Forum

Below are some points that you must consider before taking a home loan: 1. Know you loan eligibility: The loan amount to be sanctioned depends a lot upon previous record of repayment of loans and credit card dues and also upon your income. How much money you can spare to pay the installment from your stated income? Before taking loan, you must be give a good thought to the installment that you are willing to give out each month. Generally a loan up to 80% of the total cost of the property is approved by banks, but that is not sacrosanct. 2. Check your credit score: Check your CIBIL™ score. The CIBIL™ Score is in the range of between 300 and 900 points. The score is evaluated on the basis of your credit card bill payment history, existing loans or liabilities, loan repayments and how many times you have applied for loan till date. If you are paying the processing fee to at least three to four banks to know your maximum limit, then you are considered 'credit hungry' in the eyes of CIBIL™ and your chances of getting the loan reduces. 3. Choose your lender: Do a thorough research to find a suitable lender such as a bank or financing company for your home loan. Take the guidance of experts so you are able to make the best decision. 4. Type of interest rate: There are two types of interest rates on loans - one is fixed rate and other is floating rate. In home loans with fixed rate of interest, the amount of each installment do not change throughout the duration of repayment, while in the home loans with floating rate of interest it changes along with the change in interest rate. It is wiser to have home loan with floating rate if the interest rates are expected to go down in near future. 5. Tenure of loan: The longer the tenure for the loan, the smaller will be the EMI amount, and vice-a-versa. So weigh all options before you take a final decision. 6. Know about extra charges that need to be paid: Get the complete information about all the extra charges that you will have to pay to take a home loan like processing fee, service and administrative fee, etc. These charges are included in the loan amount that is actually sanctioned to you. 7. Read the document of agreement: Read the complete loan agreement carefully before signing it. They can be quite a handful to read, but take your time and read every word carefully to ensure that all the terms and conditions are the same as what you agreed upon."

but there are a few conditions to it. The specifics of the amount, interest rate, varies from lender to lender.

because a Home Loan fundamentally is a debt/liability and once you take it, you give banks a ""Standing Instruction"" to debit a certain amount (your EMI) monthly on a specific date. Also, on the date of EMI payment, these Standing Instructions are issued only on your Savings or Current account & not on your Credit Cards. Also, because the credit card in itself provides you with a sort of a loan and you must not pay one loan with another one because this won’t literally reduce any of your overall liability but instead will further increase it. Try to reduce your debt always for a better and more secured financial life!"

Most of the banks approve a loan for 80% of the property value. However, the exact loan amount depends on the borrower’s eligibility for the home loan. To be eligible to take a home loan, you must have a good credit history. A poor credit history will lead to a poor credit score and a low credit score or a credit fraud can lead to the rejection of the home loan application. Therefore, credit scores, credit history and credit activity have a huge effect on home loan approvals. In addition to higher credit score requirements, several missed payments, frequent lateness, and other derogatory credit information can also lead to rejection of the home loan application. Make payments for your bills on time regularly, lower your credit utilization, and keep your credit report in healthy shape. Cleaning up your credit history beforehand and fixing errors on your credit report are key to keeping up a good credit score. Also, stability of job is crucial. Do not change your job if you have applied for a home loan. Any changes to your employment or income status can also lead to rejection of your application or delay process. Lastly, you have to find out the best home loan deal for you. Approaching numerous banks and comparing their interest rates can be a very cumbersome process.

There are basically three types of insurances that a bank might insist upon - term insurance on life of the borrower, insurance of property against damage, etc. and insurance of loan amount against credit risk. But, none of them is compulsory and it is completely the borrower’s choice. In practice, there are a few lenders who might make their loan sanction conditional upon availing any one or more of the above insurances. In that case, the borrower is absolutely free to either accept the loan sanction, or reject it or negotiate with the lender.

"1. All the PSU Banks, Private Banks as well as Housing Finance NBFCs like LICHFL, CanFin Homes etc. extend Home Loans. The Terms and Conditions are naturally bound to vary from Bank to Bank and from case to case, but the variations will be only minimal and not very significant as to make any huge difference. It is always preferable to approach the Bank with which you have a long standing relationship, like maintaining salary or corporate accounts, substantial personal or family deposits, and even availment and repayment of earlier loans.The bankers, as a rule, are risk averse, and would prefer to sanction loans to known persons with a good track record rather than to a totally unknown person, and it is here that your earlier/longer association with the Bank will facilitate the positive and prompt processing of your loan requirement. 2. Your eligibility for the loan will be determined by your satisfactory compliance with the statutory KYC norms of the Banks, your financial status and repayment capacity. Within this, the banks will consider the quantum of the loan as the least imporant as compared with the following three criteria: a. FOUR Times of your Annual Income, based on the average of Last Three years Income Tax Returns or Audited Balance Sheets. If necessary, you can add some very close relative (Father, Mother, Spouse, Son or Daughter) as a joint borrower, so that the joint incomes of both can be considered for the purpose of this calculation. b. 80 to 85% of the registered value of the property proposed to be acquired. The balance 15 to 20% will be considered your margin, and has to be borne by you. c. This is by far the most difficult and complicated criteria, which most of the people may find some what difficult. The EMI (Equated Monthly Instalment) should not exceed 30 to 35 % of the Net Monthly Income/ Cash Flow. This again can be managed to some extent by (1) the combined monthly income of the joint borrowers, and (2) opting for a longer repayment schedule to reduce the amount of EMI. Now, based on the above, let us see what is needed to have a home loan of INR One Crore: (a) A Minimum Average Annual Income of INR 25,00,000 (b) The property to be acquired must have a minimum Registered value (cost/price) of INR 1,25,00,000 (the margin taken as 20%) and most importantly, (c) The EMI should not exceed 35 % of the Net Monthly Income. So, for a 15 years repayment, the EMI for INR One crore will work out to about INR 92,000.So the minimum monthly income of the borrower(s) should not be less than INR 2.60 Lakhs. So, now you have a fair idea about the value of the property you would prefer to purchase, and the quantum of the loan amount you will be eligible for. Further, the bank will insist on the following Documents for considering the loan: 1.Title Verification and Legal Opinion from the Bank's APPROVED Advocate, regarding the correctness of the Title to the property, and compliance with other statutory requirements like Plan Approval, Building Permit etc. 2.Valuation Report from the Bank's APPROVED Architect, as to the correctness of the building plan and the value of the property. 3.The property acquired out of the bank's loan needs to be mortgaged to the bank during the currency of the loan. Over and above these, the banks may, and usually do, insist on Surety/Guarantee of a third party of adequate means. Although this appears to be somewhat tedious, in reality, all these can be completed smoothly, if the required documents are in good order. While availing the loan, insist on Fixed Rate of Interest rather than Floating Rate ( but, Banks generally do not entertain this). It is generally better to go in for a 15 years repayment period to minimize the stipulated EMI, as you can always pay more than the EMI, which will reduce your loan period as well as interest burden. If you choose, you can even pre-close / pre-pay your loan with nil to nominal pre-payment charges. This is only a practical guide to the technical aspects of getting Home Loans from banks in India.The terms may vary from bank to bank. Rate Of Interest: Differs from bank to bank, and also according to the quantum of the loan and the repayment period. Anyway the rates are likely to be in the 9% to 11% band. Period Of Loan: Better to go in for 15 years tenure. You can always pay more or even pre-close the loan at a later date if you so choose. The Banks charge interest on a reducing balance basis only, and you will be paying interest only on the outstanding amount on any day.This may not reduce your EMI, if you pay more, but will certainly reduce your loan repayment period and the total interest outgo."

After the payment of your part principal, you can opt to reduce the number of EMIs or the installment amount. By default, the number of EMIs get reduced and your last installment date is notified.

Applying for a home loan without proper research can lead to rejection of your application and may negatievly impact your credit score as well. 1) Keep your credit report clean: The first thing a lender looks at before start evaluation of your application is your credit report. Therefore, it is better to make all the payments for all the dues that you have and start improving your credit score. 2) Pay off existing debts: Pay off any kind of existing debts that you might have as multiple loans may impact your loan eligibility. 3) Stability of office and residence: Lenders verify your job and stability to avoid any risks of fraud or desertions during the repayment period. 4) Banking habits: Most lenders also seek your bank account statements to see how your previous repayment record have been, before approving a loan.

" Therefore, banks are basically traders of money. Banks look to lend money only to those who they feel have the capacity and have demonstrated the habit of repaying on time. Therefore, your credit score which is based on your previous credit record is an indicator of your repayment habit. Whether you are applying for a secured or an unsecured loan, this factor can never really be ignored. And yes, it will be extremely tough to get unsecured loans for some years (credit cards, personal loans etc.) if there is a history of poor repayment behaviour. Your credit score can be ignored to some extent in case of a secured loan where banks get some mortgage as security for the loan. This deviation will vary on a case to case to basis. If the discrepancy in you report was small, such as a small delay in payment, then the major ""A"" class bank or non-banking financial companies might consider your case. But if the discrepancy is big and payments for earlier loans were defaulted for a long time, or later settled intentionally, then chances of getting loans from a good bank will diminish rapidly. But, there may still be some banks and non-banking financial companies which may consider your case favourably. Chances becomes thinner if you have still not repaid them and repayments to your previous banks still show as pending and overdue in your CIBIL™ report. In such cases it gets almost impossible to get new loans.

A person with a good credit score will take a different approach as compared to a person with poor credit or no credit history. There are a few things that everyone follow in order to avoid degrading their score. They are as follows: 1. Absolutely mo late payments - Pay all your dues and bills in time. Your credit history counts for a major section (approx. 35%) of your credit score. Being a day or two late on a payment won't harm your credit score (making the payment 30 days late is likely to impact your score), but that can inflict late-fee and may increase your interest rate. 2. Manage your credit utilization - Aim to pay all your bills completely every month, but make sure to keep the outstanding amounts low. Credit utilization holds another major part of your credit score evaluation. It has approx. 30% share of your credit score, the amount of credit you carry compared, as a percentage, to the size of the credit line. You must keep your usage below 30% of the credit line, to protect your score. Of course, it's best to pay in full each month, to save on interest costs. 3. Keep older accounts open - The duration of positive payment history counts for about 15% of your score. The longer the time you maintain the accounts in good standing, the better your score will be. It shows that you have the ability to commit to a creditor for a long term and are responsible about clearing your dues in time. 4. Keep a mix of accounts - The variety of credit accounts sums for about 10% of your credit score. Maintaining different types of credits, such as credit cards, consumer loans, and secured debt (auto or home loan), inflicts a positive impact on your credit score. Having too much of one type of credit can have a negative impact. 5. Do not open a number of accounts all at once - The number of new credit accounts you have applied for recently adds upto about 10% of your credit score. Trying to obtain a large number of new credits in a very brief period of time shows that you could be a potential credit risk, as you are desperately trying for a huge new credit and could potentially run into problems. 6. Use your credit intelligently - Shopping around is the most intelligent way to get the best possible deal for a home, auto, or loan. Each time you enquire about these loans when applying for new credit, it is reported to the credit bureaus and will appear on your report. Too many such enquiries could have a negative impact on your credit score. 7. Review your credit report regularly - Avoid having your credit harmed by inaccurate information; review your credit report on a recurring basis.

How the credit score is calculated is a very difficult question to answer as this is computed using a propreitory algorithm and technology, and no one is sure about how it is precisely calculated. But a lot of things go into evaluation of the credit score such as: 35% - Payment History 30% - Amounts Owed on Credit Cards 15% - Length of Credit History 10% - New Credit 10% - Variety of Credit The percentages provided above are purely indicative, and are based upon experience of reviewing numerous credit reports. Payment History - basically means whether or not you have made the payments on time in past. One 30-day late payment will drop a borrower’s credit score 20-30 points, and it typically takes 6-9 months of on-time payments after that late payment to make up for what was lost. Amounts Owed on Credit Cards refers to the current balance reporting on a credit card. If that balance is over 50% of the cards limit, the borrowers score will be lower. The reason for this is that the credit bureaus have determined a greater likelihood of default occurring when balances are over that threshold. For what duration a borrower has used debt is calculated with Length of Credit History. The longer the duration for which the accounts are open, with on-time payments, and low balances (for credit cards), the better. New Credit initially lowers the credit score. However, that score decrease should be negated after making the first payment on time. The Credit Bureaus also like to see a good Variety of Credit on a credit report. A report with only installment loans will show the Bureaus that a borrower can maintain a positive payment history when the payments each month don’t change, but they don’t know how they would be with a credit card, that may change it’s payment from one month to the next.

Therefore it is very important to know the factors that impact it. Credit scores are affected by the factors listed below: 1) Repayment history - All bills and loan repayment should have been repaid within the contractual dates stipulated. Even a single default can have a negative impact on the score. 2) Credit utilization - The credit utilization ratio is basically calculated on the balance outstanding on all your credit cards as a percentage of all your credit card’s limits. 3) Length of your credit history - Longer the time you have been servicing credit, the more it has a positive impact on your credit score. 4)New Credit - Every time you apply for a new credit, the banks run an enquiry on your credit report. If there are too many enquires it may have a negative impact on your credit score. 5)Mix of credit - There should be a healthy mix of credit – unsecured & secured loans, personal, mortgage loans etc.

The most commonly used credit score is that of CIBIL™, but there are others as well such as Equifax and Experian. Also, in addition to this the individual issuers and lenders also calculate an internal credit application score that takes into account the credit bureau score.Most credit scores consider a few main factors:payment history (how many late payments, etc.), amounts outstanding (your credit card balances, size of mortgage, etc.),length of credit history (how long your various credit lines have been open),recent credit inquiries / activity, and kinds of credit used (credit card, student loan, auto loan, mortgage, etc.).Generally credit scores below 650 are considered ""sub-prime"", and scores above 750 are considered good.

This is on the assumption that your present record of credit history is normal and does not have any negative pointers. This won't be applicable if you've been a defaulter before; such cases could take quite a while longer to recuperate. Situation: You have 1 or 2 loans that you've taken and repaid before without any bother and now you are planning on raising your credit score to the 800+ levels before you take that next huge loan. 1. Have 2 credit cards; nothing additional and nothing less. 2. Verify that the free credit period (credit cycle) for one card closes towards the end of one month from now and the other one has a credit cycle inverse to your first card. i.e., your 1st card’s payment due should be between the 1st to 10th of a month and for the 2nd it should be around the 25th to 30th of the month. 3. Pay off all the required debts before due date at any expense. 4. Use just around 40-50% of your credit limit for every card consistently. In the event that you use the full 100%, it might adversely affect your score. 5. Continue paying off your credit dues in little sums every 5th or 6th day after you get your monthly statement; don't sit tight for the last day to pay the complete sum. 6. Try not to break the cardinal rule of purchasing stuff with credit card that you can't manage.

Utilize it to less than 20% of the credit limit every month and pay it back within the due date. Call the bank every 6-12 months asking them to increase your credit limit. Keep on repeating it. Do not ever close that account. To build your credit score you don't need any debt, you just need a regular payment history, regular low balances on your credit card and length of credit history. Later on, when you avail of different kinds of loans like a car or a home loan, they will help in improving your credit. But to start you need at least 1 credit card, because the credit score is based mostly on this credit card.

If you are using more than 30% of your credit limit, your credit score starts suffering and gets lowered. Usage of less than 30%, with regular payments and limited transactions will lead to a decent credit score. Utilizing more than the authorized credit limit will signify that you are credit hungry and is likely to have a negative impact on your credit score.

Once you make the pending payment, the credit scoring organizations will have the capacity to change the reported status from 'past due' to 'closed' since you would have paid off the loan in full. How much the score will increase depends upon a number of factors and how low your credit score currently is. You will not all of a sudden observe that you have a credit score of 800 as soon as you pay-off past overdue debt. The main reason for this is because your credit report payment history will continue to reflect that your account remained unpaid for a certain period of time, and you need to demonstrate consistent repayment behaviour over a sustained period of time before your credit score can improve. The reporting of your collection status can stay on your report for 7-10 years. They will influence your credit score less and less over the long haul. Increasing your score requires time and watchfulness, however it is conceivable. Keep in mind the most important elements influencing your credit score are making timely repayments on contractual obligations that are reported to the credit bureau on a month on month basis, restricting the usage of total revolving credit to around 30% or less, and keeping things from being sent to a collection agency for follow-up, as a result of missing repayments.

It requires a significant amount of time and steady commitments to work on building your credit score. While there is no mathematical formula to improve your credit score, it could typically take at least 6 months of consistent repayment before your credit score can improve. Before your credit score can improve you must ensure that there is no negative status reporting in your reporting. If negative status reporting continues to exist in your report, good credit behaviour may not fully contribute to credit score improvement. It is important to first clean-up your credit report before working on improving your credit score. Be prepared to be patient - it could take at least 6 months for you to grow/re-build your credit score.

An EMI has 2 components in every instalment - Principal (P) and Interest (I). Since the EMI is fixed, each instalment has a certain principal component and a certain interest component. Interest is computed based on the outstanding principal. Early in the tenor of a loan, the principal outstanding in the highest, and hence the interest component of each instalment is high. As the tenor progresses, the interest component reduces, as the principal outstanding becomes lower. P + I is constant in eah EMI. Early in the loan the "I" component is the highest (on account of the loan principal being the highest) and as the loan progresses the "I" component becomes lower and the "P" component of each EMI increases.

If you have taken a loan of INR 6,00,000 and you paid your EMI’s regularly for five years, and the remaining balance is INR 2,00,000, and if you now want to pay the complete balance in one go, then Interest will be calculated on the remaining INR 2,00,000, from the date when the last interest was paid. Therefore, the interest component in each instalment will keep decreasing. If the last interest was calculated on 31 Sept, 2014 and you want to prepay on 14 Jan, 2015, then the interest will be calculated for the remaining balance, up to 14th Jan, from 31st Sept.. In addition, there could be pre-closure charges as well.

Therefore, by definition, the EMI can never exceed the credit card limit.