Important Things You Need to Know Before You Take a Home Loan
These have been designed specifically to not allow you to lose the opportunity to make such dreams come true without having to pay up front for all the money. Taking a home loan, however, can seem a complex operation. Before taking a loan, there are several variables associated with a home loan that you need to remember. Below are the most popular ones:-
- The factors that can influence the eligibility requirements are By measuring the EMI, the best way to measure your home loan eligibility is. In general, banks restrict the sum, including the basic salary and the dearness allowance, to 40 and 50 percent of the borrower’s income. It also considers a borrower’s credit history. So, if you have an existing loan or a bad credit score, the amount of the loan may further decrease or you will have to pay an increased interest rate on the home loan. Compared to those with volatile earnings and weak credit history, people with a steady income, sound repayment potential and good credit score find it relatively easier to get a loan. Getting a co-applicant also allows you to quickly secure a home loan -click to read more.
- Understand the form of loan: Banks offer home loans in two forms of interest – the loan of fixed interest and the loan of floating interest. A fixed interest loan is a form of home loan where interest rates remain the same and a fixed EMI must be charged by the borrower over the tenure of the loan. On the opposite, in the case of a floating interest rate, it varies according to market conditions, contributing more often to variations in the sum of EMI. This is why fixed interest rate home loans have a 1 to 2.5 percent higher interest rate than floating interest rate loans.
- Interest rate: No matter what form of home loan you want don’t forget to negotiate the rate. Although banks will still have an advantage, you’re going to have to haggle on this, particularly if you were a loyal bank customer and had a savings account with the same bank. If you have a good credit history, it will be a lot easier to negotiate. Besides if you apply for the loan at the end of the month, you can still benefit. Since banks have company goals, if they want the company, they can be more flexible at this point.
- The fine print: A contract for a home loan is a legal document that has all the loan information. If you assume that not paying EMI on time would just lead to problems, you’re wrong! The fine print has several clauses concealed in it. Thus before signing the dotted line, it is best to read the final documentation of the loan agreement carefully. Be mindful of the processing fee for the loan, interest charges, secret clauses, service charges and the penalty for prepayment, etc. In this sense, any negligence can lead to bigger problems in the future.
- Longer loan periods mean more costly loans: the longer the tenure of the loan, the more interest you are expected to pay over a period of time, as a general rule of thumb. This increase can be afforded by many but not all can do so. It is also prudent to apply for a loan sum that can be quickly repaid in the shorter term. You will have to pay enormous EMIs this way, but for a shorter time and without increasing the interest rate.
There are quite a few things that when applying for a home loan you need to bear in mind. Notice that it doesn’t mean that if you get a loan from one bank, you’re stuck there until your loan is completely paid out. You always have a turn option. In this switching process, you simply have to pay the transaction fee and also the pre-payment penalty (if paid by your current bank).