7 home loan strategies for first-time borrowers

Heading into 2021, home loan interest rates are still at an all-time low, starting at 6.75%, making this a treat for new home buyers. While lenders offer low interest rates, it is a long-term commitment. Here is a list of seven criteria, in addition to the cost of borrowing, that you might consider before signing up for a home loan:

  1. Be aware of your credit score

It is important to maintain a good credit score when obtaining a home loan. Borrowers with credit scores over 750 are more likely to borrow with the lowest interest rates. So keep an eye on your results at all times. Take a free monthly check of your score online. If your score is low, improve it before applying for a large loan, ”said Adhil Shetty, CEO of Bank Bazaar.

  1. Check EMI Affordability

Homebuyers should always verify their ability to bear equal monthly installment costs (EMI) when choosing a loan payment term and consider their ability to pay and their monthly contributions to achieve critical financial goals. Since mortgage lenders also consider FOIR (Fixed Commitment Ratio to Income) during the loan approval process and they mostly prefer to make loans to applicants who have FOIR in the 50-60% range (including the EMI for New Home Loans), For Home Loans, make sure your FIR is within that range. Ratan Chaudhury, Head of Home Loans, Paisabazaar.com, said that the lower the internet reporting rate, the higher the chances of your home loan approval.

FOIR is the criteria lenders use to determine an individual's eligibility for a loan.

Try lowering your current EMI if your FOIR is not in range. "You can do this by paying up front or paying off some of your existing debt," Chaudhury said.

  1. Participation in loans with the spouse

Lower interest rates are often reserved for borrowers. It is very common for home buyers to borrow jointly with their wives to take advantage of the lower rate.

“This has been and continues to be a mantra to rationalize the cost of obtaining a home loan for multiple reasons including special concessions on home loan rates for borrowers, the ability to increase their eligibility for the loan amount with a co- applicant and the ability to claim tax benefits, ”said Gaurav Gupta, founder and CEO of MyLoanCare. For each common applicant.

  1. Consider the long term of the loan.

Since home loans are large investments and the nature of long-term loans, new home loan borrowers should plan their home purchases while understanding their current and future obligations while planning their home loans. As your income increases, consider paying upfront or increasing your monthly insurance premiums to close your loan sooner.

"Mortgage loans do not attract prepayment penalties under the RBI directive, so if you have extra cash you must pay off the principal and therefore reduce the term of the loan." Anil Binapala, founder and CEO of Vivifi India, said that rates The interest on home loans is very low, if you pay off your loan in advance you can own another property with free cash flow.

  1. Pay a higher down payment

A higher down payment reduces the loan amount, which in turn could lead to equal monthly payments and lower interest expenses. "Paying a higher down payment improves the chances of a loan being approved, because it reduces the credit risk for the lender. Having said that, you should not sacrifice your financial goal savings or emergency funds to pay a higher down payment. Doing so may force you to borrow to achieve those goals, "Chaudhury said. At a higher interest cost.

  1. Bargain hard

Mortgage loan rates are at record lows and the market is full of attractive offers. You should compare your options before applying for the loan. Even after getting the loan, you should keep an eye on interest rates to make sure you get a good deal with your lender. If not, consider talking to your lender or even switching to another lender who offers you a better deal.

"This is the time for some serious negotiation, as banks come up with plans on both rates and fees to make up for lost business since closing days. To achieve strong loan growth, banks are aggressively pushing lending. mortgages in the January-February-March 2021 quarter, and plans are available. After coming out of COVID-19, there is also a struggle among lenders for clients with strong credit history and a stable income profile. An example of this is the recent Home Loan Program announced by the State Bank of India (SBI) in which it offered an additional discount on rates based on a CIBIL score. There are schemes that offer privileges to borrowers, exemption from processing fees and discounts on digital loans, "Gupta said.

  1. Don't apply for too many loans and credit cards

Since a home loan is a long-term commitment, you should check your financial obligations so you don't end up in a debt trap.

Home loan applicants should always consider their monthly loan installments of at least six months when making provisions for the emergency fund. This can help ensure that they have enough to pay off their loan in the event that income is lost due to unemployment, illness, or disability. Consider placing your contingency fund in a high-yield savings account, fixed deposit or short-term debt funds, "said Chaudhury.

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