5 Things to know before getting home loan

How to choose a lender before getting a home loan?

You and your family will probably face one of the biggest financial decisions of your lives when you buy a house. The only way most first-time homebuyers can fulfill their dreams of homeownership is by taking out a home loan.
Having a home loan is an investment that will take years to pay off. Before taking out a loan, you need to understand all the details; otherwise, you could be stuck with the debt for years. The following are five things you need to know before applying for a home loan:

1. Research on Loan Options

The internet makes it easy for information to be shared online, so do extensive research on home loan options before applying. Additionally to the down payment, EMIs, and repayment term, your research should also include those three factors. You can choose a suitable home loan from a better lender and enjoy a lower interest rate by researching these three factors prior to applying for a home loan. Home loan amounts are usually higher than those of other loans, so you should learn everything you can about the process before, during, and after you apply for the loan.

2. ELIGIBILITY CRITERIA

Making sure you qualify for a mortgage loan is the first step you should take. Your income and repayment capacity are taken into account when determining your eligibility for home loans. In addition to these significant factors, individuals should consider their age, qualifications, financial situation, number of dependents, spouse's income, and job stability.

TYPES OF HOME LOANS

There are several types of home loans:

• FLEXIBLE/ADJUSTABLE RATE LOANS: The lender's benchmark rate is used to determine the interest rate on this type of loan.f loan. The interest rate changes proportionately when the benchmark rate changes.
• A FIXED RATES LOAN: In a fixed-rate loan, the interest rate is set at the time of taking the loan. This rate of interest is applicable throughout the tenure of the loan.
• COMBINATION LOANS: An adjustable or floating rate of interest is applied to part of the loan and a fixed rate of interest is applied to part of it.

3. LOAN AMOUNT

In accordance with the regulation, most lenders give loans that range from 75 to 90 percent of the cost of the property. Based on your eligibility, if the property is valued at Rs 50 lakh by the lender, you can borrow as much as Rs 40 lakh (80% of the property cost up to Rs 75 lakh) for a loan amount up to Rs 40 lakh. You can increase the loan amount by including a co-applicant. The lender will consider their income. Biological parents, adult children, and spouses can all be co-applicants. You will be expected to contribute the remaining balance toward the purchase of the property. You will contribute the balance of Rs 15 lakh if the property is worth Rs 50 lakh and the home loan is Rs 35 lakh. You can check your eligibility for a home loan by using a housing loan eligibility calculator.

4. RATE OF INTEREST

An external benchmark is used to determine the interest rate offered by a bank when you request a home loan. In most cases, a bank's lending rate is tied to the RBI Repo rate. Home loan interest rates typically change with the RBI repo rate every three months, especially if you have a flexible interest rate on the loan.

To determine your home loan interest rate, look at the bank's external benchmark rate, which is commonly referred to as the Repo linked lending rate (RLLR). It may be possible for RLLR to act as a floor rate for banks over and above which individual borrowers can see rates based on their loan amount, tenure, etc.

The lending rate is determined primarily by the cost of funding of housing finance companies or NBFCs. RBI repo rate movements still have an indirect impact on this. You should compare home loan interest rates from lenders that have lower RLLR or lending rates.

5. DOCUMENTS

You will need to provide proof of your income if you are a salaried employee, professional, or business owner. Form 16 or a three-year ITR are a few of the documents that lenders require of salaried borrowers. You may be required to provide three years' worth of tax returns (self-reported as well as business), three years' worth of balance sheet and profit/loss statements, along with recent 6 monthly bank statements, or even GST returns, depending on the source of your income.

Now that you have a clear understanding of the core components of a home loan, it is time to put those ideas into action by approaching a few lenders. Select a lender that charges a low-interest rate. Several lakhs of rupees can be saved and you will have a home of your own if you make a few percentage points difference.

I hope you all know what things to know before getting a home loan.