Sometimes, it takes years to achieve that life goal of buying your own home. While high real estate prices can make it somewhat difficult for you to make that purchase, a home loan will help you fund that dream of yours easily.
However, before opting for this loan offering that best suits your needs, you need to keep in mind several factors. Go through these below, before opting for a home loan.
A lender lays down an home loan eligibility criteria you must meet in order to avail a home loan. These are related to your age, income, repayment capacity, credit score etc. The credit score is a reflection of your creditworthiness and so, having a credit score above 700 is considered to be an ideal score to get home loan. If you have a lower credit score, lenders can reject your loan application or could charge you a higher interest rate. Similarly, it would also help to know about all the documents required beforehand. Experts suggest that it is always favourable to have all the documents handy while applying for the loan.
- Interest rates
There are two types of interest rates on a home loan – fixed and floating. A fixed rate remains constant throughout the tenure. A floating rate of interest is linked to an external benchmark and hence, varies during the tenure. You can choose between the two when you avail the loan. Usually, floating interest rates are preferred for long-term tenures. Whereas, it is better to opt for a fixed rate of interest if you avail a home loan for a short period.
Lenders levy various charges on a home loan. These are processing fee, service charges, documentation charges, EMI bounce charges etc. If you are taking a home loan for the first time, you should enquire with the lender about all the applicable charges. Every charge levied by the lender adds to the cost of borrowing and can cost you heavily in the long run.
Tenure decides your total cost of borrowing. If you opt for a long tenure, you get ample time to repay the loan comfortably and possibly avoid defaults. However, it can add interest outgo and thus, your cost of borrowing. A short tenure helps you close the loan and get debt-free earlier but with a high EMI.
- Fine prints
Lastly, you must read the fine print of the loan agreement carefully. By reading the terms and conditions, you would also know about the additional benefits like a top-up home loan or assistance of a relationship manager that the lender might offer. Also check on the charges levied by the lender.
Before you initiate the loan application process, it’s essential that you consider all options and then choose a lender that offers you the best deal.. A well-researched choice can help you save a lot of money on your home loan.