Getting that dream home is very important for lakhs of people in India. Young people look to buy a home early in their careers. Sadly, real estate costs a lot of money and you must avail a home loan to get that dream house. The bonus is you get tax benefits on principal and interest repayments on the home loan.
You must meet the bank’s eligibility criteria to get the home loan. Maintain a good credit score and have a steady job before applying for the home loan. With many home loan applications rejected by banks and NBFCs, these tips should get you that home loan.
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Even if you have high salary/income, banks make sure to lend amounts only up to a certain proportion of salary. Banks make sure home loan EMIs don’t take up more than 60% of your income. This is great as it puts you in a safe zone vis-a-vis the home loan.
Banks calculate home loan eligibility by deducting total EMIs from monthly income. The first step to get home loan sanctioned is to improve the debt-to-income ratio. Prepay and close off any existing loans like a personal loan or a car loan, before applying for home loan.
See Also: Home Loan EMI Calculator
Remember to take the no-dues certificate from the bank when closing the home loan. The no-dues certificate shows the bank that you are not overburdened with existing loans like car or personal loan. It is crucial to get no-due certificate on repaid loans for the sake of maintaining a good credit score. Only then can you get that home loan.
Pick the bank which gives the highest LTV (Loan To Value) ratio. It’s tough to get this information in the public domain, so you must meet the bank representatives. If the bank offers a high LTV ratio, you get a higher loan amount.
RBI has capped LTV ratio at 90% for home loans up to Rs 30 Lakhs, 80% for home loans from Rs 30-75 Lakhs and 75% for home loans above Rs 75 Lakhs. The LTV ratio also depends on your credit score, builder’s track record and location of the property. Always compare LTV ratio across banks before applying for a home loan.
Arrange the down payment first. It’s easy to do this if you see this as a financial goal. Decide on the down payment you need and then fix the target. This is how long it would take to collect the money for the down payment.
If you have 5 years or more to the target, invest in equity instruments if this fits risk profile. If its 3 years or less, look at fixed income like FDs and recurring deposits. Keep an eye on stamp duty and registration costs as well as inflation rate over 3-5 years.
It’s wise to club all sources of income before applying for a home loan. This could be rental income, any bonus, freelance income or a small business income. This encourages home loan eligibility. This shows the bank that you have the capacity to repay the home loan. It’s not just about the salary.
Try to add a co-applicant when applying for the home loan. This helps you (the primary applicant) get a larger home loan amount. The bank clubs all co-applicants income (This could be total income you earn), to decide home loan eligibility. Take a joint home loan with spouse, son or daughter to get home loan.
If you are applying for higher home loan amounts, go for longer tenure home loans. This increases home loan EMI affordability and loan amount eligibility. Many banks and financial institutions give long tenure home loans of 25-40 years.
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