Stop worrying about interest rates, start preparing for a home loan

1 Eligibility

Calculate your loan eligibility using this simple formula (net take home income x 12 x 4). Thus, if your net income is Rs. 50,000, your loan eligibility is Rs. 24 lakh (50000 x 12 x 4). Based on this, you can plan the price of your home. The actual EMI outflow will depend on tenure and interest rate. If you want a larger loan, rope in a spouse or offspring as earning co-borrower and add to your repayment strength.

2 Loan letter

After your eligibility is finalised, get a pre-approval loan letter from the bank or institution. This helps you to negotiate a better deal with your builder.

3 Down Payment

The RBI directs that the loan should not exceed 80 per cent of the property. You thus have to plan a down payment of 20 per cent. Start planning early (see my column ‘The Smart Piggy Bank), keeping in mind that the corpus must meet not just the down payment but other expenses too, such as new furniture or decorator fees.

4 Credit history

Keep it clean! Every time you defer a car loan EMI or pay only the minimum balance on your credit card, you score a negative point that goes into your credit history and lowers your loan eligibility.

5 Pick a HFI

Compare and shop for banks, based on interest rate, processing fee, pre-closure penalties, paperwork help and loan transfer norms.

6 Get paperwork ready

Passport size photographs, ID and address proofs, income certificates, IT returns and employment certificates — start getting the documents in place.

7 Property papers

If you already have a property in mind, make sure that the seller or developer has all the relevant property documents ready in the original. Without these, nothing can proceed, and you can save a lot of time by being prepared.

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