Buying a home is a big decision. First-time buyers typically take months, if not years, to go through with it. At the moment, however, you stand to gain if you decide to take the plunge as India’s property market conditions are favourable for buyers. On account of the pandemic-induced slowdown, property prices are falling and interest rates have gone down.
If you’re interested in resale property, distress sales are on the rise; if you’re looking for under-construction property, developers may offer a host of freebies. Of course, this doesn’t mean you should buy a home in haste. There are many other variables. Once you’ve made your decision, however, there is one process that applies to nearly all: getting a home loan. It’s thought to be a long, complicated step, but really isn’t. Let’s find out how you can get your first home loan.
First, make sure you are insured
In order to take a home loan, you need to be sure you can make timely repayments and won’t be strained in case emergencies such as sudden medical bills or other expenses crop up. Insurance is a great way to protect your future against unexpected financial crises. Adequate health insurance is a must to avoid hefty bills should a medical episode occur. Illnesses are often unforeseen; accidents always so. It’s best to be prepared so that you and your family are able to receive good medical care without having to worry about the cost. Hospital bills can quickly skyrocket, leaving huge debts to pay off if you do not have adequate health insurance so make sure you and your loved ones are covered. Similarly, a good life insurance policy can help your loved ones in case of untimely death, ensuring that they are taken care of financially.
Review your finances
Before approaching a bank or any other financial institution, conduct an honest examination of your finances. This will tell you your budget, how much of a downpayment you can afford and the amount you need as a home loan. Once you know these three numbers, begin your search for a home - simultaneously begin your home loan research. You can compare interest rates, administrative fees, repayment terms of all institutions to ensure that you’re getting the best deal. If you’re not sure how to go about this, get the assistance of friends or an independent expert.
Assess your credit score
At the same time, it would make sense to ensure that you’re not in a poor position from a debt standpoint. You can’t have a couple of personal loans and expect a large home loan. The lower your credit score, the smaller your chances of getting a home loan. At the same time, having no credit history is no good either. Showing lenders that you have a record of paying back your debts (say, a credit card bill) certainly gives confidence that you’re a trustworthy borrower.
The other thing lenders look for is financial stability. If you’re employed, that means having had the same job for a good few months leading up to your application. If you’re self-employed, they’ll need a bit more reassurance—at least two or three years’ steady income in most cases.
A joint effort
When you take a home loan, you’re paying back a lot in interest over a long period of 10 to 20 years. This isn’t a wise choice, so it certainly pays to put together a large down payment. If you’re struggling to do this, consider teaming up. You could purchase a home with a relative, a spouse or even a friend. And that doesn’t necessarily involve moving in together. Lots of people want to invest in property, so there could well be someone in your life who’d be up for sharing a mortgage with you without becoming your roomie.
Remember tax benefits
Also remember that a home loan can have other benefits, too. One can avail a deduction of principal repayment u/s 80C and interest on home loan under Section 24. Further, under Section 80EEA, a first-time homebuyer (who meets the specified conditions such as stamp duty of the property is Rs.45 lakh or less, among others) can avail additional benefit up to 1.5 lakh on interest payments, which tend to be large in the initial years of a home loan.
Don’t stretch yourself
It’s better to spend more time saving than to take the plunge too soon and find yourself out of your depth. There are a number of good investment options out there, including some with tax benefits, such as Future Generali’s Assured Wealth Plan is a guaranteed life insurance plan which offers an ideal insurance cover that’s suited to your savings goals.
Once you’re ready to shop for a mortgage, it’s time to prepare your documentation. With Indian banks, this includes income proof, address proof, tax returns for at least the past three years (and longer if you’re self-employed), identity proof, employment details, proof of education, details about the property and proof of your net worth.
Before you sign up for the loan, be sure to do a final check on the terms of the deal, such as repayment period, prepayment terms (ideally there should be no prepayment fees) and administrative fees. It’s also a good idea to ensure that the bank doesn’t have any fees in case you choose to switch your loan from one bank to another.
Get home insurance
Don’t be one of those people who learn the hard way about the importance of home insurance: after they have suffered a loss. Once you own your property, protect it with a good home insurance policy. Premiums are extremely reasonable and the policy will give you coverage against losses faced from fire, theft, burglary and other threats to the property, as well as natural disasters. Things such as your home’s contents, jewellery, valuables and artwork that is kept within your home can also be covered under your home insurance policy.
Once it’s all in order, you’re ready to be a homeowner. Now, this is a big step and can feel overwhelming initially. But remember, it’s more than likely that your income will only grow while your EMI will remain the same. This will mean that your EMI will, over time, be a much smaller component of your income, given you the opportunity to prepay your loan and cut your debt. In fact, it is common for most homebuyers to pay off a 20-year loan in just eight to 10 years. So, if you’re feeling a bit jittery about the whole thing now, think about the long-term benefits of owning your home, including all those tax deductions!