With the attractive interest rates on home loans these days, it might be tempting to get the dream home you always wanted. But there are a few things to consider and a few questions to answer before you opt for a home loan. Home loans are a long-term financial commitment that demand a minimum of ten years of loan repayment. Five years, if you win a lottery halfway through. So, make sure you know everything there is and start on the right foot.
Is the cost of your property close to the amount of home loan?
Let’s face it: You can purchase a great property for the amount of money that the bank will sanction for your home loan. Also, you have to make the down payment on your own. Find out the maximum amount of home loan that you are eligible for and get your finances ready for down payment of the property. Based on this budget, look out for a house. Take a home loan for an amount at least 10% below your max loan capacity.
If you end up reversing the process and get the maximum home loan that you are eligible for, you will end up struggling to pay the EMIs. Repayment of the loan is a long-term process so make sure you have your EMIs to the level you will be able to pay comfortably month-on-month.
Is your job in a stable industry?
Housing loans are a long-term financial commitment. It is possible for you to repay your loans only when you have a steady income flowing in without any issue. Any default in your EMI dues will result in harsh penalties from the bank. Not to forget the negative effect it will have on your CIBIL score.
Make sure your job is stable and free from any threats of pay-cuts and layoffs. Figure out the financial status of the company you are working with and the industry you are in. Once you are sure of the free flow of income, you can take up a housing loan.
Do you have sufficient funds for down payment?
As per the RBI guidelines, NBFCs and banks can approve a maximum of 80% of the property value as Home Loan. This means that you will have to arrange funds for 20% or even more of the property value. This 20% is going to be the down payment you will make for your property. Apart from this, there are other expenses like bank processing fees, registration and stamp duty. You will have to pay for these upfront and from your pocket. So, make sure you are financially prepared to be able to spend this kind of money before you get your home loan.
It is best to get a home loan when you are prepared for these expenses rather than taking up a huge home loan. The higher the loan amount, the higher will be the repayment amount even if the rate of interest is lesser on the loan product you are opting for.
Are you well-prepared for financial emergencies?
Before taking up a home loan, you should be prepared for unpredictable losses like job loss, pay-cut, disability and death. These are a huge financial burden and you need to be prepared to get through such situations financially if they ever arise. The funds for these emergency expenses are separate from the emergency funds that you always set aside. This means, you should have two sets of emergency funds to back you up when the need arises.
Is your spouse a co-borrower in your home loan?
Women borrowers have the benefit of low interest rates on home loans. So, if your spouse is a salaried employee or self-employed with consistent income coming in, having her as a primary loan applicant increases the benefits you receive. Apart from low interest rates, you have the tax benefit on repayment of principal and interest. A married couple can claim tax benefit of up to Rs.2 lakh each and up to Rs.1.5 lakh each on interest payment for a self-occupied house and on repayment of principal amount respectively.
Now that you know the five questions you need to answer before jumping in to buy a home, answer them to find if you are currently in a financial state to be able to take up the long-term responsibility of a home loan. The repayment of home loan includes considering several factors that affect the EMIs and your daily life.