Continuous increase in housing prices has propelled home loans to mitigate their dream of availing of a home. However, SBI home loan or various other lenders approve the application for a home loan basis their credit risk assessment of the applicant, which depends upon the repayment capacity, income, credit score etc. A long-term tenure of up to thirty years and a big-ticket loan amount also make it important for many applicants to become prepared financially before opting for such commitments.
Here is a step-by-step approach for SBI home loan applicants or home loan applicants of other lenders must take to avail the best rates on a home loan.
Assess your credit report
All the lenders consider the credit score of 750 and above to be good. Those with such scores hold higher SBI home loan eligibility or home loan approval chances from other lenders. Most lenders consider the credit score of 750 and above to be good. Thus, those with these scores hold higher home loan approval chances. Many lenders have also started providing preferential interest rates to their home loan applicants having a good score. Thus, prospective applicants should initially assess their report before making the application for a home loan. This allows those home loan applicants with a poor credit score of less than 750 to take corrective steps to initially improve their credit score and then place the SBI home loan application or home loan application with another lender on improving the credit score.
Remember that home loan applicants can simply check their credit report from any of the credit bureau each year. Also, applicants should visit the online financial platforms to avail credit reports that are available with monthly updates.
Form a down payment corpus for a home loan
Form a down payment corpus for a down payment. According to the RBI guidelines, lenders, including the SBI home loan, can finance up to 75-90 % of the property’s value as a loan. The final home loan proportion gets fixed as per the lender’s credit risk assessment of the applicant. The rest of the component needs the applicant’s contribution from their own pocket. Thus, home loan applicants should first aim to accumulate nearly 10 % to 25 % of the property’s value before home loan application submission.
Remember that contributing a higher amount towards home loans from their own funds assists in lowering the interest component. Choosing a higher down payment contribution also increases the applicant’s chances to avail approval as it reduces the lender’s credit risk. However, here in this procedure, you must avoid compromising the emergency fund and crucial financial goals in pursuit of making higher down payment contributions because doing this forces you to apply for expensive loans to face financial exigencies or mitigate financial goals.
Ensure to compare amongst several lenders
Loan repayment tenures, processing charges, LTV ratio, loan amount etc., provided by the lenders of home loans, can exceedingly differ on the basis of the home loan applicant’s risk assessment. With various lenders, including the SBI home loan available, it may not be an appropriate option to approach every home loan lender to compare. A subtle manner for doing so is approaching the online financial market to compare amongst various offers basis the applicant’s monthly income, credit score etc.
Assess your repayment capacity or EMI affordability
Home loan lenders factor in the applicant’s capacity to repay at the time of evaluating their application. Usually, lenders require the applicants’ month on month repayment obligation, including their existing loan EMI as well as new EMI, to be within 50 to 60% of their month-on-month income. Those surpassing the limit mentioned above generally have lower chances to avail SBI home loan approval or approval for a home loan from other lenders. Thus, make sure to contain a monthly loan repayment obligation of under 50 to 60 % of your month-on-month income before submitting the home loan application. In case it does not, ensure to first lower your existing loans by either prepaying or foreclosing a few of the existing loans. You can also select to opt for longer repayment loan tenures to choose a higher down payment amount to reduce your overall outgo of EMI and enhance your chances of getting your home loan approved.
Form adequate emergency fund
Financial exigencies like job loss, illness etc., usually are uncertain in nature and can hit anytime impairing your income, cash flow, loan repayment capacity and financial goal corpus. Failure to timely repay the loan EMI on time not just costs massive penalties but also impacts your score. While one always has the choice to redeem their goals linked with investment to repay their loan EMIs, doing this might extremely impact your long-term financial health.
One of the best ways is to witness the situation through an adequate emergency fund by parking it in liquid instruments. Such funds should be at least 6 times your monthly unavoidable expenses, involving your existing EMIs and new home loan EMIs. Thus, the time you begin planning for your home loan, try and simultaneously increase your fund size by nearly 6 times your expected EMI of the new loan. As any contingency can come anytime, ensure to park your fund back up in liquid investment instruments like savings bank account and fixed deposit.
Alternatively, you can even select cost-effective options like home loan variants in the form of a home loan interest saver or overdraft option. This option offers an overdraft account in the form of a current or savings account linked with a home loan account. Home loan borrowers can place their surplus funds in the overdraft account and later withdraw the funds needed to come up. As the interest component of the home loan account is calculated after lowering the monthly average balance (MAB) of the overdraft account from the outstanding loan value, monthly parking surpluses in the overdraft account provides the same purpose as in the case of prepayments. Remember that, availability of liquidity in the case of overdraft makes it the best tool for parking an emergency fund.