Plan the perfect home loan

Before taking the loan, shortlist the banks you find best suited to your needs. Ask for the loan documents and do read through them

August 05, 2014 12:32 IST | India Infoline News Service

Getting the best deal possible is a result of good planning rather than luck. A home loan creates a long term relationship between the lender and borrower. To make this relationship most rewarding you must invest some time and effort to get the best possible terms for your home loan.

In Indian culture, owning a house is considered to be the ultimate asset. Most young couple will strive at investing in property. Just like most people who are about to get married, Avinash Raniwal was pleased to have a secure job after doing his MBA and now was looking forward to getting married. But first, he wanted to invest in some an apartment for his future family. Avinash wanted to make sure that his loan application went through without hitch.

As he spoke to friend and family he realised that to take a favourable home loan means he needs to pre-plan for it months before.

3-6 months before taking a loan

Ideally, ask for your Cibil credit report and check it thoroughly a few months before taking the loan so that you have time to repair any damages which are pulling down your credit score. Lenders look for a credit score of 750 and above.

If your score is lower than 750 then it is time to a credit check to understand why you have a low credit score. Are there defaults or late payments? Have you not using any credit card or loans to create a credit history? Are there any misreported transactions? It is time to make corrections in your credit report if there are any mistakes.

It is also a good time to set a budget for your property. You will need to make a down payment of a minimum of 20% of the agreement value for the property. Do ensure you have arranged the required amount in the coming months.

1-3 months before taking the loan

Now that you have taken steps to make corrections in your credit report, it is time to scout around for a lender. Do take care not to apply for a pre-approval as yet. Any pre-approval application triggers a hard enquiry with the credit rating agency and multiple hard enquires will negatively affect your credit score.

In this period you must check the rates of interest for home loans offered by the banks for comparison. While comparing rates do not forget to include processing costs and any other charges to arrive at the total cost. Add these in to understand what will be the final rate of interest that will be payable by you.

Penalty clauses are also an area that needs to be considered. There will be penalty for pre-payment of loans, delayed payments etc. While all banks include these penalty clauses in some banks the penalty rate is very steep and it might make sense to avoid such a bank. Instead choose a lender who gives you the flexibility to prepay or part prepay the loan when required.

Just before taking the loan

Before taking the loan, shortlist the banks you find best suited to your needs.  Ask for the loan documents and do read through them. Ask the bank’s sales person for clarifications if any required. If you have chosen a property then it is time to take a pre-approval for the loan. Do ensure that the EMI do not go beyond 40% of your disposable income. It is also important to understand that a longer loan period effectively increasing the rate of interest that you are paying.

Negotiate hard for favourable rate of interest and the terms of the loan. Banks are flexible to some extend and with some negotiation you can enjoy a better deal.

The author is Co-Founder & Director, CreditVidya

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