Top Tips for First-Time Homebuyers Applying for a Loan

The process of purchasing a house & obtaining a home loan can be a laborious and draining experience for home buyers

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Many first-time buyers choose to get a home loan to fund this big purchase. However, it is easy to get overwhelmed by the many aspects which require your attention while buying a house.

Apart from evaluating the property for its location, reputation of the builder, cost, and amenities, you need to prepare for the home loan process. Some important information and a few useful tips can go a long way to help you get a home loan.

You also benefit from getting everything set for a smooth transition to a first-time homeowner. Here are a few tips that'll go a long way if you're planning to fund your housing dreams with a home loan:

Top Tips to Guide First-Time Home Owners Applying for Loans

Considering that it isn’t an easy undertaking, these tips will help make sure you get a home loan at the best possible terms.

Take Account of Your Financial Health

Before even starting the process of looking at properties, you should evaluate your financial position. Consult your long-term financial plan and investment portfolio to estimate your income, savings, assets and existing debts.

Make sure to account for monthly EMI payments for the tenure of your loan, typically spanning 20 to 30 years. This will help you pick a property which suits your budget. The loan amount and tenure can be decided based on this calculation.

Organise Funds for Down Payment

Lenders do not disburse home loans for the full value of the property you are buying. The concept of LTV or loan-to-value is applied. Here, you get a home loan for a specified percentage of the property value.

Once you apply, lenders calculate the LTV for your home loan as given below:

1. Loans up to ₹30 Lakhs – 90%

2. Loans between ₹30 Lakhs to ₹75 Lakhs – 80%

3. Loans higher than ₹75 Lakhs – 75%

This means that if you apply for ₹80 Lakhs, you may get a home loan of up to ₹60 Lakhs. You will need to pay the remaining ₹20 Lakhs as a down payment from your personal funds. Make sure you can arrange for this before applying for a loan.

Estimate Costs Involved

Purchasing a house or property requires you to spend on more than just the buying price. You have to account for major charges and fees. A notable few are:

● Stamp duty – typically 5% - 10% of the property’s market value

● Registration fees – 1% of the property value and GST, applicable as per the slabs.

Keep in mind that no GST is applicable for completed properties having a construction certificate and for resale of properties.

Calculate Your Eligibility Using a Housing Loan Calculator

A housing loan calculator is a great tool which helps determine your eligibility for a loan based on your income and age. You can use this to estimate the monthly loan installments you will incur for the tenure of the home loan.

Choose Lender-Approved Projects and Properties

Each lender has a list of projects that are already assessed based on their lending guidelines. These are usually a result of tie-ups with highly-rated builders and contractors. If you choose a property that is on this list, the application and approval process becomes easier.

Explore the Benefits Available to Female Borrowers 

Women are eligible to get a concession of 0.05% to 0.1% on home loan interest rates. Many lenders also provide longer tenures and higher loan amounts to encourage women to avail home loans.

Check for a Pre-Approved Home Loan

Some lenders will evaluate your documents and issue a sanction letter for an amount they find you eligible to borrow. This is valid for six months and you have to apply for a pre-approved loan during this period.

This helps you plan a budget in advance and it makes the process much smoother. 

Tax Benefits of Home Loans for First-Time Homeowners

While home loans are very helpful for first-time buyers, it is important to consider all aspects of the instrument. From the POV of taxation, this loan is a great option as it has a few benefits.

Here’s a look at the tax benefits you can enjoy while availing a home loan:

● Under Section 80(c): You can get an annual tax deduction of up to ₹1.5 Lakhs for the principal repayment portion of your home loan.

● Under Section 24(b): You can claim a maximum annual deduction of  ₹2 Lakhs on the interest paid on your home loan.

The Pradhan Mantri Awas Yojana Scheme (PMAY)

If lack of funding is holding you back from buying a house, you can opt to get a home loan under government schemes. Check if you qualify under the PMAY scheme, which makes you eligible for interest subsidy on loans to buy or construct a new house.

PMAY was established to promote affordable housing to those in the annual income bracket of up to ₹18 Lakhs. This is available only on the purchase of your first residential property. Details are as follows:

The Pradhan Mantri Awas Yojana Scheme (PMAY)

Buying a house means that you are taking on a huge financial responsibility. To make sure you get a home loan at the best terms, start by building a commendable credit profile. To save on interest in the long term, plan to prepay your loan often, and every few years.

Finally, make sure to research all your offers and be informed of your options. This way, you can negotiate for the best deal, and become a proud new homeowner in no time.