Do's and don'ts while applying for home loan

With a view to boost demand in the real estate sector, the GST Council recently slashed tax rates for under-construction flats to 5% and affordable homes to 1%, effective April 1, 2019. This is expected to give an impetus to consumers who will see a lowering on their monetary outgo for buying under-construction properties, thus generating demand for such properties leading to higher sales velocity for such projects.

While such measures will surely benefit the customer, he still needs to prepare well before going ahead with the decision to purchase a house. Buying a house is not only about the shortlisting and the buying process, it is also about making an informed decision involving financial responsibility and security. Some of the most critical decisions involve affordability, down payments and the loan that the consumer will need to take to finance one's dream house. Let us look these conditions in detail.

Affordability

One of the first things to understand is the affordability. The idea is never to overstretch yourself financially. Some of the key factors that you need to keep in mind while calculating affordability are – your monthly take-home income, all outgoing obligations like debt or other loans, any upcoming expense that you may foresee in the near future, funds for any potential emergency, any life stage planning like marriage or kids, availability of funds for making a down payment and the capacity to absorb the monthly Equated Monthly Instalments. A higher availability of funds for down payment will enable you to take a smaller loan leading to lower interest obligation on the home loan and maybe even a smaller tenure.

Your analysis of affordability will give you a good idea of the budget for your home. This will also tell you the monthly outflow of EMI you can afford. While a financial consultant can be of help, you can also visit the website of a home finance company which has tools like EMI calculators that make it easy for you to understand the your monthly obligation and the loan you can afford.

Financing partner

Once you have a fix on the affordability part, you can then proceed to look for a home finance partner who is technologically capable and who will handhold you through the loan process in a simple yet fast manner.

Credit profile

Even before that it is important to maintain a healthy financial portfolio as it will be evaluated by the lender before sanctioning and disbursing the loan. Some good habits you need to maintain a clean portfolio even before you starting looking for a loan include: ensuring that all your obligations and utility bills are paid well in time without any defaults, ensuring that there are no inward cheque bounces which figure in your bank statements, clearing off your existing loans to free up your EMI repayment capacity and ensuring that all your Know Your Customer (KYC) documents are anomaly free. This will ensure that you have a healthy credit score which helps in your eligibility for a loan.

To increase your eligibility another good option is to add co-applicants with an income as that can get considered by the lender which assessing your capacity to pay. This will help in increasing your eligibility.

Co-applicant

A male borrower could add a woman as joint owner/ owner of the property or co-applicant to the loan to avail of differential and lower rates on the home loan. A number of financial institutions offer beneficial rates for women. In addition, you should also explore various schemes run by the government like the Prime Minister Awas Yojana and benefit from the offers.

Last but not the least, it is also necessary that you research and understand the lender's funding norms so that the process goes smoothly and without hassles. Understanding the requirements and being informed makes the home buying experience easy and also helps avoid last minute disappointments.

The writer is chief operating officer, Art Housing Finance