A Quick Guide for First-Time Home Buyers

If you’re a first-time home buyer with an annual income ranging up to Rs.18 lakhs, know that the Pradhan Mantri Awas Yojana (PMAY) scheme grants you access to a credit-linked subsidy going up to Rs.2.67 lakhs on loan interest. The current market is largely in your favour with lenders giving home loans at just 6.99% and reputed builders offering discounts. So essentially, your property cost and EMIs will be low.  

So if you’re ready to take that big leap and buy a house, here are some home loan tips that will help you choose a good loan product. 

1) Choose Wisely Between a Bank or Non-Banking Housing Company (NBHC) 

NBFC rates are not influenced by external benchmarks like the RBI repo rate and they can set their rates based on their cost of funds. It’s important to note that public sector banks may offer the lowest rates but their processing and disbursal of loan amount takes time. Therefore, make sure to research and compare every aspect, offering and the scope of saving before you decide on which lender to go with. 

2) Know what the Bank’s Rate is Composed of 

Bank’s Rate = Repo Rate Linked Lending Rate (RLLR) + Spread 

Every bank has to link to an external benchmark according to RBI directives, and most bank rates are linked to the repo rate. This means that if the RLLR drops, your interest rate should effectively drop as well. The bank, however, decides the “margin” or “spread” charge, depending on a number of factors such as your down payment amount, credit score, loan amount, profession and age. 

But how do you know which loan products are best for your specific profile? Talk to a Fincity expert and understand the loan products that are sure to offer you maximum savings.

3) Try putting in maximum down payment

More the down payment, lesser the Loan-to-value (LTV) ratio or the proportion of the cost you would have to borrow. This is one of the key factors considered by lenders while deciding your loan interest rate. If your down payment is high, in all likelihood, you would get a good rate and enjoy lower EMIs. 

4) Draft a Prepayment Plan 

It’s advisable to put a savings plan in place to make way for lump-sum prepayments towards your loan. This will substantially bring down your total interest cost. Go for a lender that does not charge a penalty for prepayment.  

Now, there’s no denying that finding a good home loan is not easy – the slew of options often makes it harder to decide on the right one for you. If you’re currently in this situation and feel overwhelmed with the endless number of choices, reach out to a Fincity expert at abc@fincity.com and have them simplify the task – and find you your home loan matches in minutes. We find you the best rate home loans that stay low over the life of the loan and our assistance is absolutely free! 

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7 key factors that impact your home loan eligibility!

When you opt for a home loan, the bank/NBFC concerned will require you to comply with a multitude of eligibility criteria, the most basic one being that you must be a citizen of India and at least 21 years of age, along with other parameters related to your income, employment, credit score, etc.  

Let’s take a look at some of the most important factors that determine the maximum loan you can avail at minimum interest rates.  

Age: This is a prime factor in your home loan eligibility and all the other parameters are measured against it. The lender takes into account the number of years you have left in the workforce as a salaried or working professional, making it easier to draw out the loan repayment structure. Applying for a loan in the early years of your career or much before retirement makes approval of a higher home loan amount with low interest rates easier. For example, if you’re 30 years old, you can get a home loan for a tenure of up to 30 years since the standard retirement age is considered 60. Want to check how much home loan you’re eligible for? Find out now with Fincity’s Home Loan calculator.

Income: The loan amount you’re likely to get sanctioned depends on your yearly income, based on the city you work in. Bigger metropolitan cities like Delhi and Mumbai come with more stringent requirements compared to others. Banks generally offer 60-65% of total gross or (sometimes net income i.e. gross minus taxes) income. On a general note, a bank can offer you loan for a tenure of 25-30 years with additional value-adds like EMI holiday (moratorium period when you’re not required to pay EMI), top-up loans with low interest, repayment flexibility, etc. 

Employment Status: Eligibility is also determined by the kind employment you hold, i.e. salaried, self-employed professional (SEP), self-employed non-professional (SENP) and also by how frequently you change jobs. Being employed by a reputed company or being self-employed with a steady income is a plus.

Existing Debt Obligations: Banks consider your existing debt / loan obligations and calculate your monthly payment dues toward those existing loans. Why is this important? Because banks use the ratio called FOIR which means fixed obligation-to-income ratio to calculate your eligibility. For example, if your monthly income is Rs. 50,000 but you have fixed monthly loan payments of Rs. 15,000 for existing personal loan or vehicle loan, then Banks will consider only Rs. 35,000 as amount available which can be used to pay your Home Loan EMI (equated monthly installment). 

Debt Repayment Track-record: Banks are more concerned about your payment pattern when it comes to dues than the number of loans you actually have or the payment due on your credit card. Behaviour such as missing your EMIs regularly, not paying credit cards regularly and repaying after the due date are red flags for the lender. Settling your outstanding amount and following some basic debt clearing rules will open up your chances to get a higher amount sanctioned.      

No of Dependents: Interestingly, your loan eligibility is also influenced by the number of dependents you have. Lenders want the assurance that your income is high enough to handle home loan EMIs after supporting dependents. Banks apply a ratio ranging from 40% to 70% on the available amount as you would have daily/monthly expenses to support your household and dependents.

Credit score: Your credit score is calculated based on your credit history that includes your past and current debts (loans, credit card, etc), repayment pattern and payment defaults.  

This gives the lender an idea of how you’ve handled your monetary responsibilities in the past, determining your financial credibility, and how capable you are to pay off the loan. A minimum credit score of 750 is considered ideal for home loan eligibility. There are multiple credit bureaus like CIBIL, Experian, Equifax and CRIF-Highmark who are authorised by Govt of India / RBI. {Check your free credit report} 

Down Payment / Own ContributionPaying a higher down payment, i.e. 20% or more, also increases your eligibility in getting a loan easily at competitive interest rates. The lender funds up to 80% of the property value called Loan-to-Value (LTV) and up to 90% if the loan amount is Rs.30 lakhs or less. In order to entice home purchase, some banks or real estate developers have schemes running like 10-80-10 which means you may 10% now while bank will fund 80% and remaining 10% to be given at the time of possession. Before loan disbursement, banks will ask you to provide proof of your Down Payment or Own Contribution which in banking parlance is called Own Contribution Receipt (OCR). 

Property Valuation: The banks will be keen on evaluating the value of your property as this serves as the collateral/ security as Home Loan is a secured loan vs. Personal loan or credit cards which are unsecured in nature. Hence the rate of interest on Home Loans tend to be lowest when compared to any other loan type. Selecting a property that is worth high in an area where the valuation is likely to rise will ensure that you get a higher loan amount. Banks generally have outside valuers on panel who are asked to submit the report. Most banks generally ask for two valuations and take lower of the two.

Now that you know where you stand in terms of home loan eligibility, feel free to run a quick check on how much loan will make paying them off a smooth ride for you with Fincity’s Home Loan affordability calculator.

Fincity opens you up to a world of 1000+ financial products from 50+ top lenders. Save on time, have them approved and sanctioned in 10 minutes at zero extra cost! Lock the lowest-rate home loan with our loan advisors; connect with an expert at hl@fincity.com.     

Taking a Home Loan? But First, Know Your Numbers!

Three distinct numbers that take the limelight when you apply for a fresh home loan or decide to transfer an existing one to a new lender are loan-to-value ratio, debt-to-income ratio and credit score.  They play a decisive role in determining your eligibility to avail a loan and the interest rate at which you may get it. Let’s take a deeper look into how each is crucial.

1) Credit Score: A credit score is a 3-digit number ranging between 300 and 900 and helps the lender understand your credit history. Credit bureaus such as Equifax and Experian calculate your score based on factors such as your debt, payment history and credit utilization ratio.  

Credit utilization ratio reflects how much of your credit limit you are using up within a given timeframe. It’s recommended to keep this number within 30%. A higher credit utilization increases your risk profile to lenders and will weaken your chances of getting a good interest rate.  

When you apply for a loan, lenders will typically run a “soft inquiry” for your credit score. This does not impact your score. However, a hard enquiry done before you submit the application will have a minimal impact on your credit score. A high credit score indicates to lenders that you are likely to repay your loan on time, encouraging lenders to offer you a loan at a lower interest rate. This, in turn, can save you lakhs of rupees through your loan’s tenure.  

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2) Debt-to-Income Ratio: This, simply put, helps the lender assess your repayment capacity for the loan. The lender adds up all your current monthly debts along with the loan amount and divides it by your gross salary.  

Example: Let’s say your gross monthly salary is 1 lakh and your total monthly debt is Rs.40,000. 

Your DTI = 40,000/1 lakh 

i.e.  0.4 or 40% 

A high DTI indicates high risk to the lender and may reduce your chances of getting a loan. A DTI of 36% or less is considered good.

3) Loan-to-Value (LTV) ratio: This determines how much of the property value you have paid for as down payment (or your equity in your home) and how much you are borrowing from the lender. At Fincity, you can avail of home loans for LTV ranging up to 90% of the property value. A higher LTV may result in a higher interest rate, depending on who the lender is.  

To calculate your LTV, simply deduct your down payment amount from the total property cost, and divide the balance by the property value.  

Example: If your property’s cost is 1 crore and your down payment amount is 20 lakhs,  

your LTV = (1 crore – 20 lakhs) /1 crore  

i.e. 80 lakhs/1 crore = 0.8 or 80% 

An LTV of 80% indicates that you would have to borrow 80% of the property’s cost from the lender.

If all of this number talk makes you wonder how much loan you’re eligible for, check it out right away using our Home Loan Eligibility Calculator. And if you still have questions on how these factors affect your score and your ability to get a loan, reach out to a Fincity Home Loan expert for a free consultation at hl@fincity.com.