All of us dream to buying a house one day. It bestows a sense of social status, achievement, and peace. Given the increasing prices of property and the financial crisis induced by the current pandemic, buying a home from your savings or investment is not a wise decision. You can put a burden on your finances and jeopardize your plan of financial security during an emergency. Besides, your savings may not be enough to buy a home.
In such cases, applying for an affordable housing loan is the best option to manage your finances without putting any stress on your savings. You can secure a loan amount based on the value of the property in the market. Your lender may approve up to 75% of your property’s value as a loan. But, getting a home loan is a complicated and lengthy process. There are several factors you must be mindful of to make an informed.
Here is the checklist to follow when applying for an affordable housing loan:
- Interest rate
Although a home loan interest rate is lower than an unsecured loan, you must still compare different lenders, and their interest rate offers to choose an affordable housing loan that best serves your needs. Also, there are two types of interest rates you can choose from, such as fixed interest rates and floating interest rates.
A fixed interest rate remains constant throughout the repayment tenure. But, a floating interest rate, as the name suggests, keeps fluctuating based on the market condition and the RBI’s instructions. If you are opting for a longer loan tenure, it is advisable to choose a floating interest rate to save on interest in the long run.
- Loan tenure
Generally, lenders offer affordable housing loans whose repayment tenure ranges between 10 to 30 years, allowing you to make repayments as per your comfort. However, it is worth noting that a longer loan tenure can fetch you higher interest rates, given the risks involved. Therefore, if you have the budget, make sure to choose a shorter loan tenure. Your EMI may increase a little, but your interest will drop significantly.
- Equated monthly instalments (EMIs)
After getting an affordable housing loan, you will need to repay your loan within the stipulated EMIs. Your EMI amount consists of your loan amount, interest rate, and loan tenure. Make sure to use a housing loan EMI calculator to determine a suitable EMI based on your needs.
- Down payment
It is worth noting that you will not be able to get the entire value of your home as a loan. It means that you will get a certain percentage of it as a loan. You will need to pay the remaining amount from your savings. This payment is known down payment. If you wish to secure better interest rates and flexible loan tenure, make sure to pay a higher down payment.
- Credit score
One of the crucial factors affecting your home loan eligibility is your credit score. Before approving your application, your lender will check your CIBIL score to determine whether or not you are a creditworthy borrower. To get a home loan with a lower interest rate, you will need to maintain an excellent credit score. The minimum requirement is 750.
- Processing fees
Your housing loan interest rate is not the only cost associated with your loan. You will have to pay a processing fee to your lender for getting a loan. It generally ranges between 1% to 2% of the total loan amount. The processing fees vary across different lenders. So, make sure to compare multiple lenders to get the lowest processing fees.
- Know the fine print of your agreement
When lenders approve your application, they will issue a document which you will need to sign. It contains details of your home loan, such as processing fees, loan tenure, interest rate, additional fees, and penalties. Before signing any document, you need to carefully read the fine print and make sure that agree with your lender’s terms and conditions.
- Prepayment penalty
The best thing about an affordable housing loan is that you do not need to incur a prepayment penalty. It means that if you have the budget, you can prepay your loan amount to get rid of the financial burden without worrying about penalties charges. As per the RBI’s instructions, financial institutions are not allowed to charge prepayment penalties.
- Foreclosure Norms
It refers to the repayment of the outstanding loan amount before the end of the tenure. If you foreclose your home loan, you can significantly save on the interest, reducing the financial burden. It is worth noting that if you have chosen a floating interest rate on your affordable housing loan, you will have to incur foreclose penalty.
Keep these pointers in mind when taking a home loan and enjoy a hassle-free loan tenure.