Home Loan

Buying your home on a home loan? Here are 7 fundamental rules you must consider

  • July 14, 2021
  • 4 minutes read

Owning a home is one of the most exhilarating feelings ever. You feel all the feelings in your stomach at once – for a good reason. With the banks dropping the interest rates, it’s probably the best time to think about getting a home of your own.  

With low-interest rates, good CIBIL score, and repayment capacity – you can start planning to buy your desired home. But before that, it is important for you to keep certain things in mind – 

That is- if you have decided on the property you are interested in buying, you must get the prices fixed. This will give you an idea about the loan amount. This way you can also fix a monthly budget for your other financial responsibilities depending on the loan amount. Secondly, factors like your income, existing assets, and liabilities, and CIBIL score determines your eligibility for getting a home loan. These factors also determine the loan amount for your home loan. So, it is important to fulfill the eligibility criteria mentioned by the lender and maintain a good CIBIL score to get benefits on your home loan.   

Above all, it is the longest commitment that you make for 20-30 years with a constant process of paying the monthly EMIs. Inculcating the ritual of paying EMIs every month for 20-30 years can impact your other financial responsibilities. Thus, it needs years of strategic planning and sensible financial decisions to ace the process.  

Here are 7 fundamental rules you must consider while buying your home on a home loan.  

  1. Research your home loan options 

The internet being the temple of easily accessible information, make an effort to research the home loan options offered by different banks. Research about the crucial factors – EMIs, down payment, repayment tenure, interest rates, and so on. Extensive research on these factors before applying for your home loan gives you an upper hand when choosing a suitable home loan with lower interest rates. As a home loan concerns a hefty amount of money, it is advisable to know every nitty-gritty detail during, before, and after the process of your home loan application.  

  1. Knowing your exact budget  

If you are planning for a home loan, knowing the exact budget of your home purchase is extremely important. Getting the exact budget will determine the affordability of the house. You must consider getting a home that is affordable and easy on your monthly income. If you consider buying a home beyond your monthly affordability it will impact your other financial responsibilities. If the budget meets your affordability, go ahead and apply for the home loan. Remember, to aim at affordability. Buying your own home and being able to afford it is more important than getting a home at a fancy location.   

  1. Follow the 35%-50% mantra 

When you avail of your home loan, the lender makes a list of your existing credits such as car loan, personal loan, or others. The lender tries to know about your other financial commitments and existing credits. This is because – if the monthly EMIs of your home loan + existing credits are more than 45% – 50% of your monthly income, the lender finds it difficult to lend you money. This may include a risk of missing your repayments.  

It is always advisable to opt for a home loan with an EMI not being more than 35% of your monthly income. Also, your total monthly EMIs of your existing borrowings should not be more than 50% of your monthly income. Following the 35% to 50% mantra will allow you to save enough money for other goals and emergencies. Also, you will feel burdenless.  

  1. Checking your credit score 

A credit score is one of the most important factors while availing a home loan or any kind of loan. Having a good credit score increases your chances of getting a home loan. Applicants with good credit scores easily qualify for the loan. With a good credit score, you can also avail better deals and benefits from your lender. But it is difficult for those with a low credit score. The lender becomes reluctant to lend out money if you have a low credit score, and even if you do get a loan – it will be at a higher interest rate. 

If you have a low credit score it is advisable to take a small amount of personal loan, pay the EMIs in the decided time, and prove your ability to manage credit. After few months, when you have a good CIBIL score, apply for a home loan.  Most of the banks lend you money if you have a CIBIL score above 750. This makes you a reliable applicant for the lender. Also, it increases your chances of getting a home loan with lower interest rates and flexible tenures. So, it’s better to check your credit score before you apply for a home loan. 

  1. Suitable EMIs. 

The bank offers a range of Equated Monthly Instalment (EMI) options to an applicant that suits his/her best interests. So, it ideally depends on you. If you can make a down payment of a bigger sum, you will have to stress less for the remaining outstanding amount, converter into Equated Monthly Instalments (EMIs). It is always advisable to not exceed more than 45% of your monthly income on EMIs.   

  1. Shorter repayment tenures.  

The decided period you opt for repaying your loan amount is called the repayment tenure. Your EMI and repayment tenure goes hand in hand. Many choose a longer repayment period to repay their loan amount. But the longer you take to pay back your loan amount, the more you end up paying as interest. This interest ultimately increases the total cost of the loan amount. The longer tenure of your home loan might help you reduce your EMIs but you end up paying a larger amount of money due to more interest overall.  

Remember, it is only advisable to opt for a shorter tenure for your home loan if you have a strict financial budget with an increase in income. Also, if you are capable of making sensible financial decisions it is advisable to opt for a shorter tenure on your home loan with high EMIs. If you decide to take a shorter repayment period, look for the lender or bank that provides attractive interest rates on your home loan. 

  1. Keeping a tab 

It is important to keep a tab on your finances and calculate your money flow. Keeping a tab and calculating your estimated EMIs on your loans – home loan, personal loan, or car loan – is essential. It not only helps you analyze your money flow but also helps in analyzing the affordability of your monthly EMIs. Also, it accordingly helps you in chalking out your monthly finances.   

One of the healthiest financial habits is using an EMI calculator. You can check your EMIs using an EMI calculator here. 

Lastly, put the above fundamental rules together if you are buying a home on a home loan. These fundamental rules will help you to choose a better option and help you seeking a home loan easily. Good financial discipline will also help in determining your future financial plans. You can visit the Fincity website for more financial advice. Also, you can leave your comments below for any queries. 

Written by: Marketing Fincity

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