Getting a house is still a dream for many Indians due to the increasing prices of real estate and the high-interest rate regime. It is one of the biggest financial decisions you will ever make. It is easier said than done. It is definitely a tedious task to get a loan sanctioned even though it may seem like all banks are eager to lend you. The home that you buy depends on the amount of home loan you are availing, to a large extent. It involves a lot of paperwork and documentation and is definitely a time consuming and tiring process hunting for a house and also applying for a home loan. It is important to gain knowledge about home loans in order to avoid any unpleasant surprises later.
Here, we have listed things you should keep in mind before getting a home loan in India, especially if you seeking the loan for the first time.
Contents
1. Thorough research
Do not go as per what your loan agent says. Do research on an individual level and find out the best terms available in the market. You may get the cheapest and yet the best rates. Some loan agents may misguide you in order to reserve a good amount of commission for themselves. Ensure that there are no extra charges except for the processing fees, legal verification charges etc. Make sure to find out all these charges and ask your agent or the bank itself to make a list of all charges applicable in each and every case.
2. Interest rate and type
There are two types of rate of interest: Fixed rate and Floating rate. A fixed rate is the one that remains constant for a long time, like a time period of 5-10 years and in some cases throughout the entire tenure of the loan whereas floating rate of interest is not constant. It can fluctuate anytime depending on RBI norms, market conditions, and various Government policies. In most cases, floating interest has been proved cheaper than the fixed interest. But if you do not want to take any risk and be on the safer side then, fixed interest is always a good option. You can switch between fixed and floating interest during your tenure, but be sure to check the switching charges that the bank may apply.
3. Tenure of the loan
Here, you will need to decide between lower EMI but higher interest payment or lower interest payment but higher EMI. A home loan can be sanctioned for a maximum of 30 years, subject to the borrower’s eligibility. You can opt for a longer tenure if you loan is higher than your EMI affordability. A longer tenure will help you in reducing the EMI but in the long run, you will be going to pay more interest.
Recommended for you:
15 Modern Style House Design Ideas & Pictures
4. EMI
EMI refers to equated monthly instalment. It is the most important factor that influences the home loan from a borrower’s point of view. This is the amount of money you need to pay to the bank every month for at least the next 10-15 years. It includes the principal amount and the rate of interest on the amount of loan. Do not push yourself to take an additional EMI, thinking you are going to earn more in the future and hence get more loan. Never ever let your EMI exceed 40-45% of your net monthly income.
5. Insurance cover
This is one of the most important steps to be done after you get your loan disbursed. You must purchase home loan insurance or an insurance equivalent to the amount of home loan. Your loved ones will be relieved from the liability of an outstanding loan in case any unfortunate event takes place. Your home loan insurance will be paying the pending loan amount. You can also get certain insurance policies which provide benefits in the event of loss of job, disability etc. to the borrower.
6. Down Payment
Down payment is the amount of money you pay during the onset of the purchase of something expensive. It is only a part of the total cost of the thing. If you plan to buy a property worth 30 Lac, the bank will at most sanction a loan of 25 Lac. The additional 5 Lac are needed to be paid from your own pocket. Any difference in the home loan will also be going to be paid by you otherwise you will have to cut down on your budget. Also, some dealers ask some percentage of the deal in cash known as black. Banks will never cover this and this is going to be off the records. So, beware of dealing in black as well.
7. Tax benefits
It is an allowable deduction on credit or tax return intended to reduce a taxpayer’s burden. It allows some kind of adjustment benefiting a taxpayer’s tax liability. Keep a check on the tax implications as well as on the tax benefits you are eligible to receive. Owing to the tax benefits, an amount of Rs. 150,000 to Rs. 100,000 will be exempted on the principal amount due to your eligibility. But if you sell the property within the first 5 years, the tax that you saved on interest payments will be added to your income from the sale of property and will be taxed.
Also see:
Congratulations Messages for New House
Hence, we have concluded some of the things that you need to remember before getting home loans in India. Buying a house is a major step but it is the most satisfying experience you will ever have. Getting a home loan is the best way by which you can fulfil your dream. Do not rush into a decision based on just one factor. Get quotes from about 2-3 banks and then think over the above-mentioned factors and get the perfect home loan.
