Continuous rise in prices of houses has made many of the applicants choose home loans to mitigate their dream of having a dream home. However, home loan lenders usually approve the loan application based on the applicant’s credit risk assessment made on the grounds of repayment capacity, income, credit score etc. Home loan’s longer repayment tenures stretching up to 30 years clubbed with big-ticket home loan amounts also make it important for all home loan applicants to get financially ready before such financial commitments.
Here, we will state a step by step approach that applicants of the home loan must consider before taking up a home loan at the best rates from lenders. Note for the one’s having an existing relationship with banks like SBI, ICICI etc. must consider contacting SBI home loan customer care service or ICICI home loan customer care service, respectively, before availing home loan.
Assess your credit report
All the lenders factor in credit score when assessing home loan applicant’s loan applications. They consider those with a score of 750 and more as creditworthy. Thus those with this credit score have higher chances of getting their loans approved. Many of the lenders also have started to provide a preferential interest rate to home loan applicants with good credit scores. Thus, a prospective applicant of home loans should initially assess their credit report before making the final home loan application. Taking this route allows such applicants with a score of lower than 750 to take up the right steps to better their credit score and place home loan applications with lenders on getting a higher score.
Remember that home loan applicants can easily avail their credit-linked report either from online financial platforms or by approaching credit bureaus.
Form down payment corpus for a home loan
According to RBI guidelines, lenders of home loans fund up to 75 to 90 per cent of the value of a property as a home loan. Ultimate home loan proportion is fixed as per the lender’s credit risk assessment of the applicant. Applicants need to contribute the rest of the component from their own resources. Thus, home loan applicants should aim at accumulating at least 10 to 25% of the value of the property before making a home loan application.
Remember that making a contribution of a higher loan amount from your own resources even assists to reduce your interest component. Choosing a higher down payment contribution also increases your chances of getting home loan approval as it reduces the lender’s credit risk. However, in this particular process, you must not compromise your backup fund for emergencies and investments particularly earmarked for achieving crucial financial goals in an attempt for making a higher contribution as down payment because doing so may force you to apply for high-interest loans to deal with emergencies or attain financial goals.
Strike comparison among various lenders
Interest rates, processing charges, repayment tenures, loan amount, LTV ratio offered by lenders of home loans can massively vary based on the applicant’s risk assessment. With various lenders available for home loans, it may not be possible for applicants to approach one lender after another for comparison purposes. The best way for doing so is by approaching online financial platforms for comparing among various home loan offers based on the applicant’s monthly income, credit score etc.
Assess your EMI affordability
Home loan lenders factor in the applicant’s capacity to repay when evaluating their home loan application. Usually, lenders require the applicants’ monthly repayment obligation, including the present loan EMI & the new loan EMI to be within 50 to 60 % of their monthly income. Those surpassing this set limit generally have lower chances of getting the home loan application approved. Thus, make sure to keep your monthly loan repayment EMI obligations to be within 50 to 60 % of the monthly income before submitting your home loan application. In this situation, it does not initially consider bringing down your present debts by either prepaying or foreclosing your ongoing loans. You can select higher repayment loan tenures or choose to make a higher down payment amount to reduce your whole EMI outgo for increasing your chances of taking up a home loan.
Form adequate emergency fund
Financial emergencies like job loss, accident, illness etc., can hit anytime and can considerably impact your income, cash flow, repayment capacity and financial goal corpus. Failure to make payment of loan EMI by due date not just results in massive penalties but also impacts your credit score. While one always has the choice to redeem their investments earmarked for attaining crucial financial goals to make payment of their home loan EMIs, this can adversely impact your financial health.
The best way to witness such events is to build sufficient emergency funds in instruments, which are liquid in nature, to face emergencies. Such backup should be nearly 6 times your monthly mandatory expenses, including your new home loan and existing loan EMIs. Thus, the moment you begin with your plan of availing a home loan, try and, side by side, begin to increase your fund’s size by 6 times the expected home loan EMI. As financial emergencies are uncertain in nature, ensure you park your fund in instruments like savings accounts and fixed deposits as they are liquid in nature.
A second cost-effective option can be to select a home loan variant like a home loan interest saver or overdraft option. This particular option caters for one with an overdraft account in the form of a current or savings account linked with their home loan account. Borrowers of home loans can deposit their surplus funds into this overdraft account and then withdraw as per the fund’s requirement. As the component of interest in the loan account gets calculated after lowering the monthly average balance of the overdraft account from the outstanding loan amount, parking your surpluses in the overdraft account serves the same purpose as making prepayments. Remember that easy liquidity availability in the situation of overdraft accounts make this option an efficient tool for parking emergency funds.
To know about it, consider approaching your bank with whom you have a good relationship, like SBI or ICICI. This can be simply done by contacting SBI Home Loan Customer care or ICICI Home Loan Customer care for your query.