Crucial Stepwise Approach Before Opting for a Home Loan

January 14, 2022, 0 Comments

Crucial Stepwise Approach Before Opting for a Home Loan

Consistent increases in residential home prices have made many of you choose home loans to mitigate your dream of being a homeowner. However, HDFC home loan or any other home loan lenders accept your home loan application based upon their assessment of their credit risk based on your repayment capacity, credit score, income etc. Long term tenures of up to thirty years and massive loan amounts also make it important for many of you to be financially prepared before you take up such a financial commitment.

Check out the stepwise approach that HDFC Home Loan applicants or applicants of other home loans should follow to opt for a home loan at the best HDFC Home Loan Interest Rates or lowest rate from other lenders:

Assess your credit report

All the lenders usually consider a credit score of 750 and above as good. Thus, those with this score have higher home loan approval chances. Many lenders have also started setting preferential interest rates for their home loan applicants with good credit scores. Thus, prospective applicants of home loans should first assess their credit report before application submission for a home loan. Doing this allows applicants with a score of less than 750 to take the right actions to initially improve their credit score & then place HDFC home loan application or home loan application with another lender at a higher score.  

Remember that applicants of the home loan can fetch their reports from the bureaus. Alternatively, they can also approach the online lending marketplaces to avail reports with monthly updates.

Form a down payment corpus of home loan

According to RBI guidelines, home loan lenders like HDFC Home Loan can finance up to 75-90 percent of the home value in the form of a home loan. The final home loan proportion is decided as per the lender’s credit risk assessment of the applicant. The rest of the components must be contributed by the applicant on their own from their pocket. Thus, the home loan applicant should aim at accumulating at least ten to twenty-five percent of the value of the property before home loan application submission.

Remember that a higher home loan down payment contribution from your pocket allows you to reduce your interest component. Choosing a higher down payment contribution also increases your chances of home loan approval as it reduces the lender’s credit risk. However, in this process, you must avoid using your emergency fund and crucial life goals in the attempt to make a higher down payment contribution. Doing this may propel you to take up high-cost loans to witness financial emergencies or mitigate your financial goals.

Compare amongst multiple lenders.

Loan repayment tenure, processing charges, rate of interest, LTV ratio, loan amount provided by the lenders can massively vary based on their risk assessment. With various lenders, including the HDFC home loan, it may be an appropriate choice to reach out to maximum home loan lenders for comparison. One of the simplest ways for doing so is visiting the online financial markets to compare amongst various loan offers depending upon your credit score, income etc.

Assess your EMI affordability

Lenders factor in the applicant’s capacity to repay when assessing their application for a home loan. Usually, lenders require the applicant’s monthly repayment obligation towards debt, including the existing and new EMIs, to be within 60 percent of their net monthly income (NMI). Those surpassing this set limit generally have lower HDFC home loan approval chances or chances of availing loan from any other lender. Thus, make sure to contain your home loan repayment obligation to under 60 percent of your monthly income before home loan application submission.

If it does not, consider lowering your existing loan debts by either prepaying or foreclosing some of your loans. Also, you may select longer loan tenures or choose to make a higher down payment to reduce your thorough EMI outgo. Doing this will increase your chances of avail home loans.

Form adequate contingency fund

Financial exigencies like job loss, illness etc., usually is unannounced in nature because they can exceedingly impair your income, cash flow, life goal corpora and repayment capacity. Failure to repay the EMI by the due date not just leads to heavy penalties but also negatively impacts your credit score. While you always have the choice to redeem your life goals’ corpus to repay your EMI, this can drastically impact your financial stability. One best way to witness such events is to build sufficient backup in your liquid instruments to meet emergencies. This backup should be at least 6 times your monthly unavoidable expenses, including your present serviceable EMIs and the new home loan EMI. Thus, the moment you begin with your planning for a home loan, ensure to simultaneously increase your contingency fund’s size by around 6 times your expected EMI of your new loan. As financial emergencies can hit anytime, ensure to park this back up in liquid investments like savings accounts or fixed deposits.

Another cost-effective alternative may be to opt for home loan variants like home loan interest savers. It offers you an overdraft account as a current or savings account, which is linked with your home loan account. You can deposit surplus funds in the overdraft account and later withdraw as you require the funds. As the loan’s interest amount is calculated after lowering the monthly average balance of the overdraft account from the outstanding loan component, parking surpluses in the overdraft account helps to provide the same purpose as in the case of prepayments. Remember that availability of liquidity in the situation of an overdraft account makes the home loan interest saver option an efficient choice for parking your emergency fund.

Conclusion

Lenders evaluate your credit risk before providing you with a home loan by carefully assessing your repayment capacity, credit score, income etc. Factoring in the home loan entails huge financial commitment and longer repayment tenure. Thus it is imperative to be financially prepared by following the above steps.

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