The Ultimate Guide to Home Loan: A Handbook for Homebuyers

The first step in the home loan process is finding the right lender. Today, many banks and NBFCs occupy this space, which makes it even more important for borrowers to spend time finding the right lender for them. Ideally, one should look for a reliable lender who has been operational in the lending space for at least a few years. Many new lenders entice borrowers with highly lucrative loan offers, including very low home loan interest rates and very high loan sanctions. However, one cannot rely on such lenders. 

This handbook discusses simple things that homebuyers must keep in mind while shopping for a home loan. So, if you are planning to avail of housing finance, this brief guide to home loans is a must-read for you.  

The Ultimate Guide to Home Loans: A Handbook for Homebuyers

1. Choose your lender carefully. Shop for low home loan interest rates, high loan sanctions and low processing and other fees. Negotiate with as many lenders as possible and in the end, use a home loan EMI calculator to compare offers and select the best one for you. 

2. All lenders have home loan eligibility requirements. These eligibility requirements are important as they help lenders separate high-risk borrowers. Only those individuals who meet these home loan eligibility requirements get sanctioned a home loan. So, before beginning the home loan application process, get clarity on home loan eligibility requirements set forth by your preferred lenders and apply for a loan only if you meet all the qualifying criteria. Not meeting these eligibility requirements and still applying for a housing loan would inevitably lead to loan application rejection, reducing your chances of availing of housing finance or any other type of loan in the future. 

3. Borrowers must always negotiate for as low a housing loan interest rate as possible. The home loan interest rate that one gets on a home loan directly impacts one's repayment capacity. Low home loan interest rates not only help keep EMIs budget-friendly but also help reduce the cost of borrowing loans. 

4. Maintaining a CIBIL score above 750 will certainly help you avail of a home loan at low-interest rates. A high CIBIL score implies a credit user who can be trusted with timely repayment of loan money. Therefore, such borrowers are extended home loans on the most beneficial loan terms and conditions, including the lowest home loan interest rates. 

5. Maintaining a low debt-to-income ratio and going for a low loan-to-value ratio loan will also work in your favour and help you avail of a home loan with low interest rates. Homebuyers are thus advised to save as much for the down payment as possible. 

6. To ensure transparency within the home loan application process, the Reserve Bank of India has made it mandatory for lenders to link home loans to an external benchmark. In the majority of cases, this benchmark is the Repo Rate. Therefore, all home loan borrowers must track changes in the Repo Rate and make sure their lenders are passing on the benefit of these Repo Rate changes to them. 

7. Home loans are offered on two different types of interest rates: fixed and floating. Floating interest rate home loan EMIs change with changing market conditions. Fixed-interest rate home loans remain unaffected by external market conditions. Floating interest rate home loans tend to be cheaper than fixed interest rate home loans. 

8. Home loan borrowers also have the option of transferring the remaining balance on their home loan to another lender willing to refinance the loan on better loan terms and conditions. This is known as the home loan balance transfer facility and almost all lenders offer this facility these days.