Three Important Things You Should Know Before Taking a Home Loan

Availing of a home loan is easier said than done. It may seem that financial institutions are eager to lend, however, securing a home loan at the desired rate can be tedious. Here are some essential factors you must be aware of before signing on the dotted line.

 

Factors Influencing the Eligibility Criteria for Home Loan 

A way to calculate the eligibility criteria for home loan is by calculating the EMI. Banks limit installments at 40-50% of the individual’s salary, that is, basic plus the dearness allowance. Allowances and other reimbursements are not considered. Besides, if you have existing liabilities, such as one more or multiple loans, the eligibility is likely to dip further. Some lenders are sensitive about the number of dependents you have. The greater the number of dependants, lower the repayment capacity.

Besides financial strength, your profile affects how much the lender will agree to lend you. For example, borrowers who have a stable source of income find it easier to secure a loan than a self-employed borrower who has erratic earnings. The age defines how many earning years you have and your repayment capacity vis-à-vis the loan tenor. Usually, loan tenors do not exceed the age of retirement, unless you have a relatively younger co-applicant.

You Can Switch Lenders 

Availing a home loan from a financial lender does not indicate that you must be stuck with it for ages. If you get a better deal from one more lender, you can switch. But before you switch, better be sure this time. Use a home loan eligibility calculator to check the EMI outgo before making the move.

The Fine Print

A home loan agreement is a legal document and mostly incomprehensible. However, there can be some devils hiding within the mentioned details. You might think a ‘default’ is when you miss paying an EMI. However, some lenders define default even when a borrower expires, undergoes a divorce (in cases of joint loans), or gets involved in a criminal offense or civil litigation. Some financial lenders have a security clause that entitles the lender to demand additional security in case the price of the property falls. If you fail to pay, you are going to be marked as a defaulter.

The Final Word

Whichever lender you go with, do not forget that you can negotiate the home loan interest rate in India. Though the bank would have an upper hand, you can try and haggle too, especially if you are an old customer and have a long-term relationship with the bank. 

Must Read: What are the eligibility criteria and documents needed for a home loan?