For a large number of Indians, a home holds more value than it implies as far as a milestone. Instead, a home is a sign of not only financial security but also emotional balance, provision of a place of residence for the present and future generations. But for those who are buying a home for the first time, the access to such an apartment in the suburbs or a house in a place that is yet to be developed may not be an easy task in a market where they come across unfamiliar terms all the time, rates that rise and fall, and endless red tape. The answer to being a confident and well-informed purchaser is being familiar with the right financial ways to enable you to buy a house from the loan types to the doorsteps of a property loan.
It is always thrilling to buy your first house, though, and for sure, an exciting experience. However, you might still have to proceed through complex processes. The complexity is a consequence of the fact that you are not familiar with the home financing process. Through the right understanding of home financing, especially in India, you would have nurtured the art of systematizing the process while still affording to have new experiences.
Housing Loan vs Property Loan: Know the Difference
Most of the new buyers use the two terms interchangeably and yet there’s a distinction between them that needs to be understood.
A housing loan is a loan that is meant for the sole purpose of purchasing or constructing residential property—flat, villa, or an independent house. Generally, it comes with a lower interest rate, more extended repayment tenure (up to 30 years), and one can save tax under Sections 80C and 24(b).
To the contrary, a property loan, which is popularly known as a loan against property (LAP), is a secured loan whereby the existing property is leveraged to borrow funds. A housing loan helps one to buy a dream home, unlike a property loan which is used for personal or even business purposes. With various examples like business expansion, higher education, or rather another real estate investment.
For a lot of first-time home buyers, it’s always about getting a housing loan, not knowing that in case they are the property owners already, there is another option of money lending which is a good leverage. One should understand the alternative source of funds later if they possess a property and want to use its value to get a loan.
Know Your Creditworthiness Right at the Start
The one thing that most banks always need to look at first when you are asking for a mortgage is your credit score. A score of 750 is considered good, higher than that allows you to avail more credit at a lower interest rate. But if you score lower than that, you should definitely improve it before you apply – repay credit card debts, limit loan applications and have a credit mix in good standing etc. can keep your score high.
Your debt-to-income (DTI) is another important area that is considered by your bank. The figure may get lower if currently, you are servicing some other loans such as car or educational loans.
Fixed Interest Rates vs. Floating Interest Rates: Any Better?
It is the rate that moves up and down constantly vs. the one that doesn’t. In other words, the dilemma of which interest rate is more advantageous comes up. Fixed rates provide this assurance, you know exactly the same amount of money out of your pocket every month, and so you can make a budget easily. Nevertheless, these rates might be a bit higher starting.
In contrast, the first one is maintained throughout, while the latter is derived from the repo rate and can change in the future. With the RBI changing the repo rates to control inflation and to stabilize the economy, it is not difficult to foresee lower interest rates for borrowers due to floating rates.
If the players in the housing market are those who never want to step into unknown territories, they might pick a fixed rate up. On the other hand, a floating rate could attract you if you have a sound financial footing and are willing to take that risk that comes by. It will be a money-saving method in the long run if the interest rates are in favor of the borrower.
Neglecting Prepayment and Foreclosure Terms Could Be Costly
It is very common that you wish to prepay a part of your mortgage or even close it prematurely. To this, it is of utmost importance to verify that the lender does not charge penalties for prepayment or foreclosure. Though numerous lenders have omitted such fees for floating-rate home loans, fixed-rate loans may still carry the charges.
It is more beneficial in the first years of the loan if you prepay partly since the interest gets reduced to a great extent: as EMIs in these years majorly go to interest repayment only less amount of principal is repaid.
Dreamtime: Have All Your Papers Ready
If you are considering applying for a housing loan, keep in mind that there will be plenty of paperwork. One of the requirements that most lenders usually request are:
● Proof of your identity and address
● PAN card and Aadhaar card
● Pay slip copy (for salaried individuals)
● Income tax declarations (for self-employed)
● Bank transactions (usually half a year)
● Legal document on property, builder contract, and approved building plans
Ensure that all the documents are authentic and with the correct details. A mistake or not complying with the requirement can not only slow the approval down, but can also lead to disapproval.
Final Words: Know-How and Be Always Aware
The purchase of the first house is a critical financial and emotional decision. What matters most, in addition to the location, amenities, and layout, is if the funding of your house goes in the right direction or not as it will dictate the tranquility of your mind for at least the next twenty years.
It is better to not make any rushed impulsive choices. Compare those houses that are on offer using a variety of housing loan deals, read the terms and conditions/ fine print, and then use the internet for calculating EMI options. If you are an independent individual and have uncertain income, then understand how the home loan will pan out and what it will mean to you in the future.
Buying a house isn’t only about getting a mortgage but also about being financially comfortable during that period.
Your dream house should be a reason for you to feel happy not to worry. Accordingly, the first right step you should take towards this is to solve your financing issues properly today.
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