It is no secret that today, housing has become a luxury only a few can afford instead of being a primitive human necessity that everyone is entitled to. However, with many banks and financial institutes now offering home loans at competitive interest rates, owning a house has become a relatively hassle-free and attainable affair.
Nonetheless, potential home loan borrowers must be fully aware of their loan structure, the terms and conditions laid down by the lender, as well as the eligibility criteria.
If you wish to apply for a home loan, you might have many doubts regarding the application process. Mentioned below are five of the most critical questions you must ask yourself as well as your lender before signing an agreement.
1. Can I Afford the Down-Payment?
As per RBI regulations, banks and NBFCs can grant home loans for a maximum of 90% of the property value. The rest has to be paid up-front by the buyer, commonly referred to as down-payment or margin.
Hence, if you are planning on acquiring a loan for your dream house, you must also possess sufficient funds to cover up the margin. Apart from this, there are other charges like application fees, registration fees, and stamp duty that must be paid by you.
2. Do I Have a Decent Credit Score?
Credit score is a numerical figure that represents a borrower’s creditworthiness. The lender assesses the risk quotient by taking into consideration the debtor’s repayment history. If your credit score is above 750, it denotes that you are a reliable customer.
This figure is calculated using factors such as credit utilization ratio, adherence to timely payments, secured and unsecured credit, etc. In order to create a good credit profile, make sure that you don’t max out on your credit cards or fail to make punctual repayments.
3. Can I Meet Other Financial Obligations?
If you are applying for a big-ticket loan such as a home loan, you must remember that over the next few decades, a significant portion of your income will be spent in clearing the debt. This may leave you incapable of fulfilling other financial commitments, especially if you don’t have a systematic plan laid out for your monetary affairs.
You can consider buying or investing in a smaller property that costs you less money, and doesn’t hamper your life in a negative way. It is equally important to go with the current home loan rates offered by finance companies.
4. Am I Aware of the Estimated Monthly Instalments I Will be paying?
When you apply for a home loan, you will be repaying the principal amount, along with agreed-upon interest every month. Banks and financial institutes offer Online EMI Calculator facilities on their portals. By inserting values like loan amount, tenure, and rate of interest, you can get a clear idea about your proposed loan plan.
It determines the monthly installments you’ll be paying, thus putting all your worries and anxiety to rest. You can also adjust the loan tenure as per the current home loan rates provided by different lenders to know how it can affect your EMIs.
5. What Is the Main Purpose of Buying a Home?
Real Estate involves two aspects, the first being fulfillment of housing requirements, and the second being an instrument of investment. More often than not, people invest in a piece of land as a means of securing an asset. If someone is clear about the principal objective, then they must go and apply for a home loan.
If you want to buy a house for end-use, you must choose a home that has enough space for you and your family, is well-equipped, and has a good neighborhood.
On the other hand, if you want to invest in a property solely to own a long-term tangible asset, you might want to take into consideration the market value of the said land, capital appreciation, and the property’s ability to generate income via rent.
By keeping these points in mind, you can put your financial doubts to rest. Then, after clearing all these hurdles, you can kickstart your home loan application process, beginning the journey of finding a new abode for you and your loved ones.