Check out the lowest home loan interest rates based on credit score and Buying a home is one of the most joyous events in anyone’s lifetime. It is one of the biggest items financially to check off the bucket list.
Where do you need the house? What do you need in a house? How much does it cost? Is it affordable? How much of my savings will go into it? How much will I need to furnish? All of these questions and more until we arrive at a very important question –
How much loan do I need for the house and will I be able to get it?
More often than not, people need to raise a loan to buy the house of their choice and need. Careful calculations are needed to arrive at a number that sounds reasonable for a loan.
Consider checking the following points –
- How much does the house cost in total?
- How much do I need to make it livable or furnish it?
- How much can I shell out of my savings?
- What is the remaining amount that I need to take a loan for?
- What should be the EMI that I am willing to pay comfortably every month?
- What should be the duration of the loan?
- Will I be able to pay that EMI in case of emergencies too?
- Is there a prepayment option available? If yes, do I have to pay any extra charge for that?
- What is my credit score and how can I make it better before applying for a loan?
- Which bank should I approach to get the lowest interest rate and offers?
After answering these questions, you should be able to arrive at a number that you are willing to borrow. Ideally, it should not be more than 80% of your total house value. It is also important to check your credit health before you approach banks for a loan.
You can easily obtain your credit report and check if your credit score needs improvement. Your credit score is a three-digit number that is a reflection of your creditworthiness. A score of 750 and above is great and shows great financial discipline on your account.
Let’s review how you can maintain a good credit score before we hop on to check the interest rates offered by banks based on the credit score –
How can I maintain a good credit score
- Pay your credit card bills timely
- Pay your EMI’s before they are due
- Keep your account clean of defaults and fraud
- Do not overutilize your paying capacity
- Keep financially disciplined accounts on your balance sheet
Now let’s take a look at how your credit score affects your ability to not only get a home loan from banks but also the interest rates that banks are willing to offer.
Below is a table that reflects the approximate home loan interest rates banks and financial institutions are willing to offer based on your credit score.
| Credit score and interest rate (%) on home loan | ||||
| Banks/Financial Institutions | >=800 | 800>=750 | 750>=550 | 550 and below |
| Bank Of Baroda | 6.85 | 6.85 | 6.95-8.20 | 7.2 |
| Punjab National Bank | 7.00-7.10 | 7.00-7.10 | 7.15-7.65 | NA |
| Bank of India | 6.85 | 7.00-7.15 | 7.15-7.75 | NA |
| Union Bank of India | 6.70-7.00 | 6.85-7.15 | 6.85-7.15 | 6.85-7.15 |
| ICICI bank | 8.1 | 8.15-8.5 | 8.4-8.8 | 8.55-8.80 |
| State Bank of India | 6.70-6.90 | 6.70-6.90 | 6.70-6.90 | 6.70-6.90 |
| PNB Housing Finance Limited | 8.25-8.35 | 8.30-8.55 | 8.90-10.60 | 10.65-10.85 |
| LIC Housing Finance | 8.05-8.50 | 8.05-8.50 | 8.05-9.15 | 8.05-9.15 |
Please note the actual rate offered by the bank is at their discretion. It depends on the amount of the loan and whether you are a salaried or self-employed individual. Some banks even offer better rates to women applicants.
For obtaining a home loan from HDFC bank, you need a minimum credit score of 720-750 and your current debt should not be more than 40% of your income. 2
It is pretty evident from the above table that credit score has a significant impact on the interest rate that banks and financial institutions are willing to offer on your home loan.
A small difference of 0.5% can also make a big difference to the overall payment made by you.
Conclusion
While looking for a housing loan, one should always look at all available options and then decide what works best. Sometimes the tenure of the loan becomes important because you are unable to pay a big EMI immediately.
The bank might levy a charge for prepayment. Whichever bank you go for, always remember you must always work towards making your credit score better. It is an important number and fact-based parameter that’s important to most lenders when they want to lend their money, especially huge amounts.
A good credit score also lets you bargain better for lower interest rates as the banks feel comfortable with your credit history and your ability to pay your dues in time in the future as well.
A well-planned approach toward your aspirations and financial needs can help you smoothly fulfill your dreams. Hope this article helped you understand the importance and relevance of credit scores when applying for a home loan.
