You have decided to get a home loan to buy your dream house – but it is important to have good financial health before you go ahead. Read on to know why.
In today’s times of increased expenses and exorbitantly priced realty, it has become a misnomer to expect one to buy a home without the aid of a home loan. Many first time buyers, especially, can find it really difficult to purchase a house without a home loan. But they are also slightly confused about what the home loan process entails.
This article attempts to shed light on the home loan proposition.
Assessing your finances
Start by assessing your bank balance and your earnings from investments. Even though you are about to take a home loan, you will still need money at your disposal. Specifically, you will need enough money to:
- Make a down payment on the house
- Pay the stamp duty and registration fees on the sale agreement
- Pay the stamp duty and registration fees on the loan agreement with the lender
- Present a pre-EMI cheque to the lending institution
- Pay transfer fees to the building society/developer
- Pay processing and evaluation charges for the loan application
The above must come from your own resources – the housing loan will not pay these expenses. So when you assess your finances, make sure you have 20% of the house’s value, plus additional money set aside for the other heads.
Understanding the home loan proposition
The home loan comprises the principal, interest and tenure. Of these, the interest and tenure are correlated such that they can reduce your EMI burden, or increase it.
If the interest is high to begin with, the home loan automatically becomes dearer. But if you increase the tenure of the loan, the EMI spread (i.e. number of EMIs) is increased. Thus, the EMI amount decreases. Normally, housing finance companies recommend that the EMI amount must not exceed 50% of your monthly income – or you end up straining your monthly budget. Do use a home loan EMI calculator when making your calculations for deciding on the best home loan. Most home buyers use the home loan EMI calculator in India when computing the potential EMI payment after taking the home loan. It helps you understand your monthly outgo much better than if you didn’t know the calculations beforehand.
Getting the best home loan
Conducting thorough research across top banks and housing finance companies in India will help you shortlist the best home loan products being offered at the moment. Look for recommendations from business publications and loan aggregator sites, which lay out comparisons between different products so that you can see which loan stacks up better against the others.
Another reliable way to get a good deal on your home loan is to look for home loan offers in the festive season. Housing finance companies pitch home loan offers with reduced interest, or zero processing fees, or EMIs waived off for a limited period.