Taking the Plunge: A Guide to Taking a Home Loan

Those planning to take a home loan must do so after fully understanding how home loans work, the factors that affect the interest rates that one gets on these loans and the repercussions of not paying EMIs on time. In this brief guide, we talk about things home loan borrowers must keep in mind while availing themselves of a home loan.

1. Not everyone who makes a home loan application gets approved for a loan. Only those individuals who meet their lender’s home loan eligibility requirements are sanctioned loans. Eligibility requirements take into consideration factors, such as income, age, credit score, LTV ratio, debt-to-income ratio, etc. Lenders clearly mention their eligibility requirements on their website. Individuals should apply for a home loan only if they meet all the eligibility requirements.
2. Home loan applicants can use a home loan eligibility calculator to calculate the loan amount they are eligible for. To increase the chances of loan approval and ability to take a home loan on favourable loan terms and conditions, one must apply for a home loan amount one is eligible for or something lower.
3. Before you apply for housing finance, use a home loan EMI calculator. The home loan EMI calculator is an online tool that lets borrowers calculate their home loan EMIs in advance. The calculator delivers results based on three values: loan tenor, loan value and the rate of interest. Since the lender decides the rate of interest, borrowers can try different combinations of loan tenor and value until they arrive at a loan amount that they find affordable.
4. If you are planning to apply for a home loan, you must set aside an emergency fund the day you get approved for a loan. Life is unpredictable. People lose jobs, find themselves losing their savings on medical bills, etc. In case of a contingency, a home loan emergency fund will help you cover your EMIs for some time until you find your footing back.
5. If you miss paying one or two EMIs, not much will happen. However, if you miss home loan EMI payments for more than six months, your credit score will get affected badly, which in turn, will affect your chances of getting approved for a loan in the future. If you default on loan repayment for an extended period, your lender might seize the property and sell it for recovery of losses. Therefore, one must take a home loan carefully and after elaborate planning. More importantly, one must never borrow more than one can comfortably repay.
6. Lastly, to ease the process of loan repayment, one must try and avail themselves of the lowest home loan interest rate possible. Availing of a low home loan interest rate is not challenging at all if one maintains a credit score above 750, has a low debt-to-income ratio and opts for a low LTV ratio loan. Opting for a short-tenor loan and a floating interest rate loan will work in your favour too.
7. If you plan to become debt-free before the agreed loan tenor, you can do so by paying one extra EMI each year or part-prepaying your loan whenever possible. Similarly, you can also transfer your loan to another lender using the home loan balance transfer facility.

A home loan is one of the most secure and convenient ways of facilitating a home purchase. However, one must avail of these loans keeping one’s repayment capacity and affordability in mind. Keeping the above-mentioned things in mind will allow you to repay your home loan without feeling hassled.