Home Loan: The bank will approve as much as you want! Just make these 5 preparations.

If you want a better home loan on your terms, then prepare for it in advance, this is the power that can convince the bank to give a loan on your terms. Here know what things you should prepare for before applying for a loan. If you do this, then you will decide how much home loan you need, not the bank?

Buying your own house is like a dream for a common man because a huge amount has to be paid to fulfill it. Home loan is an excellent way to turn this dream into reality. But when you go to the bank for a home loan, the bank checks your eligibility on some parameters. These include your CIBIL score, income, age, job stability and most importantly, your ability to repay the loan.

Based on all these factors, the bank decides how much loan can be given to you and how much interest can be offered. But if you want the bank to approve the amount of loan you want, then you should complete your homework before applying. If you make 5 preparations before taking a home loan, then you will decide how much loan you need, not the bank.

1. CIBIL Score: The first step of your trust (CIBIL Score)

In the world of home loans, CIBIL score is your biggest identity card. It is a three-digit number (between 300-900) that shows your financial discipline and history of repaying loans. Banks consider it a measure of your credibility.

Why is it important

The better your CIBIL score, the more reliable customer you are in the eyes of the bank. A score of 750 or more is considered very good. A good score gives the bank confidence that you will pay the EMI on time.

How is it beneficial

A strong CIBIL score not only increases the guarantee of loan approval, but also gives you the power to negotiate on interest rates. Banks often offer better interest rates to such customers.

How to improve it

If your score is low, do not panic. Start paying your credit card dues and EMIs of other loans on time. Avoid applying for loans at multiple places at the same time. A few months of Disciplined Financial Behaviour can improve your score.

2. Debt-to-Income Ratio (DTI): Calculation of the ability to repay the loan

This is a very important factor which banks look at very seriously. Debt-to-Income Ratio tells how much percentage of your monthly income is going towards paying the EMI of existing loans (such as car loan, personal loan, credit card bill).

How is the calculation done

Its formula is very simple- (Total of all your existing monthly EMIs / Your total monthly income) * 100

For example

Suppose your monthly income is Rs 80,000. You have a car loan running whose EMI is Rs 10,000 and the credit card bill comes to Rs 5,000. So your total monthly EMI is Rs 15,000.

Your DTI ratio will be: (15,000 / 80,000) * 100 = 18.75%

What the bank wants: Banks generally prefer customers whose DTI ratio is not more than 40% including the proposed home loan EMI. The lower your DTI, the more confident the bank will be that you will be able to easily repay the new loan EMI and the higher amount the bank will be able to offer you.

What to do

If you have a small personal loan or consumer loan, try to repay it before applying for a home loan. This will improve your DTI ratio.

3. Down payment: The key to winning the trust of the bank

Down payment is the amount that you pay out of your pocket while buying a property. The rest of the amount is given by the bank as a loan. As per the rules, banks cannot give a loan of 100% of the property price. You have to make at least 10-20% down payment.

Benefits of high down payment

If you are prepared to make a down payment of more than 20%, then there are many benefits of it.

Trust of the bank: A high down payment reduces the risk of the bank. This makes the bank feel that you are financially strong and it easily approves your loan.

Less interest burden: When you make a high down payment, you have to take a lower loan amount. This makes your EMI smaller and you save lakhs of rupees in the form of interest over the entire loan period.

Better interest rate: Many times banks also offer better interest rates to customers who make a high down payment.

4. Do your homework: How to choose the most beneficial deal

Never apply for a home loan by going to the bank first. This can be your biggest mistake. A little research is very important to get the right deal.

Compare: Find out about the home loan offers of at least 4-5 banks and housing finance companies (HFCs). Compare not just the interest rate but also the following:

Processing fees: This can range from 0.5% to 1% of the loan amount.

Prepayment charges: Will there be any charges for prepaying the loan?

Other hidden charges: Such as legal fees, technical valuation fees, etc.

Negotiate: When you have quotations from other banks, you can negotiate for a better deal from your preferred bank. You can also ask for a reduced or waived processing fee by citing your good CIBIL score and strong financial profile.

5. Documentation: The secret to a hassle-free loan

The home loan process involves a lot of paperwork. If your documents are ready and organized, the process can be completed much faster and without any hassles.

Keep these documents ready with you

Proof of identity and address: PAN card, Aadhaar card, passport, voter ID.

Proof of income

For salaried persons: Salary slip of last 3-6 months, Form-16 of 2 years, Appointment letter.

For businessmen: Income tax returns (ITR) of last 3 years including computation of income, balance sheet and profit-loss statement (certified by CA), business registration certificate.

Bank statement: Bank statement of last 6-12 months showing your salary or income.

Property papers: Agreement to Sale of the property you are buying, copy of title deed and approved building plan.

Frequently Asked Questions (FAQs)

1. What is considered a good CIBIL score?

A CIBIL score of 750 or above is considered very good for home loans. This increases the chances of loan approval and can get better interest rates.

2. Can I get a home loan with a low CIBIL score?

Yes, some banks and NBFCs can offer loans even with low CIBIL scores, but they usually charge higher interest rates and have strict terms and conditions.

3. What should be the debt-to-income (DTI) ratio?

Banks usually want the total EMI of all your loans to not exceed 40% of your monthly income. The lower the DTI ratio, the better.

4. Is it necessary to file ITR for home loans?

Yes, especially if you are a businessman. For salaried people, Form-16 can be an option, but ITR is a strong proof of your financial stability.

5. How much down payment is best?

Legally 10-20% is required, but it is best if you make a down payment of more than 20%. This increases the trust of the bank and reduces your EMI.