A decision to buy a home is one of the most important aspect that every individual dreams of in their life time. Your home buying decision is not only considered basis the size, the location but one of the other important aspect which determines your home buying decision is “how to finance your home buying”.
You may consider financing your home either through using your own savings, borrowing funds from relatives/friends or borrowing from banks and financial institution. If you finance requirement is met by friends/relatives or your own savings it is more convenient rather than through approaching banks/financial institutions.
However, if you decide to finance your home buying requirement through banks/financial institutions, the factors which are generally considered for releasing any loan will your present earnings, expenses, work profile, financial capability and repayment history of previous loans and other dues if any.
While decision to buy home is your personal choice, however while financing the same through banks/financial institutions you should consider the below aspects:
- Income and monthly expenses: Your present income is one of the key aspect that banks/financial institutions look into before providing you with a loan. They also look into expenses that an individual/family may incur every month. Most banks and financial institutions generally provide 80% of the value of the property as a home loan subject to the other parameters being in order. So, when you think of availing loan for your dream home, please look into the your/family monthly income and expenses alongwith future savings. As the English proverb says “Don’t put all your eggs in one basket”, meaning even though your home buying is important, it does not mean that you should put all your income in buying the home as you should also consider your future income/savings and other investments so as to balance out the risk in various assets and other investments.
- Down Payment and Equated Monthly Instalment (EMI): While buying your home you should consider your budget i.e. how much you can pay as down payment and balance how much as home loan you require. Basis your income and monthly expenses you can determine the amount you can pay as your EMI. As home loan tenure are generally for long period, it is always advisable that you should reduce your loan tenure to the minimum to avoid paying high interest amount to the banks/financial institutions. However, this should also be considered taking into account the monthly recurring expenses, other savings made and other financial contingency plans.
- Credit Score: Acredit score directly affects your home loan interest rate as it determines your credit history and a good credit score indicates that you have been responsible with your payments including other loans, credit card bills in the past . Depending on the score bracket you fall under, you will be a charged a high or a competitive home loan interest. Further this also impacts your EMI amount and thus how affordable your home loan will be. So, it is important for you to maintain a good credit score to facilitate a stress-free borrowing experience. A trusted credit bureau prepares and maintains your credit records and shares it with the banks/financial institutions whenever an enquiry is made by the loan provider. The higher the credit score, the higher the chances of the loan getting approved. Ensure you check your credit score at least six months, preferably 12 months, before you plan to buy a home.
- Interest Type: When you think of applying for home loan, consider the type of interest that will be charged from you by the bank/financial institution. There are two types of home loans based interest rate—”fixed and floating”. A fixed rate loan interest is one which remains the same during the entire tenure of the loan period, whereas the floating interest rates keeps on changing as per market conditions and RBI notifications issued from time to time. Fixed interest rates are usually higher by 1-2.5 percentage points than the floating rate home loan and varies from bank to bank. Therefore, it is always better to opt for a floating interest rates as it varies as per market conditions, unless you forcee the economic condition to make the rate of interest to be higher in the near future.
- Home loan agreement: Whenever you opt for a home loan from a bank/financial institution they will make you sign a home loan agreement which provides the terms and conditions on which the bank/financial has provided you with the loan. A home loan Agreement is a legal document, so you should always read it properly so as to avoid any surprises that you may come to know later basis the Agreement. The home loan Agreement also provides terms related to foreclosure or transfer for loan from one bank to another bank. Hence, never ignore reading the home loan Agreement as it will protect you from any future legal risk.
While the above aspects should be considered by every individual when he/she thinks of availing loan from any bank/financial institution, there are other aspects like penalties in case of pre-closure of the loan, provisions related to switching banks in between the loan tenure, bank loan processing charges which should also be considered by every individual before applying for loans.
Hence to meet your home loan requirements with the best features available from various banks/financial institutions, please contact us at www.loansaarthi.com by simply sharing your basic details, requirements and we will help you in buying your dream home.