Thursday, 24 November 2016

Things That You Must Consider Before Taking a Home Loan

Having your own house gives you a strong sense of security; there are no two ways about it. However, real estate isn't cheap. If anything, it costs more than ever today. This is why many people have to take a home loan to meet the financial requirements of a home purchase. However, home loans have many moving parts, that you must become familiar with before signing any papers.
Here are some things you should know before taking a SBI home loan, IBDI home loan, or any other bank's loan:
Credit Score
If you are going for a conventional approach, then having a high credit score or CIBIL score is a must for any kind of home loan. Almost every bank you will apply the loan at, will check your CIBIL score when considering the application. Thus, make sure you check your credit score first, before you start applying. If your score is less than 750, then it is better than you spend some time to improve CIBIIL score.  Once your score is in decent shape, you can secure a higher chance of loan approval.
Types of Interest Rates
Not many people know about this, but there are two types of interest rates, which are- fixed rate, and floating rate. In a fixed rate, your EMIs remain the same throughout the tenure of your home loan. However, in a floating rate, your EMIs may change during the tenure, if the bank changes the interest rate in future. Both types of rates have their own advantages  and disadvantages:
·         Fixed Rate: This option is secure and stable. Since your EMI is fixed throughout the tenure, you can manage your finances easily. However, if your bank reduces the interest rate in future, then you won't be benefitted from it.
·         Floating Rate: Floating rate is risky, but it comes with a big advantage. If the bank lowers the interest rate in future, then your EMIs will also become smaller. The opposite situation brings a risk. That is, if the interest rate increases, then your EMI's will also become bigger.
When you apply for a loan, make sure you ask your bank about the type of interest rate that is associated with it. Choose your option wise, as both have their own set of upsides and downsides.
Extra Charges
It is important to know about the extra charges that may have to pay for taking a home loan. Depending on your situation, the cumulative charges can be a lot. Some of the common extra charges include administrative fee, service fee, processing fee, etc. Some of these could be directly proportional to the loan amount.
Make sure you get detailed information on the extra charges, and add it to the loan amount, so that you can make your final decision wisely.
Types of Home Loans
Depending on your requirements you can take the most suitable form of home loan, for the options are many. Here are some of the most common types of home loans:
·         Home Construction Loan: In this type of loan, you have to get an estimate of the home you want to construct, and then apply for the loan with the same amount. The lender will take the value under consideration, and approve or reject on the basis of the same.
·         Home Purchase Loan: In this you directly apply for a pre-constructed home. Since you already have the actual price in order, you don't have to do a lot of calculations, and merely apply for the loan at a bank.
·         Home Conversion Loan: If you already have bought a home through a loan, but now wish to buy a new home, then you can have the loan transferred to the latter. You don't have to repay the previous loan this way.

Taking a home loan is a big responsibility. Thus, you should do all your homework, and do as much research as possible, before finally zeroing in on one. Also, make sure you compare all kinds of viable loans, and choose the best one.

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