15 Aspects to Know before Applying for a Home Loan

Applying for a Home Loan is one of the most significant financial decisions in the life of a person. It is a long commitment that will stick to you for almost all of your working life. You need to not only assess your financial condition but put thorough scrutiny to the property in consideration and understand the lender’s policy before making a big commitment of Home Loan.

Here is a list of 15 things that you must know before applying for Home Loan. These are grouped in three categories for easy understanding.

Things to know about your financial condition

• Check your CIBIL score: The first and foremost thing you should do before you start applying for Home Loan is to check your Credit Score. Unless you have a really good credit rating, you may not get the best deals on Home Loan. Check your detailed Credit Information Report to see if everything is in order and if there is no anomaly in your credit history like any unidentified transaction or debt of some other person reflecting in your account.
• Check monthly budget: Home Loan EMIs can take up as much as half of your monthly income. You should draw a monthly budget to track all your income and expenses. This will help you understand how much you can pay towards Home Loan instalment every month and how much money you can use for living expense every month. It will also help you chart a way forward for planning your savings in the new financial year.
• Check your savings that can go towards down payment: Home Loans are generally given at 80% or maximum 90% of the value of the home you intend to buy. You will have to bring the rest of the money out of your pocket. This is where a very huge chunk of your current savings will be used up. You have to be prepared to part with almost all of the money you have saved till date and start saving the money from the very beginning. 
• Check your Credit Card dues and Personal Loans, etc.: Take stock of all the Credit Card dues that you have and any other Personal Loan or Car Loan you have been servicing. Pay off all these loans while you are looking for your new home. Remember that every EMI you are paying will reduce your Home Loan eligibility by a significant margin. This is why it’s important to clear all other loans first.
• Check your emergency funds: It is always advised to have at least two months’ income in your account as an emergency fund just in case something unexpected happens. This should gradually be improved upon by 10 more months’ income in Fixed Deposit, which can be used in case of long-term financial instability. Always keep your emergency fund topped up if you use a chunk of it.

Things to know about your new home

• Check if your home is eligible for Home Loan: In a number of cases, some lenders are not willing to provide Home Loans in some areas or some projects for a variety of reasons. The reason could be due to the regulator’s terms or the lender’s policy. Always ensure that the property under consideration is eligible for Home Loan.
• Check builder reputation: A number of builders are known to skip and miss their delivery timelines once in a while. Further, there have been cases where builders have missed delivery deadlines for as long as five years or more. Unless you are looking to buy a property that is ready to move in, it is strongly recommended to check the builder’s reputation beforehand.
• Check for a clear title deed on your new home: The number of people who have been rejected Home Loan because of some problem in title deed is a dime a dozen. Always ensure a proper title deed of ownership where the current seller can sell the home before applying for the loan process.
• Check if your home has all necessary approvals: New home can only be moved into after you have taken a number of approvals. These may come from local fire department, water and electricity supply authorities as well as municipal authorities and environment control regulator. Make sure your new home gets all these clearances.
• Check if you can get home insurance: Buying a home is a huge financial commitment. It must be properly secured. Get an insurance agent to check if and how much you can get home insurance for. This will keep you protected in case of any unforeseen event.

Things to know about Home Loan and its application process

• Check your loan eligibility: Use the lender portal to check your income-based eligibility for Home Loan. Also, check with Home Loan companies to see how much they are lending for homes of a specific size in a given locality. Different lenders have different credit policies. For instance, Yes Bank Home Loans count the number of dependents before deciding upon loan eligibility. Knowing how much you borrow will allow you to assess the budget and buying plan with a high degree of accuracy.
• Check if your loan is a fixed rate or floating rate: Home Loans are offered in either fixed mode where you pay interest on a fixed rate or floating mode, wherein interest rate tends to vary. Some lenders also offer “mixed” mode Home Loan Interest Rates where you can have interest rate fixed for some initial years commonly 5 years, and it will then float for the rest of the loan tenure.
• Check if the tenure or instalment amount will float: Many mortgage companies provide you with the option to choose if you want your loan tenure to change or monthly instalment to float in case of a change in interest rate changes. If you are young, float the tenure, for example, RBL Bank Home Loan can go up to 25 years, but if you have financial leeway, float your monthly instalment.
• Check if you can get loan insurance on your Home Loan: Almost all lenders will give you loan insurance on your Home Loan, but it is always best to check on this explicitly. Home Loan insurance will protect the home from being repossessed by the bank in case of the death of the original borrower. Check all about insurance before applying for Home Loan.
• Check about lock-in period, and prepayment charges: There may be cases where loans come with a lock-in period, and you cannot transfer or prepay it before a specific period of time. Similarly, you may also want to check for any charges with regard to full or part prepayment of the loan.