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Home Loan Thumb Rule To Consider

by Grace D

While the LIC home loan rate and other lenders’ home loan has increased slightly, it is still all-time low. Moreover, with a strong repayment capacity and credit profile, you can avail of the loan at a lower rate of interest. However, before you opt for the home loan, there are some crucial things you must consider, which include: credit score, income, and existing liabilities. You must also assess the other crucial factors like the property’s price that you are looking to buy. After all, home loans come with the longest commitment as they can go up to 20-30 years. Paying the EMIs for the long term can affect your finances, and thus, you require to be more careful while availing of the property loan.


To make it simpler for you, listed here are some thumb rules, you must consider:


Know the approximate budget for buying your home:


Determining your budget is one of the crucial thumb rules you must consider while evaluating your home purchase. For this, you require analyzing your affordability to determine your budget. Doing so helps you to avoid any future financial issues and enables you to keep track of your finances.


Follow 35/50 rule


When you avail of a property loan, lenders usually ask for your financial commitments and existing liabilities, which include mentioning your existing borrowing like a car loan, personal loan etc. It is asked because lenders like LIC Home Loan usually do not lend the amount wherein your overall loan EMI is over 50-60 percent of your income (monthly). Thus, it is recommended to avail of a property loan where your EMI for a home loan is not over 35 percent of your monthly income, while your overall EMI involving all your loans must not be over 50 percent of your overall monthly income. Efficiently following it would make you appear less burdened and permit you to save for other crucial financial goals.


A credit score is a crucial check.


A credit score check is one of the crucial things you require to follow while you apply for a property loan. Having a strong credit score of 750 and above makes it simpler for you to qualify for the home loan, while for the rest, it may be difficult. Lenders also offer lower home loan interest rates if you have a good credit score. It means having a strong credit profile assists in getting a good home loan deal from lenders. So, why not review this before you apply for a home loan. In case you do not have a strong credit score, wait for a few months, avail a small amount of personal loan, start paying timely EMI and once your credit score improves after a few months, apply for a home loan.


Go for a shorter repayment tenure.


Repaying your property loan for higher repayment tenure might lower your EMI. However, do you know? In this way, you may end up paying a higher amount on interest, which enhances your overall borrowing cost. In this way, if you choose a longer repayment tenure loan to keep your EMIs low, the overall interest burden will be enhanced. Thus, to keep the interest amount low and for a happy borrowing, you must choose lower repayment tenure for a home loan.


Do not forget to do calculations.


Not just for a home loan, conducting calculations and knowing your approximate EMI is crucial for any credit option, may it be a car loan or personal loan. It is because doing the computations not just assists you in reviewing your affordability but also assists you in planning out your finances accordingly. Using the online EMI calculators is the best and most efficient way to perform the calculation. Ensure to use the calculator of the lender from whom you are availing the property loan. Suppose if you are availing LIC home loan, you may consider using the LIC Home Loan EMI Calculator for the calculation of your EMI.


Do in-depth market research.


Conduct in-depth market research for home which meets your needs and matches your budget. Ensure to physically visit finished and under-construction houses, search websites and communicate with property dealers for the best deals in the market. Having a good knowledge of the property loans and property market can save a huge amount of money. Ensure to borrow as per your capacity.


Compare home loan rates and charges.


Even a 0.50 percent difference in property loan rates can save lakhs of rupees. Do not forget to compare processing, part payment, foreclosure charges, etc. This will enhance your cost of attaining a home loan by 1 to 2 percent.


Compute your home loan eligibility


The final loan proceeds are basically dependent upon your level of income and existing liabilities. To know about your property loan eligibility amount, you can use the online home loan calculator.


Home loan documentation


You can get a full list of the necessary property loan documents from the application form. Generally, lenders ask for a copy of residence proof, identity proof, bank passbook/bank statement, and relevant property and income proof linked documents. You must ensure to keep all these necessary documents handy before you apply for the loan.


Home loan EMI calculation


EMI, or equated monthly instalment, is one of the most important terms from the viewpoint of borrowers. This is one of the probable features that impact your decision to avail yourself of availing home loan. Ensure that your EMI value is not over 40 – 45 percent of your monthly income. Keep your repayment tenure as short as you can because longer tenure means a higher total payment in the form of interest.


Joint home loan


Owning a property is usually considered a prudent decision, particularly when your spouse is the joint owner. The loan burden is divided between 2 individuals in a joint loan. Additionally, if both wife and husband are earning, then it may result in higher loan eligibility. However, the couple must ensure that the property is registered in both parties’ names.

For people who wish to own a home, The SBI home loan is the perfect option to opt for. All you have to do is fulfill the eligibility criteria and grab your dream home.


Pradhan Mantri Awas Yojana


This scheme is specifically beneficial for all middle-income groups. All home loan borrowers are eligible for a subsidy of interest rate of up to Rs 2.67 lakh.


Fixed vs floating interest rates


With changes in the market condition, floating rates too fluctuate while fixed rates stay fixed for the whole repayment tenure. Usually, a fixed interest rate is higher than the floating rate.


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