Financing Tips for First-Time Home Buyers

A home loan is a credit through which you can avail of a sizeable sum to purchase a property. When you avail of such a loan, the purchased property remains mortgaged to the lender till you repay the sum with interest over a predetermined time period. In exchange, you pay an interest component on the loan amount; the rate of interest applicable may be fixed or floating.

While a housing loan is the easiest way one can access the finance required to purchase a property, it is a substantial undertaking. It is important that aspiring borrowers thoroughly research all aspects before availing of credit. In this article, we discuss some of the key criteria one needs to bear in mind before applying for a home loan.

1. Reduce Your Existing Obligations

One of your foremost considerations before availing of any credit should be how comfortably you can repay the loan. For this, you will need to assess your existing income and obligations, such as other loan EMIs, and calculate your disposable income. This number should be a deciding factor in how much can you afford as a home loan EMI.

In line with this, it makes sense for you to also try and reduce your existing obligations. For instance, if you have a number of small loans, closing these will be relatively easy and will allow for you to save more room in your income to bear your home loan EMIs every month. This will also enhance your eligibility from a lender’s point of view, possibly enabling you to avail of a better offer.

Once you decide on an EMI amount comfortable for you, it will become easier for you to determine other loan terms, namely your loan amount and tenor. Use an online EMI calculator, such as the Bajaj Housing Finance home loan EMI calculator, to try several combinations and check what works for you.

2. Enhance Your Credit Score

Your credit score plays a key role in the interest rate offered to you. A high credit score portrays you as a reliable borrower likely to repay the obligation timely. The credit score also plays a role in how easily your application is approved.

For instance, those with a CIBIL score of 750+ are likely to be offered a very competitive interest rate. Someone with a CIBIL score less than 700 may face a rejected application. On the other hand, applicants with a CIBIL score of 700–750 may receive an offer, but the borrowing terms may not be the most favourable.

Thus, it is important you check your CIBIL score and try to optimise it as far as possible before applying for a home loan. Some of the best practices to work towards a good credit score include timely repayment, limiting credit utilisation, and limiting credit applications, among others.

3. Plan for the Down Payment

Irrespective of your profile and the property, you will need to bear some share of the property value. The home loan will cover up to 75–90% of the property value, depending on the property value and your profile, and the remainder amount will need to be covered as down payment.

Thus, down payment can often prove to be a sizeable sum, necessitating advance planning and provision. While saving well in advance is the easiest route to accumulating this sum, one can also depend on investment dividends and other pay-outs to amass the figure. If you also own another property, you can even consider avail of funds through a loan against property. Not only are you assured of sizeable funding, you also benefit from a relatively low interest rate.

4. Try Not to Avail of the Maximum Tenor Possible

When availing of a home loan, refrain from availing of the highest tenor available. While this may seem tempting to reduce your EMIs at the start, it may prove difficult in the long run.

This is because most home loans today are linked to floating interest rates, which means your interest rate may be revised in the future. In the event that your interest rate increases, you have the option to either accommodate the increase by increasing your EMI or increasing your tenor. When you already pick the longest possible tenor, you are left with no option but to increase your EMI, which may stretch your finances too thin.

5. Consider Applying with a Co-Applicant

An easy way to enhance your home loan eligibility and facilitate quick approval and favourable borrowing terms is to apply with someone. Bringing a co-applicant onto your loan divides the liability, thereby reducing the lender’s risk in extending credit.

Insure Your Home Loan

Considering that a home loan may stretch up to 30 years, it is an obligation best insured. When you secure your home loan with a term insurance, you safeguard your loved ones from the unexpected financial obligation in unforeseen circumstances. Account for the insurance premium at the get go when planning to avail of a home loan.

Conclusion

While the above factors are all key considerations before applying for a home loan, another subtle yet important aspect is to thoroughly research lenders. A number of leading lenders in the market offer competitive interest rates with favourable terms. It is best to go with a reputed lender to ensure a hassle-free application and a seamless borrowing relationship in the future as well.

Bajaj Housing Finance Limited, a 100% subsidiary of Bajaj Finance Limited, offers home loans starting as low as 6.75%* p.a. for salaried and professional applicants, with EMIs starting from only Rs.649/Lakh*. Applicants benefit from hassle-free application, minimal documentation, a repayment tenor of up to 30 years, and the most favourable terms of 5,000+ approved projects.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes.