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5 Important Home Loan Strategies for First Time Borrowers

Ramesh Kumar

The Reserve Bank of India rationalised the home loan risk weightage with loan-to-value (LTV) ratios sanctioned until March 2021, making it the best time to apply for this credit. Moreover, 

  • Indian home loan market is anticipated to grow at 22% rates from 2021-26.
  • As per TransUnion CIBIL data, home loan inquiry also shot up almost 112% during July-August 2020.

The trend indicates a favourable home loan scenario that encourages individuals to invest in a home to live or utilise it as an asset that generates additional income. Irrespective of the purpose, individuals need to keep a few things in mind, especially as first-time homebuyers, before opting for this fund. 

Things to consider while availing of a home loan 

Following are some of the factors that ensure a hassle-free borrowing experience. 

  1. Check CIBIL score 

This score is one of the most crucial indicators of creditworthiness, and thus, lenders check it before approving any credit. However, not everyone is aware of this score. 

  • As per a survey, almost 68% of the respondents do not know their respective CIBIL score.

It is vital to maintain a credit score of 750 or more to be eligible for a home loan. Based on this score, a borrower’s housing loan rates can also differ. Hence, it is wiser for borrowers to improve it before applying for a large sum.

  1. Assess EMI affordability 

Besides housing loan eligibility, individuals also need to check their Equated Monthly Instalments (EMI) before opting for a loan. It will help them to plan their repayment efficiently. In this regard, they can also refer to the amortisation schedule that provides a detailed repayment structure.

Moreover, lenders also factor in FOIR while conducting a home loan approval process. Fixed Obligations to Income Ratio is a parameter that indicates the repayment capacity of a borrower. Generally, lenders approve loans to those with a FOIR between 50% and 60% (including new loan’s EMI). 

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Thus, by calculating EMI before taking a home loan, individuals can ensure how much amount they borrow and repay easily. 

  1. Compare interest rates 

Home loan interest rate is primarily of two types, fixed and floating. Therefore, borrowers need to choose between fixed and floating interest rates after considering the pros and cons of both. For instance, in a fixed system, the interest rate remains the same for the entire tenor. On the other hand, in the case of a floating rate, it is linked with an external benchmark like a repo rate. Therefore, with a decrease in repo rate, a home loan with a floating rate will lower and vice-versa.

  1. Opt for a bigger down payment 

Borrowers who want to lower their home loan EMI burden need to make a substantial down payment. Most lenders have a specific LTV that depends on the current net value of the property. 

For the rest of the amount, individuals need to pay as a down payment. For instance, a lender offers LTV of 70%, and the current valuation of a property to be purchased is Rs.90 lakh. In this case, lenders will sanction only up to Rs.63 lakh. The remaining Rs.27 lakh must be borne by the borrower from his/her own pocket. 

If the borrower opts for a higher down payment of Rs.40 lakh, the interest will be charged on Rs.50 lakh instead of Rs.63 lakh. 

A renowned financial institution offers high value home loans to eligible candidates. 

The lender also extends pre-approved offers that expedite and simplify the loan application process. Such offers are available on a range of financial products like loan against property, home loan and many more. All you have to do is enter your name and contact number to check your pre-approved offer instantly.

  1. Maximise tax benefits with a co-applicant 

While home loan borrowers are entitled to claim tax deductions, new borrowers can also avail additional tax benefits of up to Rs.50,000 on interest payment under section 80EEE. Besides, they should also know benefits of a joint home loan while applying for this fund. 

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Besides considering these factors mentioned above, individuals should also choose a lender that offers competitive interest rates and feasible terms of service on a home loan. 

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