Securing a home loan is one of the most crucial parts of buying property. But it can also be one of the most misunderstood. Based on insights from a former banker, here are 10 essential rules to follow when applying for a home loan — to save money, reduce stress, and increase your chances of approval.
1. Know Your Credit Score Before the Bank Does
Lenders use your credit score to determine your creditworthiness. A score above 700 gives you access to better interest rates and terms. Before applying:
- Check your credit reports
- Dispute any errors
- Pay off small debts to improve your score
2. Don’t Max Out Your Loan Eligibility
Banks may approve you for a large loan, but that doesn’t mean you should take it. Keep your EMI (monthly installment) under 30-40% of your net income so you don’t stretch your finances thin.
3. Get Pre-Approved, Not Just Pre-Qualified
Pre-qualification is an estimate. Pre-approval means the lender has verified your documents and is willing to lend — it gives you stronger negotiating power with sellers.
4. Understand Fixed vs. Floating Interest Rates
Each has its pros and cons:
- Fixed rate: Predictable EMIs, but usually higher
- Floating rate: Lower rates initially, but may fluctuate
Choose based on market trends, how long you plan to stay, and your risk tolerance.
5. Keep Your Job Until the Loan Is Approved
Banks recheck your employment status just before final approval. Don’t switch jobs or careers during the loan process, as it may cause delays or denial.
6. Avoid Big Purchases During the Loan Process
Buying a car, appliances, or using your credit card heavily during this time can affect your credit utilization ratio — and potentially lower your credit score.
7. Compare Lenders, Not Just Interest Rates
Interest rates matter, but so do:
- Processing fees
- Prepayment penalties
- Flexibility on foreclosure
Ask for a loan amortization schedule to see the real long-term cost.
8. Keep a Buffer for Hidden Costs
Homeownership comes with extra costs like:
- Registration & legal fees
- Stamp duty
- Insurance
- Moving costs
A smart borrower keeps 10–15% extra funds ready.
9. Read the Fine Print Carefully
Don’t sign the loan agreement blindly. Look for:
- Lock-in periods
- Penal interest for missed payments
- Rules for switching rates or banks
Ask questions if something’s unclear.
10. Always Plan for Prepayment
Even if your EMI feels manageable, aim to prepay whenever possible — especially in the early years. It reduces the interest burden significantly and shortens your loan tenure.
Final Banker Tip: “The bank’s job is to give you a loan. Your job is to make sure it doesn’t become a burden.”
