Home Loan: Nine Things To Never Forget Before Applying

Are you planning to buy your dream home but feel overwhelmed by the complexities of home loans?

Home loan process in India can be daunting, with factors like interest rates, hidden charges, and CIBIL scores playing a crucial role in determining your eligibility and costs.

Here's what experts suggest every homebuyer should consider before applying for a home loan.

ROI types

There are fixed and floating interest rates. Post-COVID, RBI has encouraged Housing Finance Companies (HFCs) to promote floating ROI to mitigate the risk of rate changes, as RBI adjusts key rates like the repo rate.

"Hence always opt for Floating ROI. Fixed ROI is usually higher as well. Floating rate currently is at 8.35% pa – 8.5% pa wherein Fixed ROI is 9.5% pa to 10% pa," Pushpamitra Das, Founder & Director, JUSTO told Republic Money.

Avoid hidden charges

In addition to the processing fee and government charges, HFCs may impose extra charges due to policy changes. Ensure all charges are confirmed and documented by the bank before finalising.

Pay principal with interest

Ensure your EMI covers both principal and interest, even if the principal component is smaller initially. This reduces the total interest paid over time.

Monitor loan account regularly

HFCs are required to adjust interest rates when RBI changes the repo rate. However, they may not notify you of rate increases or decreases, so regularly check your loan account.

Do not rely only on in-principal sanction

In principal sanction is issued by HFC on the basis of your income and CIBIL only. It is important for you to wait till they get verifications done like residence verification and workplace verification along with due diligence of property. Hence always rely on final sanctions.

Charges

Two types of charges apply—government charges (like ESBTR and Notice of Intimation) and bank charges. These vary by location but are usually a small percentage of the loan amount. "Generally ESBTR (Registration of loan) is 0.3% of loan amount. Notice of intimation is 0.5% or 15,000/- whichever is lower," Das said.

Insurance 

Confirm with your HFC if you need insurance beyond the property insurance mandated by RBI at the time of possession, which typically range from Rs 20,000 to Rs 25,000.

CIBIL score

Ensure your CIBIL score is at least 650. "HFCs generally don't consider applications with scores below this, unless there is a genuine error," he said. The indicative rate of interest (ROI) varies based on the CIBIL score is as follows: For a score above 800, the ROI ranges from 8.35% to 8.5%. For scores above 750, it ranges from 8.5% to 8.7%. If the score is between 700 and 750, the ROI is between 8.7% and 8.9%. For scores below 700, the ROI exceeds 9%.

Third-party assistance

Using third-party agents can ease the loan process due to their corporate relationships, often leading to faster approval, disbursement, and possible fee refunds. In addition to it, considering that they are not tied up with only one bank and have all the banks tied up with them, they can provide the best interest rates with errorless financial assistance at one go.