Don’t borrow if you can’t repay: Easier EMIs

We list ways to get lower EMIs and spend less on your home loan – just follow our easy guide.

A wise adage goes, ‘Be comfortable in your bed only as far as your bed allows’. It applies to all areas of life – it address the issue of being thrifty and economical with money, advising you to spend only as much as you have and not more.

Nowhere is this adage truer than in the area of home loans. Many people are thrilled to take expensive loans that take away a chunk of their monthly income. Over time, this causes tremendous stress as you struggle to use your income for essential expenses. Other borrowers try to get home loans despite having low eligibility for the same. Overall, repaying monthly EMIs can become challenging if you don’t have sufficient means to do so.

Consider a few ways to reduce the monthly EMI outgo on your home loan:

* Clean up your credit history. Most people have several loans to their names already – personal, credit card, vehicle loans, to name just a few – before they apply for the home loan. The more unpaid liabilities there are to your name, the lower the chances of getting a home loan. More debt automatically reduces your credit score, and housing finance companies and banks view you as a ‘high risk candidate’. You will either not be granted a loan, or you will be given a loan at a higher rate of interest and at a shorter tenure. A higher rate of interest results in a higher EMI, which can strain your monthly budget. So before you apply for the housing loan, it is better to repay all debts or at least reduce them considerably. When your credit score improves, so does your home loan eligibility.[1]

* Calculate your home loan eligibility – and borrow less. On the subject of home loan eligibility, it is pertinent to note that your eligibility is determined by other factors as well. The home loan eligibility is computed basis your age, annual income, occupation, city of residence, existing debt, etc.[2] Your eligibility is higher if you have a good credit score, no history of loan defaults, and a regular income with the potential for an annual increment. Use a home loan calculator to find out the loan amount you are likely to get, and aim to borrow less than this amount. For instance, you may have loan eligibility of Rs 70 lakh, but if you have some savings and can get by with borrowing just Rs 50 lakh, then you should borrow less. The lesser you borrow, the lower will be the EMI you pay to the housing finance company. However, this also means that you must raise your personal contribution in the loan. The lender will tell you how much your LTV (Loan To Value) ratio is – it is normally not higher than 80% of the house’s cost. This means that the remaining 20% must come from your own resources.

* Check for low interest rates. The interest rate on the home loan is the most crucial factor – the higher the rate of interest, the higher is the monthly EMI. So when you look for suitable housing loans, you must aim to find those with lower interest rates. A quick search of loan aggregator sites can show you the best housing finance companies to deal with when looking for a loan. You can then approach the lending agency with your loan request, taking care to use their home loan calculator to find out your projected EMI spends.

* Invest in ongoing constructions. Most people who do not wish to take a housing loan at all make a beeline for ongoing constructions. This is because when the construction has recently commenced, you can pay incremental sums of money to the developer as each successive slab is completed. The payments are made every few months, so there is sufficient time between payments to save and pay when the time comes. You could consider doing this is if you have low home loan eligibility and do not wish to take an expensive loan.

* Follow the application process carefully. Once you have found the right house and the loan parameters are suitable, you can proceed to pay stamp duty and registration fees on the house. Meanwhile, take the list of home loan documents required by the housing finance company, to support the application you make. The usual list of home loan documents required includes personal proofs (age, current address and permanent residence proof), income proofs (salary slip, IT returns for at least two years, proof of any existing loans, etc.) and property proofs (registered sale agreement, house plans in case of loan against construction on land)[3]. Fill out the application form correctly – you can also do this online – and then submit the completed application form with the registered sale agreement to the housing finance company to move the application process forward. Once approved, the lending institution prepares the loan disbursal cheque and informs you when it is ready.

You must also get a schedule of all charges from the lender: application processing fees, property and legal evaluation fees, stamp duty on the loan agreement, pre-EMI fees, other incidental expenses, etc. Once the loan is disbursed, you can pay it to the seller and take possession of your new home.

Keywords: Home Loan, Home Loan Calulator, home loan documents required, home loan eligibility, home loan calculator