Buying your home is a big investment and requires good amount of financial planning before making the commitment. It is not possible for most of us to buy a home out of our pocket and it isn't a wise decision either.
When buying a home, you should always prefer taking a home loan to make the payments instead of paying money upfront. There are several advantages of taking a home loan instead of paying by cash, which are mentioned below:
Tax Benefits – You can claim deductions on the interest of your home loan under Section 24 of Income Tax Act, 1961 and deductions on principal repayments under Section 80C of Income Tax Act, 1961.
No Funds Lock In – If you pay for your home with your savings, you will end up locking in a huge amount. Instead, you can invest that surplus money in other investments and earn interest on the same, while buying your home by availing a home loan.
Improve your Creditworthiness – A Home loan is a long term commitment for any individual. So, timely repayment of your home loan EMIs will help you with your credit history and leave a positive effect on your credit score. As a result, it will be easier for you to get approvals on future loan and credit card applications.
Factors to consider when choosing the perfect home loan:
- Loan Disbursal Time: The time for home loan disbursal varies from one bank to another, usually a lender takes anywhere around 10-15 days for loan processing and disbursal. Choose a home loan provider which takes lesser time and does not cause unnecessary delays in home loan processing.
- Loan Eligibility: Home loan eligibility criteria vary from one lender to another. The usual eligibility of an individual is determined by his age, income, work profile and stability, credit history, etc. It is best to check the eligibility using home loan eligibility calculator to be sure whether you are eligible for the loan or not.
- Rate of Interest - Fixed or Floating: Some home loan providers charge fixed and some floating rate of interest on home loans. Fixed interest rates are considered ideal for shorter tenure loans and floating for longer tenure loans. Some lenders even offer hybrid home loans in which the borrower can enjoy the benefit of both fixed and floating interest rates.
- Hidden Charges: Loan providers levy a number of additional charges, such as the processing fee, prepayment or foreclosure charge, etc. It is best to read the fine print before making the final choice so that you do not end up feeling pick-pocketed when such charges are levied.
- Terms and Conditions associated with the home loan: List of terms and conditions pertaining to repayment, prepayment, loan transfer, and many other things related to the home loan should also be taken into account while choosing a home loan.