10 Loan Tips for First Time Home Buyers
Unwrapping your birthday gift or Christmas gift probably had you excited and nervous at the same time.
Buying a house could give you the same experience, but hightened. This is especially true for first time home buyers.
But with a little homework at the outset, most of these issues can be resolved. And here are 10
tips for you for a smooth home buying experience:
- Plan how much loan you can afford
You might love that 3 BHK villa close to your office, but you may end up paying 90% of your salary as loan EMI for it. Filtering out options that are outside your budget is the first step you can take to save your time while searching for a home. It will also help you to manage your finances well after buying a house. Ideally, your entire loan EMIs should be within 50% of your monthly income. Banks too consider this factor while approving loan applications. However, there are home buyers who resort to multiple loans and personal borrowing to stretch their budget. This could land you in a debt jungle.
- Gather funds for down payment
Banks provide loans for a maximum of 85% of the property value, as in documents. This means, if you are buying an apartment worth Rs.50 lakhs, the maximum loan you may get is Rs.42.5 lakhs. You have to raise the balance 7.5 lakhs from your personal savings or from your family. So, the next steps can be gathering of funds for the down payment. Many people who have not planned well for the down payment often end up becoming bad borrowers or exhausting all their savings.
- Know your loan eligibility beforehand
Knowing your loan eligibility beforehand will save you from some last minute surprises. Many loan takers find themselves in a fix when they come to know that they are not eligible for the amount they were expecting. If you are new to banking procedures, it is highly recommended to be equipped for a smooth home buy. You can check your loan eligibility online.
- Know the loan basics
Find out what documents the bank needs for sanctioning your loan, the process flow of home loan approval, how many days it will take for the banks to approve your loan, how the bank inspects your property, how they make the legal scrutiny, how they disburse the loan etc. Approval of home loan can be a lengthy process and doing your homework beforehand is be good.
- Go for the bank with your salary account
It is always advisable to make a comparative study of the rates offered by various banks to get the best for you. However, if the differences of rates are negligible (i.e., lesser than 1%), choosing the bank where you have salary account can be considered. As you are known to the bank, you get an advantage of quick loan approval. Plus, you can easily manage your EMIs and pre-payments through standing instructions and fund transfers. Chances of default too can be lessened if you link your salary account with your loan account.
- Maintain a good credit score
Pull out your credit report before approaching any bank, as your credit score is an important tool for any loan approval. You can request for your credit report online at any credit bureau’s website. The popular credit bureaus in India are CIBIL, TransUnion, Equifax and Experian. A credit score between 700 and 750 is excellent. However, if your score is below 550, it is difficult to get loan approvals.
- Getting the best rate
Choosing the bank that can offer you the best rate is important for you as a home buyer. As mentioned before, taking loan from the bank where you have your salary account come offers convenience. However, do not neglect to compare the offers of all leading banks online. At times, builders have tie-ups with banks and offer subsidized rates and other schemes for borrowers. Other schemes like 20:80 and waiver of pre-EMI can be enjoyed in such cases. Banks also come up with seasonal offers which can be also made use of with a little homework.
- Floating or fixed
A common advice many loan takers get is to go for a fixed rate loan that assures the same rate till the end of the tenure. However, choosing a fixed or floating rate completely depends upon your situation and the market trends deciding the rates. For example, if the rates are quite high, going for a fixed rate will not make sense, as your loan will get fixed at a higher rate and you will not get the benefit of a lower rate when the market slashes.
- Go for approved projects
Choosing projects that are approved by banks assures you that the title of the property is clear and the property is free from other encumbrances. Banks usually approve a project after a deep security check of all the property related documents and authority approvals. As there have been many builder scams, approval from an authentic entity like a bank is a surety for you. Moreover, it is easy to get loan approvals and disbursements from banks for their approved projects.
10. Claim max tax benefits
First time home buyers should be aware of the tax benefits they can claim from home loan. One can claim up to Rs.1.5 lakhs for the principal paid in a home loan under Section 80C and up to 2 lakhs for the interest paid, under Section 24B of the Income Tax Act. As home loans are a major source of tax savings, it is good to fund some part of the home buying expenses through the loan route. You should also remember to claim the due benefits when you file your tax returns.
Besides all these, you could check with your friends to find out their experiences with various builders as well as lenders and ask them about the process. And then you can unwrap your beautiful house with glee.
YOU MAY ALSO WANT TO: Make sure you choose the right EMI for your home – Home Loan EMI Calculator