5 Important Factors You Must Know When You Apply for a Housing Loan

Home loans serve as the best secured financial assistance while purchasing one's dream home. The ever-increasing urbanisation accelerated its need, and the easy availability of housing finance has led to the rapid growth of this financial product. This particular financial product is expected to maintain a CAGR of 22% between 2021 and 2026.  

Even though financial institutions are eager to lend, borrowers must be acquainted with the several aspects of home loans to make a wise decision. Therefore, to avail a home loan, borrowers must know the five essential factors listed below. 

1. Interest rate

The home loan interest rates depend on several factors, including the borrower's income, tenor, loan amount, credit score, and lending institutions. Based on the interest rate, there are two types of home loans-fixed and floating. Borrowers must know the difference between fixed and floating interest rate to save on the total cost of borrowing. Floating rates are affected by the overall market conditions, while fixed rates remain constant through credit tenor.  

2. LTV

Another important factor that borrowers must know is the LTV (loan to value ratio). Most financial institutions offer home loan ranging from 75% to 90% of the cost, based on the market value of the property. Borrowers must tally the offered loan amount of various lenders before arriving at a decision. 

However, to avail a home loan, borrowers must consider another factor- down payment. Borrowers have to pay a certain percentage of the loan amount as a down payment. The remaining expense of the property is disbursed as a home loan principal. Increasing this down payment to save on the cost of borrowing is the easiest way to manage repayment.          

3. Repayment Tenor

Housing loan tenor and EMI is interconnected. Borrowers must choose the tenor as per their repayment capacity. Though a longer tenor helps to lessen the EMI burden, borrowers have to pay more interest than the principal amount in case of a longer home loan tenor. If borrowers have a stable income and plan a strict budget, they can pay off the loan amount quickly with higher EMIs.

Housing loan can be availed up to 30 years, depending on the borrower's eligibility. However, some financial institutions offer loans in short tenor. 

4. Processing Fees and Other Charges

To avail a home loan, borrowers have to pay a certain amount to the lending institution once the loan application is approved, which is known as processing fees. The processing fees vary from one lender to another. 

Also, there are other charges apart from processing fees such as administrative charges, service charges. To avoid any future discrepancy in payment, borrowers must discuss with the lender regarding the various charges and whether they need to be paid at a time or monthly. If the lender demands monthly charges, borrowers must know whether it will be counted along with the EMI and plan it accordingly.

5. Eligibility and Documentation

Home loan eligibility depends on several factors, including the borrower's occupation, present financial obligations, employment status, credit score etc. Borrowers must know the eligibility parameters before applying for a home loan. 

If a borrower lacks the required eligibility, they can bring a co-applicant with a stable income and higher credit score to secure a higher home loan amount. Some housing finance companies offer housing loan against flexible eligibility criteria. 

These HFCs also offer pre-approved offers to make the home loan process hassle-free. Moreover, they provide such offers on other financial products like home loan, loan against property and many more. Borrowers can check their pre-approved offer by entering basic information like name and contact number. 

Once a borrower fulfils the eligibility criteria, next he/she has to provide a list of documents. The documents required for home loan vary with each lending institution; hence, borrowers must prepare a checklist and ensure they have all the essential documents with them.   

Therefore, to avail a home loan at best terms, borrowers must consider the afore-mentioned pointers before approaching any financial institutions.