starting the home loan process, without getting an assessment of their eligibility. For example, if the property costs Rs 60 lakh, the savings is Rs 20 lakh, and if the eligibility for a loan is Rs 25 lakh, then the deal will not go through.
• How much should the down payment be:
  While planning for a home, the buyer needs to factor in all other costs, apart from the normal down payment that ranges between 10 and 25 percent of the property cost. Generally, one does not get funding for stamp duty, club charges, development fees, insurance cost, society deposit, etc... So getting to breakdown the cost and understanding on which component funding is available is a vital part of the process.
• Understanding how floating rate loans work:
  Majority of the borrowings are for a tenure of 20 to 30 years. A variety of options are available among floating rate loans - reset of interest during yearly, quarterly, and monthly, periods.

How does the reset period come into effect? For example: If the borrower has availed a home loan in September 2017 from a bank on an annual reset of interest, then the loan rates would be revised once in August 2018. But if the borrower has availed the loan from a housing finance company, which typically offers a quarterly reset, it is likely that the loan rates would be revised at least thrice in a year. So, in an interest rate rising scenario, the rates would move up between 0.65 and 1 percent

In public sector banks, customers can avail of interest charge on daily reducing balance method. If the borrower has an EMI date of 25th of the month and deposits the EMI on the 5th, then he or she saves on the interest for 20 days of advance payment of that particular EMI.

• Are you insured for the new liability you acquired:
  Home Loans are large loans and typically the borrowing is up to 5-6 times of one’s annual income. It is advised that for any such large liability, an insurance cover be bought, to provide the family an asset, which is liability free if any untoward situation arises.

Do not start borrowing before purchasing of a house:  Many choose to borrow for the down payment by availing short-term or personal loans, which come at a higher rate of interest and reduces the eligibility for a home loan, as the personal loan has a higher monthly repayment obligation. For example, Rs 5 lakh personal loan for a tenure of five years will carry an EMI of Rs 11,122. But, for the same EMI, one can avail of an additional home loan of Rs 14.25 lakh.