6 Strategies for First-time Borrowers to Get an Affordable Home Loan

Home Loan Planning Strategies For First Time Borrowers

The Reserve Bank of India has retained the repo rate at 6.50% as of November 2023. The Central Bank is also unlikely to change the repo rate in the near future. This is good news for first-time borrowers since home loan interest rates have a direct relationship with the repo rate.

However, the prevailing interest rates aren’t the only factor to consider if you are taking a home loan for the first time. Ensure you keep other factors in mind to keep the cost of borrowing low and avoid any strain during repayment.

Read on to learn some top strategies to secure the best home loan as per your requirements and finances.

1. Maintain a Good Credit Score

When availing of a home loan, one of the crucial factors that you must look into is your credit score. Lenders generally consider a score of 750 or above as ideal for a home loan.

A good credit score allows you to get lower interest rates on home loans, thus bringing down your cost of borrowing. This is due to the fact that it reflects responsible repayment behaviour, making you a preferred borrower.

2. Check Your Affordability

First-time home buyer or not, you must always check your potential Equated Monthly Instalment (EMI) when choosing a housing loan. You can use a home loan EMI calculator to check if the monthly repayment amount aligns with your repayment capacity. When you borrow according to this, you can repay comfortably.

Financial institutions generally consider you a good borrower if your Financial Obligations to Income ratio (FOIR) is 50-60%. So, if your income is ₹1 Lakh, aim to keep all your fixed obligations, including EMIs, under ₹60,000.

3. Compare Top Lenders

The interest rates, loan-to-value (LTV) ratio, tenures, and risk-assessment strategy can vary depending on the lender you choose. Hence, it is crucial to compare their offers. In addition, you must check various charges that lenders levy, as they also greatly impact your borrowing costs.

Another tactic you can try is to apply for a home loan with the lender with whom you have an account. Banks and NBFCs generally offer lower interest rates to customers who have prior relationships with them.

4. Make a Higher Down Payment

You can get a loan-to-value (LTV) ratio between 75% and 90% on home loans. You must finance the rest of the amount yourself, which is called the down payment. As a first-time home buyer, you can improve your chances of getting a loan by making a higher down payment. Doing so will also help reduce the interest amount that you will have to pay to service the loan.

5. Opt for a Co-Applicant

It may be challenging for you to get a home loan if your credit score or income is low. However, you can compensate for that by opting for a joint loan with your spouse because lenders consider both applicants’ credit scores and eligibility in case of joint applications.

In addition, remember that banks may offer lower interest rates to female borrowers. So, if you are a woman applicant or can apply with your spouse, you can factor this in.

6. Choose a Longer Tenure

As mentioned earlier, you must assess if your obligations align with your repayment capacity. If the EMI amount exceeds the proposed FOIR, you can opt for a longer tenure to spread out the loan amount and enjoy lower monthly outgo.

You must also know that longer tenures will attract higher interest charges. However, as per the RBI directives, home loans do not attract prepayment charges. Hence, you can clear your dues when you have excess cash and save on interest.

Home loans are a huge financial commitment as they involve larger loan amounts and tenures extending up to 20 or 30 years. So, when selecting a home loan, ensuring that it aligns with your budget is essential.

On the Bajaj Markets App, you can easily browse and compare different housing loan options. Once you have selected the ideal one, apply easily following a simple digital application process. Get started now!