Home renovation loan basically refers to any credit taken for managing the cost of renovating the house. Generally, a personal loan is preferred over other schemes for the mentioned purpose, especially by people who don’t have a fitting collateral to pledge. However, if you have a collateral/ asset and you don’t mind pledging it owing to your good repayment capacity, you can go for a loan against property and use it for paying the cost of home repair & renovation work.
On that note, if you plan to go with the loan against property for home renovation, below are some crucial prerequisites which you must follow.
- A good credit history is a must: Though it is suggested to maintain a good CIBIL score along with a good credit history, the credit score hardly plays a role in the approval or interest rate calculation. Therefore, you can do away with credit history but maintain an unblemished credit history.
Keep your debt-to-income ratio low: Generally, it is advised to keep the debt-burden or DTI ratio low while applying for a loan. It is the ratio of your income to your liabilities and it shouldn’t be more than 43%.
Dispose of your existing loans before taking a fresh credit: Last but not least, dispose of your existing loans to improve your repayment capacity. You can do so by using your investments or by taking another loan at a lower interest rate.
Since you are taking a loan for the purpose of home renovation, you must be aware of the applicable tax benefits. Check out the internet for the required information.