Home loans are the stepping stones to fulfilling one’s dream of owning a house. Anyone can apply for a home loan to renovate, reconstruct, construct or buy a house. However, you must be very careful of the process when you choose to go for a home loan for purchasing the house of your dreams.
Let us understand in detail.
You can get a home loan at lower interest rates if you have an excellent credit or CIBIL score, with zero or very low existing debts and a stable income. Yet, there are a few points one must consider before opting for a home loan. The reason is that when you go for a housing loan, you bind yourself with a large financial responsibility of repayment.
The commitment demands discipline and planning as it takes a considerable part of your life to pay off the loan via EMI’s. Below are the five key rules you must consider before you consider buying a house on a home loan-
Budget of Your New House
The first thing you are supposed to do before buying a home loan is to check your requirements and set a budget accordingly. Planning the budget will keep you from facing financial crises in the future due to the random selection of the loan amount. Decide your budget as per your requirement and affordability. Do not think of buying a house that is more than 5x more than your annual earnings. Calculate your housing loan interest rate and prepare a draft budget to plant out things. Choosing the right budget will help you repay your loan effortlessly without any excessive burden on your finances.
Right EMI Selection
The next thing you must consider is choosing the right EMI amount to repay your housing loan. You must remember that an EMI ranging from 45-50% of your salary is manageable. Lenders will check your existing liabilities and other commitments, and if the percentage of the total EMI of all the loans you currently have exceeds 60%, then your loan application gets rejected. Try to keep the percentage as low as possible, below 30% would be best in order to get favorable terms.
Check Your Credit Score
Everything depends directly or indirectly on your credit or CIBIL score. A credit score of more than 700 in a chart ranging from 300-900 is considered eligible by most lenders. The person with a higher credit score gets to avail of lower interest rates due to reliable creditworthiness. If the credit score is lower than 700, then getting a loan is difficult. Thus, it is advised to check your credit score and try to improve it. You can improve your credit score by paying off your bills on time and making timely loan repayments.
Go for a Shorter Tenure
This rule is more of a tip that will help you repay your loan quickly. If you opt to go for longer tenures, then your EMI will decrease; this might make you comfortable however you will be in debt for a long time, and your overall interest payout will be higher. If your budget can allow it, go for a shorter tenure to reduce the undesirable burden of paying higher interest.
Calculate Everything Beforehand
The fifth rule is the golden rule of all, which suggests you do all your preparation beforehand. Like calculating the EMI, estimating the interest rates offered at your credit score and amount, etc. depending on your affordability. You can use the calculators available online to know your eligibility for the home loan, and the amount you can get. You must also ensure that you have sufficient funds for the down payment amount, as most lenders provide only upto a maximum of 90% of the value of the property as a loan, sometimes lesser depending on your eligibility.
Doing this preparation beforehand keeps you from facing trouble in the future. You can easily know whether or not you will be able to manage your finances with an upcoming obligation on your shoulders.
These were the five key rules you must consider before you buy a house with your home loan. Considering these rules will not let you sink in the quicksand of unmanageable and delayed repayments. You will get an idea about your affordability while you check out these points. To get more assistance, you can go for various online tools that will help you check your EMI.