8 things to know before applying for Home loan, Before applying for home loan there are many aspects one has consider for the optimum benefit from the loan. Here I am discussing the important factors to be well known before applying for a home loan in India.
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8 things to know before applying for Home loan
1. Way of getting the home:
There are different ways one can get his home ready for occupying. Self-construction, Purchase of ready-made houses, houses under construction and acquiring the old houses etc. First of all the applicant has to choose the method of owning the house. Banks grant loans for all the purposes with different rate of interests and different terms & conditions.
2. Forecast the budget :
Deciding upon the style and size of the house to be constructed or to be acquired from someone, you have to project the possible cost you are going to incur for the home. This task will help to properly plan for the way in which the loan has to be discharged and the amount of loan to be applied. Spending a bit for availing the services of consultants to budget the cost is better in case if you cannot forecast the cost.
3. Analyzing the past trend of your income and liabilities along with future obligations:
Banks and financial institutions use the past history of applicant’s loans and obligations & trend, source of income to meet these obligations. So one can get a better idea of how much he can apply for the home loan based on the conclusion he arrives at by analyzing his past financial history and future possible events.
4. Credit score :
Another most important factor that banks consider for granting a loan is the credit score of the applicant. If you have a good credit score then the chances of getting a loan is very easy. Lower credit score may lead the banks either to grant loans at higher rate of interest or granting loans to the applicant. So maintaining a good credit score is always recommend.
5. Decide the tenure of loan:
After deciding the amount of loan to be applied, you have to decide the period for which you can take the loan. Considering the future income and ability to discharge the loan EMIs decide the tenure of loan. The total amount of interest payable will be directly proportionate to the tenure where the amount of EMI is inversely related to the loan tenure.
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6. Type of loan based on the rate of interest:
There are 2 types of interest mechanisms in the case of home loans. Bases on the requirement one has to pick out of these 2 :
a. Fixed rate of interest:
As the name suggest this rate of interest would not be changed throughout the loan tenure. And slightly higher than the floating rate of interest. Unlike floating rate of interest this will not be affected by the market conditions. Sometimes they come with reset clauses to revise the rate in future.
b. Floating rate of interest:
Floating rate of interest fluctuates based on the market conditions. If you expect that in the future market would behave like forcing the lending rates of the banks down then this type will be ideal. On the other hand unfavorable conditions of the economy will lead to high cost of finance in this case.
7. Loans processing fee and the extra charges:
Some banks charge high rate of processing fee as a % of the total amount of loan applied. In addition service fee and administrative charges are also charged by some banks. Before choosing the lender one has to go through the complete information on additional charges.
8. Choosing the correct lender:
There are many players in the market that grants home loans. Considering the terms and conditions and the rate of interest one has to decide which lender he has to go for. Understanding the terms and conditions of the loan agreement carefully is very important before choosing the banker.
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