home loan finance

Home loan finance strategies for first-time homebuyers

July 13, 2023 . Home loans . 10 min read

A home loan is a financial product that enables individuals to borrow funds from banks or financial institutions for the purpose of purchasing or constructing a house. For first-time homebuyers in India, home loan finance provide several advantages, including:

  • Making homeownership achievable by allowing gradual repayment instead of an upfront full payment.
  • Offering tax benefits on the interest and principal amounts of the loan, as per provisions in the Income Tax Act.
  • Facilitating the establishment and improvement of credit scores and history through timely and regular loan repayments.
  • Providing flexible repayment options and interest rates tailored to individual income, eligibility, and preferences.

The current state of the home loan finance market in India and how it is growing rapidly

In the fiscal year 2021-22, the market grew by 12.1% to reach ₹22.4 lakh crore. The growth of the Indian home loan market is expected to continue in the coming years. The market is estimated to reach ₹48 lakh crore by the fiscal year 2026-27.

This growth is being driven by a number of factors, including:

  • Rising incomes: The average Indian household income has been rising steadily in recent years. This has given more people the financial resources to purchase a home.
  • Falling interest rates: Interest rates on home loans have been falling in recent years. This has made it more affordable for people to borrow money to buy a home.
  • Government support: The government has been providing a number of initiatives to support the housing sector.

How to choose the right home loan finance product

Buying a home is one of the most important decisions in life. It involves a huge investment and a long-term commitment. Therefore, choosing the right home loan product is crucial for first-time home buyers in India. There are mainly three types of home loans available to you and some of them are described below:

Fixed rate home loan:

  • This loan has a constant interest rate throughout the loan tenure.
  • Borrowers pay the same EMI every month, regardless of market fluctuations.
  • Provides stability and certainty to borrowers.
  • Disadvantage: Often has a higher interest rate than floating rate loans and doesn’t benefit from market rate reductions.

Floating rate home loan:

  • This loan has an interest rate that fluctuates with market conditions.
  • Borrowers’ EMI may increase or decrease based on market rate changes.
  • Generally, has a lower interest rate than fixed rate loans and benefits from market rate reductions.
  • Disadvantage: Exposes borrowers to market volatility and uncertainty.

How to choose the right home loan finance product for first-time home buyers in India?

The choice of the right home loan product depends on various factors such as:

  • The borrower’s income and repayment capacity.
  • The borrower’s risk appetite and preference for stability or flexibility.
  • The borrower’s expectation of future market trends and interest rates.
  • The borrower’s tenure and purpose of buying a home

Other things to consider when getting a home loan finance as a first-time home buyer

  • Conduct a thorough comparison of home loan products from different lenders, taking into account interest rates, fees, tenure, and eligibility criteria.
  • Utilize online tools like EMI calculators, comparison websites, and reviews to aid in comparing various home loan options.
  • Carefully read and understand the terms and conditions outlined in the loan agreement, paying attention to fine print details.
  • Engage in negotiation with the lender to potentially secure better terms and discounts.
  • If necessary, seek guidance from a financial planner or mortgage broker to gain professional advice tailored to your specific situation.

Tips on how to compare interest rates, fees, tenure, and eligibility when applying for a home loan finance

When considering home loan finance as a first-time home buyer in India, it’s crucial to compare various factors:

  • Interest rates: Compare rates offered by different lenders to find the most suitable option for your budget and repayment capacity.
  • Fees: Compare fees charged by lenders, such as processing fees, documentation fees, stamp duty, and registration fees, to minimize costs.
  • Tenure: Assess the duration of loan repayment, considering shorter tenures for quicker debt repayment or longer tenures for reduced monthly installments.
  • Eligibility: Examine criteria like age, income, employment status, credit score, and property value to determine lenders whose eligibility requirements align with your situation.

By considering these factors and conducting thorough research, you can make an informed decision when selecting a home loan that best fits your financial needs and goals.

How to improve your home loan eligibility and affordability

To enhance your eligibility and affordability for a home loan, understanding how lenders assess your application is crucial. Lenders consider three key factors: income, credit score, and debt-to-income ratio.

  • Income: Your income includes earnings from your occupation and other sources, demonstrating your repayment capability. A higher income increases your chances of qualifying for a larger loan amount and a lower interest rate.
  • Credit score: A numerical representation of your credit history and borrowing behavior, your credit score reflects your financial responsibility. A higher credit score improves your eligibility for better loan terms and a lower interest rate.
  • Debt-to-income ratio: This ratio indicates the percentage of your monthly income allocated to existing debts like credit cards, car loans, or student loans. A lower ratio shows more disposable income for loan payments, improving your eligibility for a loan that fits your budget without straining finances.

Additional tips:

  • Consider strategies from reputable sources like financial experts and trusted websites to enhance your eligibility and affordability.
  • Look for ways to increase your income, such as negotiating a raise, pursuing a second job, starting a side hustle, or exploring passive income sources.
  • Improve your credit score by paying bills punctually, maintaining low credit card balances, avoiding new debts, and rectifying any errors in your credit report.
  • Reduce existing debts by paying more than the minimum amount, consolidating debts into lower interest rate loans, or negotiating improved terms with your creditors.


As a first-time homebuyer, you should get pre-approved for a loan, shop around for the best interest rate, make a down payment, consider a government-backed loan, and be prepared for closing costs. By following these tips, you can increase your chances of getting approved for a home loan and getting the best possible interest rate.

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