Buying your first home is one of the important decisions that you take in your life. And in the process, you would have had to go through many emotions as you are not sure how to go about it. The purchase of the first home is always preceded with anxiety as one has to wade through a maze of concerns, doubts and legal-ese of loan documents. If you are taking loan, you could also be worried about which bank to chose, the amount of loan that you are eligible for and if the interest rate offered is the best possible in the market.
A little homework can go a long way in not only alleviating your anxiety, but also in ensuring you get a good loan. Here are a few fundamentals that will help you move into your new home in high spirits.
Down payment
Most banks and housing finance companies fund only upto 80 per cent of the cost of the house. So you need to bring in the rest of 20 per cent. The best way to do this is to have accumulated sizeable savings, which can be used for paying the down payment.
In fact, if you have cash, it is better to make as big a down payment as possible. This will help you in saving on the interest. Apart from the price of the house, you would also have to shell out for stamp duty, registration charges etc. So it makes sense to save enough money before beginning your hunt for the house.
I don’t have cash
Ideally, you should not take a home loan if you don’t have enough money for the down payment. Nevertheless, in situations where it is not possible, see if any of the ways mentioned below can help you:
Bridge loans: Many employers offer bridge loans at a minimal interest to help employees buy assets. Enquire if your employer can give you a bridge loan.
Request builder: Some builders can be magnanimous to let you pay a minimal down payment and pay the balance later. The key is to ask.
Jewel loans: If you have gold jewellery, you could encash it as a loan to tide over the immediate need. Simultaneously we need to be aware that the interest on gold loan will be an extra burden.
Check investments: If you have investments, which are giving returns at least two per cent less than the interest rate being charged on the loan, it is better to withdraw the same and use it for the down payment.
Eligibility dilemma
Knowing how a bank calculates your loan eligibility can certainly help you put things in place before you apply for the loan. Principally every lender looks at a borrower in terms of two perspectives such as repayment capacity and trustworthiness.
Ability to repay: This is decided by the lender by analysing at your current income, other income sources, monthly cash flow, age to retirement, job profile, employer profile etc. These numbers would help banks to decide whether you can service your monthly instalments and still live a good life style.
Intention to repay: This is decided based on your repayment history. Your Cibil score will be a big indicator of the same.
Repayment
Good income is the main criteria. This is checked based on your salary statements or income-tax filings. If you are expecting a hike or bigger profits, apply for the loan after you get a hike or after having shown higher profits on your returns.
* Try to reduce major regular cash out flows from your main account. Examples could be, the EMI on a car loan (close the loan), rent payments to your landlord (use another account/pay in cash).
* Another way to shore up the income criteria is to have a co-applicant. The combinations of father and son, unmarried daughter and father, brother and brother, husband and wife can be co-applicants.
* Always ensure that you maintain a bank account, which has good cash flows into it and minimal outflows. The bank account must also be devoid of cheque bounces or bank charges. Use this account when applying for the loan.
Trustworthiness
If you have had a good record of a past loan or good repayments on your credit card, it will give you a higher rating. Also you need to be sure of getting a copy of your CIBIL rating to know what your credit rating is.
If it is on the lower spectrum, you should wait for a few months and rectify the ratings by streamlining payments.
At times, you might have closed a loan just a few months ago and the EMI might reflect on the bank account. This could reduce your funding eligibility. Attach a copy of the closure statement of that loan while applying for the new loan. It also works as an affirmation of your intention to repay.
Interest rate
Keep the following pointers in mind to get the right deal on your home loan.
* Avoid lesser known lenders while applying for loans.
* Compare at least four or five different lenders and rate them on the final cost of loan, service, ease of applying, and repayment.
* Use online portals to compare parameters like interest rates, charges.
* Study and understand the various clauses such as reset and foreclosure applicable for each lender.
* Choose lenders who are easy on prepayments.
* Remember that the rate reset is applicable for floating as well as fixed interest loans.
Adhil Shetty is CEO of Bankbazaar.com