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5 points to consider before you apply for a home loan

5 points to consider before you apply for a home loan

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5 points to consider before you apply for a home loan
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availing of a home loan is a major financial decision that can impact your financial planning for years to come. hence it's very important that you should consider all the aspects, pros, and cons of availing of a home loan before taking the final step. 

buying a home requires huge financial assistance and most buyers are likely to rely on financial assistance such as taking a home loan to buy the property. a home loan helps you to fulfill your dream of owning a house without straining your finances.

the interest rates on home loans are very low as compared to other loan products such as car loans, personal loans, etc. nevertheless, taking a home loan remains a significant financial decision. if you are planning to take a housing loan, make sure you are aware of all the points before applying for a housing loan as it’s a long-term financial commitment. usually, people take home loans for a period between 10-20 years, hence, a home loan can take up a sizable part of your disposable income for years.

there are a few important points you should check before applying for a home loan:

#1. rate and type of interest

it’s very important to check the rate of interest offered by various financial institutions to avail of the lowest interest rates on home loans. there is one more important point to check before taking a home loan - the type of interest rate. there are two types of home loan interest rates - floating and fixed-rate home loans. home loans with floating interest rates may change over a period of time, based on the changes in RBI’s base rate and overall market conditions. on the other hand, home loans with a fixed interest rate do not change over time. most financial experts recommend floating interest rate home loans when the interest rates are expected to decrease in the future. it has been seen that floating rates are 1-2 percent cheaper compared to fixed interest home loan rates, therefore, enabling savings in the long term. on the other hand, fixed interest rate home loans are suitable when the economic climate indicates a rise in interest rates in the future. however, you should first make sure that you are comfortable with the ensuing home loan EMIs before choosing between the floating and fixed interest rates.

#2. home loan tenure

if you want, you can choose to extend home loan repayment tenure to as long as 25 years, which translates to 300 installments. if you extend the home loan tenure, your monthly EMI burden will decrease whereas if you want to save overall interest payment on a home loan, try to shorten the loan tenure. however, you should note that reducing the home loan tenure will increase the EMI and may create an imbalance in your monthly budget. to find the right balance between the EMI amount and home loan tenure, you can use the online home loan EMI calculator. to be on the safer side, make sure your home loan EMI does not take up more than 30% of your disposable income. you should also consider other factors such as your age, income prospects, and other aspirations you want to fulfill. here's a free online home loan calculator by CRED that you can use to compare and calculate interest rates:

CRED home loan calculator

#3. down payment amount

banks and NBFCs offer only a fraction of the cost of the property as a loan and you need to bear the rest of the amount. most banks offer home loans between 75 to 80 percent of the total cost of the property, depending on the eligibility of the applicant. you choose to pay the minimum sum as a down payment or volunteer to pay more to save interest. paying a sizable down payment makes sure that you have a high chance of eligibility for a home loan as well as you will have a lower repayment burden. some banks also offer pre-approved home loans for eligible candidates. you should visit the official website or call several banks to compare home loan offers before taking a home loan. 

#4. find out more about associated charges

when you take out a home loan, you not only have to pay interest but many other charges associated with it, for example, processing fees, late payment penalties, and foreclosure charges. all these charges may differ from bank to bank, therefore, you should compare and negotiate with the bank to get the best offer. for example, there are nil foreclosure or prepayment charges on floating-rate home loans, however, some banks charge foreclosure or prepayment charges on fixed-rate home loans. therefore, it's very important that you find out every minor detail related to the home loan terms and conditions before deciding between fixed and floating rates. when applying for a home loan, it's very important to read all the documents and loan agreements thoroughly. availing of a home loan is a significant decision that can impact your financial health for years to come. 

#5. credit score plays an important role too

a few months before applying for a home loan, you should check your credit score. a high credit score, preferably higher than 750, helps you get a home loan at low-interest rates. the best way to improve your credit score is to clear all dues on time. you should start clearing all the dues a month prior to taking the home loan to build a healthy credit score. 

the final word

now that you know about all the important points to be considered prior to apply for a home loan, it's time to compare home loan offers by various banks to make an informed decision. the home loan calculator by CRED is a convenient tool to calculate and figure out details about your home loan requirement. 

use the CRED home loan EMI calculator now