Things to Remember While Choosing a Home Loan

Last Updated : March 25, 2016, 9:44 a.m.

Buying a home is a long cherished dream of many and the journey to live that dream is exciting and bumpy. If you are thinking that you can easily avail a home loan without much of complications, just do a little bit of background and basic research before applying for a home loan. If you are very much influenced by the marketing gimmicks of various banks such as get instant loan approval or loan within a few minutes. Take a break and think again. Is it really simple and true? Do you really think that you will get loan amount approved within minutes? Is it just a marketing trick to woe more customers or really true? If you are applying to a single bank and your decision is mainly driven by their proactive marketing, then you should also do some research and background work before applying to that bank. It will give you a clear picture about the terms and conditions and other things related to your home loan. You should not take this decision in hurry or in ignorance. It is a long-time decision and will impact your savings as well as spending habits for coming many years.

Often as a customer you trust the words of the sales person and agreed over the term, which he/she told you related to the loan. But, in most of the cases these bank representatives will not tell you about charges such as pre-payment charges, late payment charges, default penalties, processing fee and other hidden charges and balance transfer charges, etc. Therefore, it is really important to do some homework and consider various factors in mind to avoid getting trapped in a bad deal.

Apply to a reliable bank/financial firm: You are borrowing the loan for minimum seven years. Think about a situation where rules and regulations are really stringent and you will end up paying hefty penalties and fees for late payment and pre-payment, pre-closure of loan and other. So, look for a reliable bank or financial firm because only they can offer flexible rates and charges. Always, keep this in mind that only a reliable bank can offer competitive rates and the best services to satisfy and retain its customers.

Loan processing and disbursal time: Once you apply to any bank for home loan , if all the documents and papers are in place, a bank will take minimum 10-15 days to process your request and tell you about the approval or rejection of the application. Once your application is approved by the bank it will take another 3-7 working days to disburse the loan. If the bank is taking more time in evaluation and approving your application, it will affect you in long run. Faster disbursal of loan and quick review of application gives you an impression of prompt and faster service in future too.

Eligibility criteria: The loan application approval policies and criteria of different banks might vary. But in most of the cases the basic eligibility and criteria remain same. Most of the banks ask for some basic papers and documents such as salary slip of last 3-6 months, bank statements of last 3-6 months, age proof, residential proof, identity proof etc. These are some basic documents required by most of the banks. These banks also publish list of documents required by them for application process on their sites. So, you can do some homework to keep your documents in place.

Repayment process: Before, availing the loan a borrower should always ask a few things such as what are the pre-payments charges? The prospective borrowers must clarify the terms like foreclosure/settlement, balance transfer charges, late fee, partial payment charges and other fee and charges related to the loan.

Calculate your EMIs: The charges linked with your home loan may vary from bank-to-bank. But, you should consider the number of EMIs, amount of monthly EMIs and maximum and minimum amount of EMI within your budget. The ideal ratio of EMI on your monthly salary is it should not exceed above 25% to 30% of your monthly earnings. In an extreme scenario it should not cross 40% of your total monthly earnings.

Fixed or floating rate: While choosing a home loan you should also consider the option of fixed or floating rate of interest. You are going to take this loan for a longer period, you should consider your savings, rate of inflation, other financial responsibilities and any existing loans before settling for a rate of interest. If you are taking a loan for 2-5 years fixed rate of interest is just ideal for you. But as in the case of home loan you are borrowing it for 10-20 years, go for floating rate of interest. You can’t predict the financial scenario for 10 years or 20 years, so choosing a floating rate of interest is the best option.

Hidden charges and fees: Most of the banks at the time of application let you know the loan amount and rate of interest. But in most of the cases they don’t let you know the hidden charges such as processing fee, documentations. Fee, valuation fee, down-payment fee, pre-payment amount, any other hidden fee and charges linked to your loan. So it is necessary that while narrowing down your options also consider these charges.