Tips to Make Sure You’re Availing the Right Home Loan Amount
Owning your dream home comes with huge responsibility, especially if you’ve taken a loan or planning to sign up for one. Before jumping into a loan purely on the merits of the benefit it offers, be sure to give it an aerial view so that you take just the right loan amount. A typical home loan tenure ranges from 8–10 years and taking a higher quantum of loan only means higher incidence of interest charges. After all, you want to play it smart and not let your hard earned money go down the drain.
In our ongoing series to educate you about the various facets involved in a home loan and to help you make smart choices, this article will provide insights on a few checks and balances you should be making before choosing the loan amount. Banks and Housing Finance Companies (HFCs) offer a loan of up to 85–90% of the project cost, which is definitely a boon as it offers to fund the larger chunk. Having said this, you must keep the loan amount optimal and ask only for what you can afford. Below are a few points to keep in mind.
Assess Personal Savings
Check how much you have in the bank to add that extra impetus to your share in the project costs. The same assessment can be done with your spouse/parents’ personal savings for lowering the loan amount taken from the bank. If you’ve easily liquefiable investments such as Gold or Fixed Deposits, give them their due consideration. Financial instruments due to mature in the near future such as Mutual Funds can also be considered. Any source of cash in hand in excess can be routed towards buying a home to reduce the burden.
Check your Eligibility
Before applying, use tools and resources to ascertain loan eligibility, which varies from bank to bank and is dependent on multiple factors. It also helps in making key decisions such as opting for the right loan amount. Compare loan offers from a few banks and apply only for the ones that you think fits the bill. Randomly applying with a logic that one of them should work will have a hit on your credit score in a negative manner.
When you apply, the lender makes an inquiry with the Credit Bureau, bringing your score down slightly.
Use an EMI Calculator
The most recommended way to compare loan products and assess the the financials involved in a home loan is achieved by using an EMI Calculator. This site hosts an all-inclusive tool to help you in this regard. Using this tool gives you prominent insights such as the EMI amount, total interest charges incurred, amortization and other information which helps in altering loan terms and also aids your quest to choose the right loan amount.
You must make it a part of your home work to use this tool for home and other loans.
Look for Alternate Source of Funding
If you’re short of funds and hesitant to take that additional amount from the bank, look for alternate source of funding. It’s a common practice in India to get credit from a family member or a friend at a lesser interest or nothing at all. It hugely works in the favor of the home aspirant in getting that additional funding to cover it up and at the same time, save on home loan interest rates.
Assess the Costs Involved in the Loan
In additional to the interest charges payable during the loan term, the borrower is also liable to pay additional charges such as processing fee, billed at a fixed rate on the approved loan amount. Since such charges are substantial in nature, you must consider them and alter the loan amount accordingly since every penny makes a difference. If there is pre-penalty clause, you must also consider this factor that will have a saying in a longer run.
Negotiate with the Bank
Most importantly, leave no stones unturned in ensuring that you negotiate the terms of the loan which includes the loan amount. If you’re not happy with the approved amount, ask for a higher quantum and if you’ve been offered more than you need, go ahead and ask for a tweak. Some banks offer a higher loan amount if you’re willing to increase the tenure chosen since it adds additional interest charges to their revenue. In such cases, make sure to negotiate and close the deal in your favor.
Club the Income of your Immediate Family Member
Another way to increase your loan eligibility is achieved when you include your immediate family members such as spouse or parent as co-applicants in the loan application. When you do so, you not only give that additional income for banks to consider, but also increase the loan eligibility since there are multiple incomes for indexing and processing the loan.
Pay Off Existing Loans
By clearing existing loans and credit cards, you will allow more room for further credit since the monthly commitment from your salary towards these obligations come down. When the loan is processed, they ask the applicant for details of existing liabilities and vet it against the credit report retrieved from the banks. The loan amount eligibility is determined only on the residual income after payment of the monthly EMIs. Naturally, lower the credit, better are the chances of getting feasible loan terms and appropriate amount.