7 Home Loan Strategies For First Time Borrowers

A home loan is a voluminous financial commitment and generally is 48 to 60 times the monthly income. Before deciding to Apply for ICICI Bank Home Loan, you should understand the fundamentals of the loan. This step is essential for first-time home loan borrowers. You should weigh the pros and cons of availing of a home loan before applying for the loan.

There are a lot of players in the market providing a home loan at competitive interest rates. Home loans are provided for the purchase/repurchase of ready-built houses/flats, under-construction property, to purchase a plot and construction thereon and repairs and renovations of the existing home.

You should be equipped with the various features and benefits and the charges associated with making a decision that you will not regret in the future. You can prepare for the big step in your life by pondering on the tips given below.

#1.  Credit Score — Keep A Check

The Credit Score usually lies between 300 to 900. When this score is high, there are higher chances of the loan being approved. With a higher score, you may be eligible for a higher amount with a lower interest. You cannot understand the acceptable credit score as it depends on the lender’s internal risk rating and lending policies. So the score requirement may differ with each lender. However, it is a score of 750 and above which considered good. For ICICI Home Loan, you require a score of 700 and above. A score of 720 to 750 will be adequate for HDFC Home Loan.  Axis Bank Home Loan requires a credit score of 750 and above.

With a score above 750, you will be considered a low-risk borrower, and the loan application’s approval is specific. Some banks may be willing to fund your buy if the score is between 600 to 750, but the terms may not be very favourable. Either the amount may be lower than what you have applied for, or the interest rate may be higher. For instance, Axis Bank Home Loan interest rates depend on the credit rating and range from 6.90% to 8.40%.

Know your credit score before applying for HDFC Home Loan. If it is lower than the required level, take steps to improve the score. With a higher score, the turnaround time will also be lesser.

#2. Work Experience and Income

The cash flow will be the primary concern while assessing a home loan proposal. The lender will check the existing income, work experience, stability of business if self-employed, debt to income ratio. The joint income of the borrower and the co-borrower will be considered while evaluating the loan amount. Being able to recover the loan amount will be the primary concern of the lender.

#3. Explore loans from different lenders

You can do an online search for the prevailing home loan lending rates in the market. In addition, you should browse the charges levied before and after the home loan application. Since the amount involved is enormous, even the slightest difference in the interest rate and other charges will make a marked impact on the cost of the loan. Axis Bank home loan is available at 6.90% p.a. Interest, whereas ICICI Home Loan and HDFC Home Loan are available at a rate as low as 6.75% p.a.

#4. Choice of tenure

Use the HDFC Home Loan calculator or Axis Bank Home Loan calculator to arrive at the EMI for the desired home loan amount. Factor all your existing financial commitments along with the proposed  EMI. Calculate the disposable amount left out of your income. Arrive at the debt to income ratio. Check if the ratio is within the required benchmark set by the lender from whom you choose to avail of the loan. If the ratio is not adequate, contemplate increasing the disposable income by either reducing the loan amount or increasing the tenure. You can even look at closing some of the existing debts to increase disposable income.

#5. Increase your contribution

Reduce the quantum of the loan by increasing your contribution by way of down payment. Higher down payment will give you the advantage of concessional interest rates and other charges, which will lessen the overall cost of the loan. HDFC Home Loan interest rates range from 6.75% to 7.65% p.a.depending on the loan amount and employment. A higher down payment will lower the loan component, which will provide the advantage of a lower interest rate.

#6. Chalk  out a pre-payment plan

Even before applying for ICICI Home Loan, you should draw a pre-payment plan keeping in mind the surplus amount available in the future by way of incentives, bonuses, fixed deposits maturing etc. You should never have the mindset of keeping the home loan active throughout the tenure.  If you have availed of the loan on a floating rate of interest, there will be no pre-payment charges if such repayments are out of your source. Otherwise, there will be a penalty ranging from 2% to 4% of the outstanding loan amount for loans at a fixed rate of interest, which will add up to the cost of the loan. You should keep in mind all these aspects while drawing the plan to arrive at the savings you will make with the prepayment.

#7. Be aware of the different types of EMI

For the convenience of the customers, lenders have EMI plans that would help borrowers who decide to take up the financial commitment early in life and borrowers who decide the end of their tenure.

Step-up EMI is for youngsters who have just started their careers and have a long way to go. In this plan, the EMI during the initial years will be kept low and will gradually be increased depending on the career progress. Axis  Bank Home Loan provides you with this option after assessing your career prospects.

The step-down plan is for borrowers who are almost at the fag end of their careers. The EMI during the initial years will be kept high and will gradually reduce as the retirement age approaches.

After getting an adequate knowledge of the fundamentals of applying for a home loan, you can confidently avail of a home loan from the lender of your choice.