A home loan is a financial solution to help you possess your dream home without exhausting your savings. The EMI (Equated Monthly Instalments) is the factor that decides whether you can afford a home loan. You must pay the EMI every month for a certain period to pay back the principal amount along with a fixed home loan interest rate. EMI’s are structured in a way that eases out the stress on your monthly budget. However, the interest rate varies from lender to lender. Some of the significant factors that affect your home loan interest rate are:
Loans with shorter tenure will always attract a lower interest rate. The EMI could be higher on short-term home loans, but the total interest rate reduces. Lenders give you the option of paying back your home loan over several years. However, it would be best if you always opted for the shortest possible tenure. When you choose a long-term payback plan, your EMI amount may be less, but the total home loan interest you will end up paying will be greater. Use a Home Loan EMI calculator to understand the best EMI and tenure for your home loan.
Type of Interest
You can choose from three options- fixed rate, floating rate, and fixed interest rate. Your home loan interest rate remains constant throughout the tenure at a fixed rate; with a floating rate, the interest rate changes based on changes by RBI (Reserve Bank of India). If there’s a hike in the interest rate in the latest RBI norms, then your EMI will be higher, and vice versa. Mixed interest rates start with a fixed rate and switch over to a floating interest rate after a certain period.
Credit Score & Credit History
Your credit score depends upon various factors such as repayment history, financial discipline, and habits, which determine your creditworthiness. Your credit score must be above 750. A lower credit score means a high credit risk which will cause lenders to charge a higher interest rate. Sometimes, lenders do not approve applications when the credit score is too low.
LTV is the percentage of the property value you wish to finance through the loan. If the ratio is higher, it attracts a higher interest rate since it becomes a higher credit risk. However, if you put down a more significant amount in down-payment and borrow a lesser quantum of loan, the home loan interest rate will reduce.
Applicants with a stable income source are considered low-risk, and thus, they can receive a home loan with a lower interest rate. These include salaried professionals, government employees, private sector employees, etc. Doctors and CA’s are also considered low-risk in the self-employed category. For those with an unstable income source, obtaining a loan at a lower interest rate is difficult.
When you apply for a home loan and a co-applicant, your chances of getting a good home loan with a lower interest rate increase. The co-applicant could be a spouse, or a stable earning member, which will add to the applicant’s creditworthiness.
Before applying for a home loan know the documents required for the same – there are two types of documents – Salaried Employees and Self Employed. Here we have mentioned the documents required for home loan –
|Salaried Employees||Self Employed/Professionals|
|Duly filled Application Form with Photograph||Duly filled Application Form with Photograph|
|Age Proof (PAN Card, Passport, Any other Certificate from Statutory Authority)||Age Proof (PAN Card, Passport, Any other Certificate from Statutory Authority)|
|Residence Proof (Passport, Driving License, Telephone Bill, Ration Card, Election Card, Any other Certificate from Statutory Authority)||Residence Proof (Passport, Driving License, Telephone Bill, Ration Card, Election Card, Any other Certificate from Statutory Authority)|
|Education Qualifications – Latest Degree||Education Qualifications – Latest Degree (for professionals)|
|Latest Salary-slips for 3 months||Certificate & Proof of business existence along with Business Profile|
|Form 16 for last 2 years||Last 3 years Income Tax returns (self and business) with Profit & Loss Account & Balance Sheets duly certified/audited by a Chartered Accountant|
|Last 6 months Bank Statements(salary account)||Last 12 months Bank Account Statements (self & business)|
|Processing Fee Cheque in favour of ‘PNB Housing Finance Ltd.’||Processing Fee Cheque in favour of ‘PNB Housing Finance Ltd.’|
|Photocopy of Title Documents of the Property, Approved Plan||Photocopy of Title Documents of the Property, Approved Plan etc.|