Planning for Home Loan in 2021? Know the Eligibility, Interest Rate & Charges
The global economic crisis and subsequent lockdowns in 2020 derailed purchase plans of several prospective homebuyers, with the real estate sector witnessing a sharp drop in housing sales. According to a third-party real estate services firm report, January to September 2020 saw a record of more than 40% decline in the total value of homes sold across the country.
Nonetheless, the third quarter saw a trend reversal with housing sales values shooting up by 2.3 times than the previous quarter. This boost was likely a direct consequence of historically low repo rates, making financing options such as a home loan more affordable for homebuyers.
If you are planning to capitalise on the low housing loan borrowing rates, mentioned below are the interest rates, charges and various eligibility criteria that financial institutions use to evaluate a loan application.
Home loan Interest Rates in 2021
On October 1st, 2019, RBI mandated linking floating interest rate term loans to an external benchmark – the most popular one among financial institutions being repo rate. However, citing economic growth and promoting investment across various sectors, RBI has been reducing the repo rate since February 2019 and the rate stands at 4.0% as of February 2021.
This decline effectively means that housing loan interest rates are also at an all-time low. Since the specific interest rates vary among lenders, contact your preferred financial institution to enquire about the margin (spread) they charge and compare that with others to optimise savings.
Charges you should know about
Apart from the interest component, lenders also charge a processing fee as a percentage of the loan amount, if approved. This is a one-time fee that is charged upfront over the loan amount. However, some lenders may waive off this charge as part of a special discount or offer.
For floating interest rate home loans availed in 2021, applicants also do not have to pay any additional prepayment or foreclosure charges after an August 2019 notification. This means that once your disposable income increases and you decide to make a part-prepayment, you can adjust the loan tenor without incurring extra charges.
That being said, a smart move will be to contact the financial institution and enquire regarding additional charges and hidden costs such as late payment fee, conversion charge and insurance.
Standard home loan eligibility criteria
While the specific parameters vary from lender to lender, mentioned below are some common factors across all financiers. Make sure to visit your preferred lender’s official website and check home loan eligibility criteria before applying.
- Age: Typically, individuals between the age of 23 and 70 can avail of home loans, but the exact specifics may change depending on the financial institution.
- Work experience: Salaried individuals need to have a work experience of at least 3 years, while the self-employed need to show business continuity records for the previous 5 years.
- Credit score: Applicants should have a credit score equal to or above 725 points to apply for a loan successfully.
- Property type: Home loans can be availed for completed or under-constructed properties, to purchase a plot or build a home.
How do lenders determine home loan eligibility?
Before applying with any lender, prospective homebuyers should thoroughly acquaint themselves with factors that can affect home loan eligibility. So, mentioned below are some simple strategies you can adopt to increase the chances of securing a term loan to purchase the house of your dreams.
1. Re-evaluate financial obligations
Lenders use the applicant’s fixed obligations to income ratio (FOIR) as one of the most important parameters when determining home loan eligibility. Fixed obligations include existing liabilities such as various secured and unsecured loans.
So, before applying for a new home loan, prepay existing loans or wait till the tenor completes if your current FOIR does not meet the set eligibility criteria.
2. Regularly evaluate your credit report
Your credit report is a concise history of your repayment behaviour and financial institutes use this to determine your creditworthiness. Hence, if the report contains an error or the latest repayments are not updated, it may negatively reflect the credit history.
3. Opt for a joint loan
One of the simplest ways to clear the eligibility parameters is by opting for a joint home loan with one of your immediate family members, preferably your spouse if he/she is working. Since the credit history of both applicants is factored for evaluation, it eases the entire process significantly.
Some states in India also offer special concessions to female co-applicants. Sharing home loan EMI burden facilitates comfortable repayment without stressing the monthly budget. This is only one of the many benefits of taking a joint home loan.
4. Enquire regarding a preferable loan to value (LTV) ratio
Several financial institutes across the country offer housing loans up to 70-80% of the property’s current market value.
Essentially, instead of paying the least out of your pocket, make a larger down payment at the start. Doing so will keep the EMI amount well within budget.
However, some HFCs allow you to skip planning these strategies by extending pre-approved offers that require minimal documentation for approval. Such offers are available on financial products such as home loans, personal loans and loan against property. You can check your pre-approved offer by entering essential information including name and contact details.
In order to drive the economy upwards, financial institutes are likely to promote home loans heavily in the initial months of 2021. In effect, be on the lookout for special discounts on interest rates and processing charges to maximise the savings throughout the tenor.