Do’s and Don’ts of Housing Finance

Housing finance helps you accomplish one of your biggest life goals - buying your dream home. The housing finance market has evolved considerably over the years, with many lenders offering a Home Loan. As a buyer, you are spoilt for choice. However, while opting for a Home Loan from housing financing companies, there are certain do’s and don’ts, which can ensure your experience is a smooth one. What are they? Let’s find out.

Also Read: Home Loan: All You Need to Know – Godrej Capital

Do’s of Housing Finance

Factor in Affordability

When it comes to buying a home, we all like to stretch our imagination and wish for a little extra! Today, the Indian realty market offers ample choices to modern-day buyers. You can always choose to look beyond your budget and buy that villa you always want. However, there’s a catch.

If you buy a house that is out of your budget, you may need to avail yourself of a higher Home Loan amount and make a large down payment. Note that a Home Loan is a long-term commitment, and the EMIs could run for 10 to 15 years or even more. Other essential responsibilities, such as children’s education and your retirement, could take a backseat if you end up stretching yourself.

“Potential homebuyers should always consider other life goals and buy a home that’s well within their means as it benefits them in the long run. Getting carried away never helps,” opines a certified financial planner in Kolkata.

So, you must do your research and look beyond Home Loan rates and EMIs. Check if the lender gives the option of breaking the down payment into small chunks for easy payment. Also, find out if the lender allows you to pay smaller EMIs in the beginning and increase it later. This way, you can buy a bigger home without compromising on affordability.

Maintain a Good Credit Score

You can get Home Loan rates at affordable price points with a healthy score. Lenders will take into account this score, ranging from 300-900, to understand how well you are positioned with your finances and if you can repay the loan on time. Housing finance companies can either reject your Home Loan application or they can disburse the loan on stricter terms and conditions if your credit score is not healthy.

To enhance the chances of availing of a Home Loan on easy terms and conditions, it is advised to maintain a good score by paying your existing EMIs on time and keeping your credit utilization ratio low. If you use a credit card, ensure to repay the dues on time and not just the minimum balance.

Check Eligibility

For the Home Loan application process, you must meet the given eligibility requirements:

You should be between 18 and 60 years old.

You need to have at least 650 as your CIBIL score. You can use a Home Loan calculator, based on your credit score, to estimate your eligibility and potential loan terms based on your current credit rating.

You should meet the minimal income threshold set by the creditor.

If you’re an employee, a steady monthly income is essential. However, if you run a business, its stability determines your eligibility.

Consider your current financial obligations as they impact your Home Loan approval process.

Also Read: How to Check Home Loan Eligibility?

Research Well and Compare Multiple Offerings

Today, even when shopping for items like clothes, gadgets, etc., we research and compare before buying. Housing finance should be no different. As it’s a big-ticket commitment, it’s vital to research and compare offerings from different lenders. You can visit the website of your preferred financier or aggregator portals that list offerings from multiple lenders. In a few clicks, you can narrow down your lenders through these portals and find out more about them individually. Research goes a long way in ensuring that you bag the best deal.

Have a Co-applicant, if required.

Having a co-applicant always helps if he/she has a good credit history. It enhances Home Loan eligibility criteria and improves the chances of the loan application being processed quickly.

“My wife and I jointly applied for a Home Loan and got a significant reduction in interest rates as her credit score was better than mine. Our application was approved within a week, and funds were disbursed quickly,” says Atul Kulkarni, who is working with a private company in Surat and applied for a Home Loan last month from a leading housing finance company.

Find out if Repayment Options are Flexible or Not.

This is another essential lookout. Cash flows of individuals are not always the same, especially in times of COVID-19, and thus, one should opt for a lender that allows the flexibility to make repayments as per one’s current circumstances.

Use Online Tools and Calculators for Accurate Financial Planning

Tools such as a loan calculator for housing loans can help you assess your eligibility. Additionally, a Home Loan balance transfer calculator can guide your future loan transfers if needed.

Don’ts of Housing Finance

Don’t Rush

Be patient while opting for a Home Loan. Rushing could lead to flawed decisions and be a cause of regret later. Don’t lap the first offer coming your way, and keep on shopping until you find the best rates.

“Had I researched a little more, I could have saved 25 to 30 bps on Home Loan rates. I also had to pay a high processing fee,” rues Priyam Vedi, who availed a Home Loan last year. He wanted to arrange the funds on short notice and didn’t spend the time required on research.

Avoid Taking a Loan That You Will Find Difficult to Repay

Don’t bite more than what you can chew. As said, a Home Loan is a long-term commitment where you need to pay the EMIs for a good 10 to 15 years. Therefore, you must take a loan that you can easily repay. Home Loan calculators available online can help you calculate the monthly EMIs on loans.

Easy to use, these calculators give you an idea of the EMIs that you need to pay towards your loan. Keep in mind other necessary expenses that you need to address and opt for a loan that you can quickly pay without compromising other needs and peace of mind. “Availing a loan that you can pay hassle-free keeps your credit score in good shape and ensures you don’t stress out unnecessarily,” says the financial planner.

Don't Skip Loan EMI Payments

Timely EMI payments are crucial to maintaining a strong credit score. Any defaults can hinder your chances to apply for a housing loan in the future, as financial institutions closely review your payment history during the Home Loan approval process. Use an EMI calculator to plan and manage your payments effectively.

Don’t Ignore the Fine Print of Loan Documents

Before signing on the dotted lines, read the documents carefully, especially the terms and conditions. Most buyers ignore the fine print only to rue later. The fine print contains essential information regarding your loan, such as processing fees, penalties for late payments, foreclosure charges, etc., which shouldn’t be ignored.

“We sought professional help to understand every aspect of the loan we were taking. We didn’t want to take risks and therefore went through each statement carefully and made sure to understand them,” says Atul.

Check the Lender’s Reputation and not the Interest Rate Only

While opting for a lender for the Home Loan rate is desirable, it shouldn’t be the only criterion to make the choice. You must also check the reputation of the lender. Reputed lenders maintain transparency in their communication and ensure you know every aspect of the loan. They help you make the right choice.

Also, reputed lenders have a well-defined lending process that is in line with the regulations. They have a robust mechanism to evaluate applications and disburse the loan amount. They can also help you with repayment in case of any difficulty.

Don’t Keep Family Members Aloof About the Loan

Ensure your family knows about the loan and acquaint them with the relevant details. It is essential as the onus of repaying the loan is on your family in case of your absence.

Also, if they know about the loan, they can help you plan your finances in a manner that helps in easy repayment. They can also help you in your exercise of availing the loan and aid you in making the right choice.

The Bottom Line

Getting through the world of house finance involves being very cautious about planning, making well-informed decisions and practising financial discipline. One needs to do things correctly, maintain a high credit rating, compare lenders and ensure that one can afford the loan. Only then will it be able to alleviate your financial problems.

Failure to follow the rules, haste decisions, ignoring the loan documents or borrowing an amount that isn’t manageable can lead you to financial difficulties.

The Home Loan approval process is tedious. However, one can manage it with comprehensive planning. By staying informed, assessing your financial situation realistically, and choosing a reputable lender, you can turn your dream of homeownership into a reality. Moreover, you can do this without compromising your financial stability.

Apply for a housing loan today from a trusted lender and experience the bliss of hassle-free borrowing!

If you’re wondering if you’re eligible for the loan, try using an online Home Loan eligibility calculator. This can help you determine your eligibility for the loan based on income, credit score, and financial commitments.

FAQs

Q.1. What is the 80/20 rule for a Home Loan?

A. The 80/20 Home Loan rule is a financial arrangement where you can purchase an under-construction property by paying only 20% of the property's cost upfront. The remaining 80% of its value is financed through a loan.

Q.2. What is the golden rule of a Home Loan?

A. The golden rule to follow when availing of a Home Loan is that you should always pay less that 40% or 50% of your monthly income as your Home Loan’s EMI. Of course, this can vary depending on your financial situation and goals.

Q.3. What are the major issues of housing finance in India?

A. High interest rates, limited access for low-income groups, complex documentation, lack of transparency, regulatory challenges, and inadequate housing supply.

Q.4. How can I smartly take a Home Loan?

A. Here are some tips you can follow to smartly take a Home Loan:

• Research your loan options thoroughly
• Compare different lenders and their terms
• Keep your individual financial situation and goals in mind
• Spend cautiously
• Choose suitable EMIs for your loan
• Use an online EMI calculator
• Carry out a Home Loan eligibility check

Q.5. How do you reduce Home Loan interest?

A. You can lower your Home Loan interest by improving your credit score, making a higher down payment, and negotiating with your lender. Consider transferring your loan for better rates. Pay bills on time and reduce outstanding debts to boost your credit score.

Disclaimer:

The contents of this article are for information purposes only and not a financial advisory. The information is subject to update, revision, and amendment and may change materially.
The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Godrej Capital or its Affiliates to any requirements.

Godrej Capital or its Affiliates shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any decisions, financial or otherwise based on the contents and information mentioned. For more information, please visit www.godrejcapital.com.