A home of our own is one of the major life milestones for most of us and has often been regarded as a measure of success in life. It is perhaps one of the biggest ambitions of the Indian middle class. Ever rising inflation and soaring property prices made it a distant dream for a long time. But the recent dip in interest rates, affordable housing loan options, and hassle-free loan processing has once again ensured this dream remains within the reach of a common man.
Whenever you plan to buy your own home, the first question that comes up in a dinner table conversation is whether you should consider getting a home loan. A home loan for beginners can be a tough question to answer. Though it may seem easy at first, getting a loan approval can be a laborious task.
Here are a few key factors that you need to keep in mind before you sign on that dotted line.
Irrespective of the type of loan you are applying for, it is wise to consider and understand the eligibility criteria of the financial institution from which you wish to get the loan sanctioned. The eligibility criteria and chances of loan approval are dependent on various factors such as the monthly income of the borrower, the number of dependent members in the family, existing liabilities, if any, and whether you are a salaried or a self-employed individual. A salaried employee with a stable income, no liabilities, and a lesser number of dependants would have higher chances of loan approval as compared to a self-employed borrower with inconsistent income and multiple dependants. It is prudent to keep the above points in mind while applying for a housing loan.
Whenever you apply for a loan with a bank or any financial institution, the first thing that a lender checks is the borrower’s credit score. A credit score is a good indicator of a borrower’s repayment capability and a high credit score usually means a lower interest rate. The creditworthiness of an individual is directly proportional to his/her credit score, it contains the track record of an individual’s repayment of existing loans or bills and dues. A good credit score usually aids in getting approval for the loans and also improves the chances of getting a lower interest rate.
Loan tenure usually varies based on the profile of the borrower and the amount of home loan sanctioned. Loan tenure for a housing loan is a period for which the lender has sanctioned the home loan amount and the borrower is responsible to repay the amount along with the interest. The majority of banks or financial institutions provide loan tenure up to 30 years depending upon several factors such as the age, financial history, and financial obligations of the borrower. A longer home loan tenure usually means that the EMIs are spread out and hence the monthly installment amount is lesser but on the other hand a shorter loan tenure would mean a lesser amount of interest paid to the lender. So while considering the home loan duration, it is advisable to keep in mind the EMIs affordability which ideally should be less than 50 percent of an individual’s monthly income.
While a home loan amount eligibility is dependent on several factors, it is advisable to keep the cost of the house within 5 times your annual income. This helps in keeping the EMI repayment easier without affecting your monthly household budget.
At the end of the day, owning a home is a dream of many. In the current low-interest regime, a home loan has become much more accessible and affordable. But before you take a plunge in these waters, it is imperative to be aware of how a home loan works to avoid any surprises at later stages.