The real estate sector is one of the safest bets for investors. Irrespective of the external market conditions, the real estate sector has always delivered stellar returns over a long period. This is one of the key reasons why more and more individuals are investing in the real estate sector. 

This growing demand, in turn, has led to a steady increase in real estate prices over the years, with the result being that homes have become so expensive that it is nearly impossible for middle-class people to afford a home without a home loan. 

Home loans are loans sanctioned for buying a home or residential property. Home loans have end-use restrictions placed on them. Borrowers can only use the loan money to buy a home and for no other purpose. If you are planning to avail yourself of a home loan, here are a few key things that you must know. 

All the Things You Must Know About Home Loans 

1. The first thing you must know about home loans is that home loans are repaid through home loan EMIs or equated monthly instalments over a period decided by the home loan borrower. Loan applicants must always use the home loan calculator to decide the most perfect combination of the loan value and tenor for them so that their EMIs remain easy to repay. 

If you think your EMIs are unaffordable, either reduce the loan amount or increase the loan tenor. Doing this will allow you to keep EMIs economical and repay your loan amount without defaulting. 

Defaulting on a loan must be avoided at all costs as loan defaults not only increase the cost of borrowing money due to the application of late fees and other loan default charges but it also impacts a loan applicant’s ability to borrow money by negatively impacting their credit score. 

2. The home loan EMIs that one pays depends very majorly on the rate of interest that one gets on their home loan. Low housing loan interest rates help borrowers keep loan EMIs affordable and therefore, repay their loans comfortably. 

If you wish to avail yourself of low housing loan interest rates, maintain a CIBIL score in the range of 750 to 900. Further, maintaining job and income stability to convince your lender of your ability to avail of a home loan on the most beneficial loan terms and conditions, including low housing loan interest rates. 

3. Lenders sanction only up to 85% of the property’s loan as a home loan. The remaining amount, called the down payment, must be paid by the home loan borrower. The higher the down payment you pay, the lower your loan amount and therefore, lower your EMIs. When individuals pay a high down payment, the LTV ratio or the loan-to-value ratio automatically comes down, which reduces the risk for the lender. 

For low LTV ratio loans, lenders generally sanction home loans at low interest rates and for a long tenor that completely favours the loan borrower. If you are planning to apply for a home loan, make sure to save as high a down payment as possible and opt for a low LTV ratio loan.

4. Every lender has a strict set of requirements that borrowers must meet if they wish to be considered eligible for a home loan. If you do not meet your lender’s eligibility requirements, chances are you will not get approved for a home loan. 

Borrowers can also use the home loan eligibility calculator to calculate the exact loan amount they are eligible for and must apply for. Doing so makes it possible for loan borrowers to increase their chances of getting approved for a loan and avail of the loan on the most beneficial loan terms and conditions. 

5. Lastly, home loans come with home loan tax benefits. Individuals repaying a home loan can claim tax benefits on both the interest and principal component of their loans under Section 24b and Section 80C of the Income Tax Act. 

By claiming tax benefits under these sections, an individual can reduce their tax liability in any given financial year by up to almost Rs.3.5 Lakh. Further, first-time borrowers who meet the qualifying criteria can also claim tax benefits under Section 80EE and Section 80EEA.

Final Words

Home loans can make it much easier for people to realize their dream of homeownership. However, one must keep in mind that these loans are a commitment that lasts at least a few years. Therefore, these loans must be availed of only after careful financial planning and only when one is ready for such a huge financial commitment.