The first-timer’s guide to Home Loans
Buying a home is one of the most important financial decisions in anyone’s life. Since a house can cost anywhere between a few lacs to a few crores, most people usually approach banks for a home loan. To understand home loans and how they work, you will require knowledge of banking jargon like fixed rates, floating rates, and credit scores.
The internet has made loan-seeking extremely simple. For example, Bajaj Finserv lets you avail of Home Loans online. Anyone looking for a loan can log on to their website and avoid the hassle of standing in long queues at the bank.
Everything makes a lot more sense when you know what to look for and what to avoid. In order to help you make the right choice from the numerous options on the market, here’s a list of things you’ll need to know while seeking a home loan in India.
1. Covering the Basics
Before you head towards a bank or a lender, there are a handful of documents that are usually required along with your completed application form:
- Proof of age
- Proof of identity.
- Proof of address.
- Income details – IT returns for last 2 years and last 3 months’ salary slips.
- Bank statements for last 3 months.
- Business continuity proof.
At any point of time, the bank or financial institution you are seeking a loan from may ask you for additional documents to verify your financial standing. The documents required for home loans may vary from vendor to vendor, so it’s always advisable to double check these requirements beforehand.
2. The Battle of Interests
The classic dilemma most home loan seekers face is choosing the right interest rates. Housing loan interest rates are of two types – fixed and floating. The decision on what type of interest to pick is usually based on how you handle your monthly finances.
- Fixed Rate
A fixed interest rate means that all your EMIs will be calculated at the same rate of interest and will stay fixed for the entire duration of the loan. This interest rate will not be dependent on market fluctuations.If you work with a strict budget and are comfortable paying a fixed amount each month, then this is the type of loan you’re looking for. Even though fixed interest rates are slightly high, they offer a lot of financial security and help you stick to your budget at all times.
- Floating RateA floating interest rate varies and fluctuates with the market. The EMIs will be calculated differently for each month depending on how the market is doing. Floating interest rates are a few percentage points lower than fixed rates to begin with but may increase over the loan tenure.If you do not follow a strict budget and are comfortable with having to pay some extra amount every now and then, then a floating rate will work well for you. Even if you have to deal with high interest for a few months, the rates will eventually drop and could lead to a lot of savings in the long run.
3. Checking Your Score
Home loan eligibility is generally calculated on the basis of your credit score. Depending on your income, and how you’ve managed your finances prior to applying for a home loan, lenders will decide on whether they should finance your property or not. Here are a few ways to keep a good credit score –
- Pay your bills on time.
- Make sure none of your credit cards are maxed out.
- Do not close unused credit card accounts.
- Clear all your outstanding debt.
You should also have a fair idea of how much EMI you can actually pay. Bajaj Finserv offers a free online Housing Loan EMI Calculator , which takes into account your loan amount, loan duration, and interest rate, to give you an estimate of how much you’ll have to pay back every month. This will ensure that your application is perfect and doesn’t get rejected by any lender.