Presently, interest rates on a home loan are at an all-time low. Moreover, with a strong credit profile and a good capacity to repay, you might get your home loan at the lowest interest rates. However, prior to apply for a home loan, there are some crucial things to note:
* Amount of home loan approved depends on your Bank of Baroda Home Loan eligibility, Kotak Home Loan eligibility or other lender’s eligibility like your credit score, income and existing debts.
* You require fixing on other parameters such as property price that you are thinking of purchasing.
Lastly, a home loan requires the longest commitment because you require repaying EMI towards it for 20 to 30 years. Repaying EMIs for a long time can even affect your finances, and thus, you require to be vigilant when taking a home loan.
Here, we will list some of the thumb rules to assist you in making things simpler for you:
Know exact home purchase budget
Deciding your home purchase budget is the basic thumb rule, which one requires following when opting for a home purchase. For this, you require analyzing your affordability and then deciding on the budget. Doing so avoids any future financial issues and keeps all your finances on the right track.
Follow the 35/50 rule
When opting for a home loan, many of the lenders ask for your existing liabilities as well as your financial commitments, which involve listing your existing debts in the form of a car loan, personal loan etc. It is asked as banks usually do not agree to lend an amount where the EMI is over 50 % of your monthly income.
However, it is recommended to opt for a home loan wherein the EMI of the home loan is not over 35 % of your monthly income, while your overall EMI involving all your debts must not be over 50 % of your total EMI monthly income. Adopting this route would make you less burdened and will even permit you to save for other crucial financial goals.
A credit score is crucially important here
A credit score or credit history is one of the most pivotal factors you require considering when submitting a home loan application. For the ones with a strong credit score, qualifying for loans become easier, while for the rest, it is difficult. Lenders also provide a lower rate of interest on home loans to those applicants with a good credit score of 750 and above. It means having a strong credit profile assists in getting a better deal on home loans from lenders. Thus, ensure to check your score before availing home loan. In case you do not have a good credit score, adopt important steps for rectifying your score so that you can apply for a home loan with a higher credit score. Doing so helps you enhance your Bank of Baroda home loan eligibility, Kotak home loan eligibility or other home loan lender eligibility.
Choose loan repayment tenure as per your repayment capacity
Most of the lenders of home loans provide a maximum home loan repayment tenure of 30 years basis the applicant’s age. As shorter loan tenures lead to lower interest costs, many of the applicants of home loans opt for shorter tenures without considering their repayment capacity and their month on month contribution towards their crucial financial goals. Avoiding contributing towards your financial goals can propel you to opt for a loan at a high-interest rate later to meet such financial goals. Selecting aggressive loan repayment tenures without sufficient contingency funds can propel you to default on your EMIs in situations of financial emergencies or unemployment. This act, in turn, can have a negative impact on your credit score and thus your future loan and credit card eligibility.
In place, applicants of home loans should select such loan tenures where they can comfortably repay their home loan EMIs after factoring in their emergency fund and contributions towards your crucial financial goals. As home loans usually come at floating rates, home loan applicants always can prepay on receiving surpluses without incurring any charges on prepayments.
Always ensure to research and do your calculations
Not just for a home loan, ensure to do calculations to know your estimated EMI is a must for all loans, be it a car loan or personal loan. It is because performing such calculations not just assist you in reviewing your affordability but even assists you in planning your finances accordingly. You can conduct your EMI calculation by using the online home loan EMI calculators.
Form sufficient emergency fund
Financial emergencies such as illness, job loss etc., usually come announced & can aggressively affect your cash flow, income, corpora of your crucial financial goals & loan repayment capacity. Failure to make repayment of EMI on time not only make you pay the heavy penalty but even impact your credit score in a negative manner. While the option to redeem your investments to repay your loan EMIs is always opening, doing so can negatively affect your long term financial health.
One of the simplest ways to face such uncertainties is to form a sufficient backup as an emergency fund. This specific fund must be at least six times your mandatory monthly expenditures, involving the new EMI of home loan and existing EMIs. Thus, the moment you start planning for a home loan, try and simultaneously increase your emergency fund’s size by at least six times your expected home loan’s EMI. As financial exigencies can strike anytime, make sure to park your contingency fund in extremely liquid instruments such as fixed deposits and high yield savings account.
The next cost-effective alternative is to choose home loan variants such as home loan overdraft or interest saver options. The option offers an overdraft account in the form of savings or a current account linked with a home loan account. Applicants can deposit their surpluses in an overdraft account & can withdraw from the same as and when they need funds. As the home loan interest component of the loan account gets calculated after reducing the monthly average balance of the overdraft account from the outstanding loan amount, putting your surpluses in overdraft account projects the same purpose in the form of prepayments. On the other side, easy liquidity provided by an overdraft account makes it a tool for parking your contingency fund.