You have zeroed down on your dream home. Now it’s time to address the most important part—the financials. Home loans to the rescue! Aruna Rathod gets you expert advice on all that you need to know about home loans as a first-time home buyer, so you can make your dream home a reality in
no time!
You have lived half your life moving in and out of rented homes, playing puppet to the whims and fancies of your landlord. Now, on the other side of 30, you are sick of this constant moving out routine, and want to have an abode you can entirely call your own. While you have fancied a home too many, the steep finances involved have always played a deterrent to you taking the plunge.
But with attractive interest rates, and banks all out to woo customers with multiple benefits on home loans, now is the time to start planning on buying your dream home. What is particularly attractive are the specials being offered to women—home loans at special interest rates as low as 8.35 per cent. If you put together a few benefits such as tax savings on the principal and interest payments on your housing loan, your effective rate of interest can be as low as 6 per cent. Add to that value-added benefits such as choice of repayment options, free insurance cover, waiver of loan application and processing fees, and you have an even more attractive deal.
However, with a mind-boggling amount of information freely available on the Internet, you are often undecided about who to believe and what not to. Worry not, we have got you covered. Here is all that you need to know about what’s involved in home loans.
Getting started
How do you determine how much loan you are eligible for:
“When you are a first-time home buyer, the most challenging and confusing part of the home buying process are the financials, especially the home loan component,” says Santhosh Kumar, Vice Chairman, Anarock Property Consultants, Mumbai, adding that confusion can relate to deciding which the best lending institution is, what type of loan is best and what the conditions are, and what size of home loan one can comfortably pay off over the years of tenure. The online sites dedicated to home finance and the portals of financial institutions are a good starting point to check out all the offers and your eligibility, before you zero in on a loan and the lender.
What documents would I need to process the home loan?
The next step, before you reach out to the institution or bank, is to set all your documents in order. Here’s what you need:
l A proof of residence
l Your salary slips for the last six months
l Your bank account statements
l Copies of your income tax returns of the last three years and any other supporting documents that will strengthen your case to secure a loan.
How much time can it take for the loan to get approved?
One of the biggest worries for a first-time home buyer with regard to a home loan is how long one needs to wait for its approval. In this scenario, the best bet is to apply for a pre-approved home loan, so you know in advance how much loan you are eligible for and you can focus onfinding the best property that fits your budget. “Pre-approved loans also give you an upper hand when you are at the negotiation table with a developer,” says Kumar.
How do I decide on the tenure of the loan?
You can apply individually or jointly for home loans. All proposed owners of the property will have to be co-applicants. However, all co-applicants need not be co-owners. Generally co-applicants are close family members. While the maximum period of repayment of a loan can be up to 30 years, it also depends on factors like the borrower’s profile, age at the time of maturity of loan and even how old the property is. One should ideally opt for a 15-year or 20-year repayment period to minimise the outflow of interest and faster repayment of the home loan, so that you don’t have the pressure of paying a home loan instalment in the later years of your career.
Timing it right
In any case, the right approach to a home loan should be to go for the best deal when you need it, instead of taking up an offer just because it’s attractive. Going by expert advice, the change in the interest rates are merely a reflection of the prevailing economic conditions, and should not be deterring factors for the genuine home-buyer. Says Renu Sud Karnad, Managing Director, HDFC, “Home buyers often focus on ‘home loan interest rates’ at the time of making their home- buying decision. While interest rates play a role in the entire value chain, buyers need to understand that it is only one link inthe long chain. However, there are a lot of other important aspects one needs to look for, which may have long term implications on the entire transaction.”
Karnad adds that home buyers need not worry as much about the finance, since it is relatively readily available, rather, the customer should be more concerned about the property one is investing in–in terms of whether the property is the right one, whether the builder has good credentials, whether the builder has all the necessary permissions, and what the track record of the builder is in terms of timely delivery, etc. “Since a home loan is a long-term commitment, the home buyer should go beyond the short-term benefit of a marginally lower rate and consider all the other factors involved before settling for the home loan,” says Karnad.
Fixed or floating rate of interest?
While signing on the dotted lines, one is often faced with the dilemma of whether to opt for a fixed or a floating rate of interest when opting for a home loan. As much as a floating-rate loan lets you take advantage of falling interest rates, you stand to lose if the interest rates move northwards.
In other words, floating rate loans make great sense when the interest rates are high and are expected to fall. Also, most institutions in India do not charge a repayment fee on floating-rate loans, which saves a further two per cent on the outstanding amount, especially if one intends to knock off the loan amount early by making periodic principal repayments. All in all, for borrowers whose cash flows are comfortable, the floating rate option is recommended,since they can cope with any rise in the interest rates. For salaried borrowers, whose monthly cash flows are tight, the fixed interest loan is advisable, so that any increase in EMI does not impact their monthly budget.
With all the information at hand, you are only a step away from turning your dream home into reality!
