Buying a house often needs massive money. As a result, most individuals turn to financial assistance in the form of home loans. Thanks to technological developments, the loan processing time has been significantly reduced.
If you are opting for a private home or housing loan, knowing all of its aspects is critical for a streamlined process. This article discusses all the critical factors of a private home loan.
Home Loan Eligibility Criteria
The first step of acquiring a private home loan is ensuring you are eligible for the housing loan. Initially, lenders assess the eligibility for loan approval based on your income and repayment capacity. A home loan is also calculated based on the following:
- Current age
- Monthly income
- Retirement age
- CIBIL score
Individuals can also use the home loan eligibility calculator to learn about the loan amount they are eligible for.
You will have to submit KYC documents and income documents. The great benefit of having all the necessary documents is that it speeds up the process for the housing loan. Private home loan providers offer loans with minimal need for documents.
Ensure to have the following documents when applying for private housing loans:
- Identity proof such as voter ID, PAN card, and passport
- Duly filled application form
- Passbook or bank statement
- Address proof such as electricity bill
- Documents associated with the property you are taking a loan against
Make sure that your lender provides easy retrieval of the documents. Confirm whether your loan provider is equipped with storage facilities so that document retrieval is easy and quick when you need the documents back.
Interest and EMIs are not the only costs borrowers have to bear on housing loans. You must confirm whether there are any processing fees, foreclosure charges, and late payment penalties. These charges can add up and form a substantial amount.
Some of these charges are non-refundable. Ensure to discuss these with your lender before applying for the home loan.
Also, prepayment and foreclosure charges are only applicable on fixed-rate home loans. It is a critical factor to consider when choosing a floating or fixed rate, as prepayment can reduce tenure and help you save significant money.
You must consider your CIBIL score before applying for a home loan.
A good CIBIL score of 750 or above qualifies individuals for securing any loan, as it is among the deciding factor for loan approval. Having a good credit score can allow you to secure a private home loan with lower interest rates.
Check your CIBIL score at least 6-12 months before applying for a home loan. Use a home loan eligibility calculator to see how much loan amount you can secure with your current credit score.
Equated Monthly Instalment or EMI is the amount you must pay to the loan provider every month. It includes the principal amount and the decided interest rate on the housing loan.
Most people opt for pre-EMI which is the concept used for properties under construction. You get the loan amount in stages based on the EMI they have to pay the developer.
In the pre-EMI option, you will initially pay the interest rate on the disbursed loan amount. If they want to initiate the repayment for principal immediately, they have to choose the tranche loan and pay EMIs on the disbursed amount.
Your private home loan EMIs are based on the home loan’s tenure. Generally, housing loans have to be repaid before thirty (30) years.
EMIs are fixed based on housing loan tenure. With shorter tenure, the EMI will be higher but lessens the home loan amount.
The rule of thumb is to pay the outstanding loan amount on time. Hence, the better option is to opt for shorter repayment tenure with higher EMI.
When applying for a private home loan, you must provide a portion of the decided housing loan amount as a down payment. After that, the pending amount is converted to EMI, which you will pay monthly.
By paying a higher down payment, you can save on interest rates in the future.
The abovementioned considerations will prepare you for the housing loan and increase the chances of quick approval. Analyze all the factors to make your choices wisely and use a home loan eligibility calculator to avoid any confusion in the future.