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A first-time buyer’s guide to home loans
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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.
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Once upon a time, people bought homes in their early 50s or just before retirement, sometimes, even after. This was because they gradually saved up money for their homes through their working life and funded any small gap at the end through loans. In the 1990s, when the economy was liberalized, immense opportunities opened up. Suddenly, the profile of a typical home buyer came down to late 20s to early 30s. These younger people didn’t mind taking on more risk and didn't mind starting early on taking huge loans.
Today, homes have become a lifestyle statement and an investment vehicle. For a first time home buyer, planning and buying a home might sound complicated and daunting. But keeping in mind the following factors can make this journey smoother.
Banks or NBFCs : An individual can choose to apply for a home loan from banks or NBFCs. While banks typically charge lower interest, loans are stickier and they tend to be more inflexible about terms and conditions. NBFCs cash in on this aspect; they are flexible but charge extra.
Assess Your Property Value : Lending entities have their own evaluation team who estimate the total project/asset cost to arrive at a loan amount. Typically, they approve funding of about 75-90%. This gap ensures that home buyers are personally invested and it also acts as a safety margin if the property has to be liquidated due to non-payment. Before you start looking to apply for a home loan, make sure you have funds.
Check your loan eligibility : Housing Loan Eligibility varies with each financial institution. Typically, for salaried employees, banks sanction loans of around 60%-80% of the monthly gross income or net income. The entry age (minimum age for applying for a loan) also varies.
Be informed : Having a co-applicant (spouse or parent) helps to increase the loan amount. Also, a female borrower is offered lesser interest rates.
Fixed or floating interest rates : Fixed rates are set until the end of the loan tenure while floating rates are based on market trends, which might decrease (you end up paying lesser home loan EMIs) or increase. Individuals can choose based on their risk appetites.
Keep all the paperwork ready : This helps in loan approvals as well as expedites the process.
Factor in hidden costs : These expenses are accounted as administrative or processing charges, property/asset evaluation charges, or pre-payment penalty. To avoid any nasty surprises make sure you have clarity on all of them. Banks are not allowed to charge any pre-payment penalty on floating home loan interest rates while NBFCs/ other financial institutions can levy these charges.
Be realistic : Last, but most important, be realistic about your loan liability. Keep in mind your current and future income along with other financial obligations such as children's education, marriage, retirement funds, and medical exigencies.
Additional Read: Which type of home loan interest rates is best for you: Fixed or Floating?
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