In today’s world owning a house is one of the biggest goals for most of us and, can be said, also the costliest. Not all of us have the money to fund it and most of us depend on a home loan to fulfil our aspiration of buying a house. However, as home loans usually involve a huge financial burden and long-term commitment, it is important for homebuyers to be prepared before taking on this responsibility. Since it is a big financial decision, as a borrower you must have a checklist ready before applying for a home loan.
Handy Checklist While Applying for Home Loan
While applying for a housing loan one must keep a lot of things in mind as taking a home loan is an important decision, one capable of affecting a person’s financial health. So, here is a checklist of things to be kept in mind while applying for a home loan.
- Research and Decide on the Best Lender – Before finalizing a lender for your home loan, do complete research and make sure to compare all the top lenders. Do not limit your research and comparison to just the interest rate on a home loan. The lender offering the lowest rate may not always be the best choice for you. It is best to finalize the lender only after taking into consideration all important parameters, such as processing fee, prepayment or foreclosure charges, late payment penalty, loan tenor, loan-to-value ratio, etc.
- Know Your Financial Standing – If you are applying for a big loan like a home loan then it is very important to understand where you stand financially. You should have a very clear idea about the maximum down payment you will be able to make and what EMI you will be required to pay each month for the home loan. List down your income and expenses details to know your savings each month. This will help you plan your loan journey in a better and efficient way.
- Keep a Note of the Home Loan Interest Rates – There are two types of interest rates that banks or lending institutions offer for home loans: floating and fixed interests. The floating interest rate is variable and it moves up or down with the market. It moves in sync with a base rate. Fixed interest rate, on the other hand, remains fixed as mentioned in the loan agreement. Understand and plan what will work out best for you while negotiating with your lender. It is best to take the opinion of an expert before making up your mind.
- Get Your CIBIL/Credit Record – A borrower should know that if you have a 750+ CIBIL or credit score, lenders view your home loan eligibility more favourably. Get your CIBIL score for the home loan report ready at least 6 months in advance. CIBIL data shows that 80% of the home loan approvals are given to customers who have credit score of 750 plus. A low CIBIL score could get your home loan application rejected or make you pay a higher interest rate.
- Increase Your Home Loan Eligibility – The debt-to-income ratio is an important factor that lending institutions look into while evaluating the home loan eligibility of an applicant. Try to keep your FOIR (Fixed Obligation to Income Ratio) below 40% by closing off other small loans and EMIs, and adding other sources of income. Banks calculate FOIR based on your monthly income, spending, and the potential EMIs of the prospective loan. Lower FOIR or money spent on living expenses gives the lenders the confidence that you have the credibility to repay the loan EMIs. Based on the documents submitted, the bank/lending institution scrutinizes your file, checking your financial standing, past credit history, etc.
- Know the Pros of a Joint Home Loans –Applying jointly for a home loan with a spouse/parent considerably enhances your home loan eligibility criteria. So, the best option is to apply for a home loan jointly with your spouse/parent as a co-borrower as more income means higher EMI affordability. This not only enhances home loan eligibility but also lessens the repayment burden while offering tax benefits to both. Thus, a co-borrower with a good credit score lowers your EMI burden, brings stability, and enhances your home loan eligibility.
- Keep All Documents Required for Loan Ready– To avoid all last-minute hassles, plan well in advance and keep all the documents required for the home loan application ready. KYC-related documents, such as ID Proof (PAN Card, Adhaar Card, Voter ID, Passport), Address proof (Electricity bill, Telephone bill) along with passport size photographs of the borrower/borrowers should be kept handy. For Income and employment-related documents, keep ready the last 3 months’ salary slip, 3 years’ Income Tax Return statements, latest form 16, last 6 months’ bank statement, proof of all savings (FD, Mutual Funds, gold), all ongoing loan statements, and relieving/experience letter of the previous company if current employment is less than 2 years old. As for property-related documents keep an original copy for Sale Deed or Agreement to Sale, Commencement Certificate, Latest Tax receipts, Development Agreement, NA certificate, and Building Completion Certificate (if available).
Keeping this checklist will make the process of home loan application easy and smooth for you and increase your credibility as a borrower. So, do not rush into a home loan but instead make an informed decision with the help of this handy checklist and realize the dream of your own home.