Buying a home is a big-ticket purchase and it may need a lot of funds. Some people use up all their savings to buy a house. In today’s world, people prefer to make a downpayment and take a home loan for the remaining amount. These loans run for a long term and thus need proper planning so that you don’t find it difficult to pay it on time later. 

Read on to gather some of the suggestions that shall help you to manage your expenses wisely and effectively for your home loan. 

Tips to Plan your Finances for Home Loan

Be vigilant of your credit score

Always remain proactive in knowing your latest and updated credit score.  If it is below 750, you should work on improving it before you apply for the home loan. You can check your free credit score with the help of various available online platforms and download your free credit report for a detailed self-analysis of your payment history. A healthy credit score is the basic eligibility criteria on which lenders consider your loan application for approval. Maintain your credit score at least 750 or above out of 900 to improve the chances of loan approval from leading financial institutions.

Prepare an investment plan in advance

It is always beneficial to prepare an investment plan that shall consist of details related to your monthly expenditure and income. Try to minimize your Debt-to-Income ratio by paying off all your credit card dues. You can also work on increasing your monthly payouts to reduce your existing debt. Lenders prefer borrowers with low debt-to-income ratio, as it increases the possibility of paying home loan EMIs timely.

Check your EMI affordability and maintain balanced FOIR

You should check your EMIs affordability while considering the loan repayment tenure. As home loans are of larger amounts, you should choose the longer repayment tenure to reduce the burden of loan EMIs. Every homebuyer should also check his/her FOIR (Fixed Obligation to Income Ratio), as it is one of the crucial factors in the loan approval process. An ideal FOIR that lenders prefer ranges from 50-60%, including your new home loan EMIs. The lower your FOIR is; the higher are the chances of loan approval.

Choose a home loan with the lowest cost to credit 

It is noteworthy that not all home loan options with low interest rates are the most cost-effective ones. Sometimes, loan options with the lowest interest rates carry high associated charges such as prepayment charges, processing fees, foreclosure fees, administrative charges, etc. In the long run, these charges may increase your overall cost to credit. It is advisable to consider these factors, calculate the cost of credit for all options, and choose the one that would bear the lowest cost. Explore all the available loan options offered by leading financial institutions to avail the best product, as per your requirements. You can check your preferred deals by using the home loan EMI calculator offered online by the respective bank, NBFC, Housing Finance Company (HFC), etc.

Opt for a Home Loan Balance Transfer (HLBT) option

During your home loan tenure, you can simultaneously check the interest rates offered by various other lenders. If you find that another lender is offering a home loan at the lower interest rate, you can opt for HLBT service and get your loan transferred to the new lender by paying some additional fees to the existing lender.

Co-borrow with spouse

Female borrowers are often offered comparatively lower or concessional interest rates. It has become common nowadays for homebuyers to co-borrow with their spouse to avail lower interest rates. You can also co-borrow your home loan with your spouse to avail additional tax benefits and additional benefits. 

Pay higher downpayment

Usually, most of the banks offer loans with Loan-to-Value (LTV) ratio ranging from 75% – 90% of the property’s total cost. This ratio largely depends upon your credit score and net monthly income. Therefore, if you plan to pay more in the form of downpayment, then you would have to borrow a lesser amount. Higher downpayment shall also help in lowering your home loan EMIs.

Key Recommendations:

Check and compare all the available loan options to avail loans with the lowest cost to credit, as well as read all the terms and conditions thoroughly before signing any loan document. To remain credit healthy, keep a regular check on your credit score and try to improve it to the maximum. Also, look out for errors in your credit report to resolve them at the earliest, so that your credit score does not fall. 

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