Home loan facts: 5 things to know before you sign up

We list the five most important facts that you must do before you formally apply for the home loan.

Are you about to apply for a home loan? We have only three activities to suggest: Research, research and research! Consider the following five points to get you started:

1. Understand what loan eligibility means. Banks and lending institutions offer about 60 times your current income as the home loan amount. You may have a high salary, but that may not automatically translate into a high loan eligibility. The lending institution will consider the prominent components of your pay package, while setting aside the LTA and Medical Allowance. The eligibility is then calculated on the basis of the remainder amount. Use a loan eligibility calculator to find your eligibility.
2. How much EMI is too much? Normally, any EMI that exceeds 30% of your finances is not ideal, and an amount exceeding 50% is a stretch. Your monthly budget must not be strained owing to the EMI payable. Use a home loan EMI calculator to compute how much you will pay the lending institution every month basis the loan amount, tenure and interest charged on it. You can keep manipulating the figures using the home loan calculator to arrive at a figure that suits your budget.
3. A pre-approval is important – here’s why. Normally, people apply for a home loan after they have found a suitable property. This is a good approach, but taking a pre-approval is even better. Taking a loan approval tells the lender that you are a serious buyer who is about to take a loan in the next few months. The loan approval checks your personal eligibility and helps you understand how much your borrowing limits are.
4. An expert must see the property documents. It is always a good idea to appoint a lawyer to study the property documents. This is important to verify the document’s layout, authenticity, chain of agreements (in case of two or more past buyers), permissions (in case of under-construction projects), titles and freehold, etc. Get any lacunae corrected before you apply for the loan – unsuitable properties are not liable for home loans. Rectifications at a later date will result in delays.
5. The interest rate is everything. Ultimately, the interest charged on the loan amount decides the monthly outgo. A lower rate of interest helps you save more money. You can opt for a floating rate of interest if the market rates are expected to slide in the next few months. Another good measure to save money is to repay the loan early, i.e. before the tenure ends.