Things to Know About Availing a Home Loan

home loan

Buying a home is considered an achievement – both personal and financial. Besides, the increased availability of quick home financing options at competitive home loan interest ratesmakes this purchase easy to carry out.

From the importance of the CIBIL score to figuring out the ideal EMI amounts, there are several factors affecting your housing finance. Read on to discover four things you need to know about availing of these loans.

Role of CIBIL score

If you are wondering, what’s one of the first things lending institutions check when you apply for a loan? It’s your CIBIL score. Having a good CIBIL score, preferably more than 750, increases your chances of landing an attractive housing finance offer. The score depicts your ability to repay the loan.

If you have a high CIBIL score, you will qualify for loan deals with several lenders. It will allow you to choose a lender offering favourable home loan terms. Besides, you will also be eligible for bigger loan amounts.

What’s more, the CIBIL score also affects the loan interest rates. A high score translates into reduced rates. Therefore, it is crucial to maintain a healthy credit report before you approach your preferred lender.

Enjoy tax benefits

Did you know that you can avail of handsome tax rebates on your home loan EMIs? Why, yes! The EMI has two components: interest amount and principal repayment. And as per section 80C of the Income Tax act, you can enjoy tax deductions on the principal amount as you repay the loan on a self-occupied property.

Moreover, the interest amount in your EMI is also subject to tax rebates up to a maximum of Rs. 2 lakhs.

DTI ratio

While approving your loan application, lenders also evaluate your debt-to-income (DTI) ratio. A high DTI ratio reduces the chances of getting your loan approved. Why? It denotes that majority of your income is involved in repaying other debts. This means you are left with a small amount to cover the remaining expenses, making you more likely to default on your loan repayment.

To lower your DTI and to improve your home loan eligibility, you can go for a longer loan tenure. This way, your EMIs will be smaller, reducing your DTI.

However, it is important to note that extended loan tenure means you will spend more on the interest paid.

The rates are negotiable

You can always negotiate with your lender on the interest rate.  If your credit history boasts of a clean record and you have a low DTI ratio, there are high chances that the lender might agree.

The bottom line

Before you choose a lender and apply for housing finance, it is essential to conduct research and thoroughly go through your loan agreement. Nowadays, with easily available home loan EMI calculators, you can even calculate your EMIs and interest payable in advance. Keeping the above-mentioned points in mind should help you avail of an attractive loan deal.