5 Financial Aspects to Keep in Mind Before Buying a Home
Getting a Home Loan in India is easier than ever before. There are several schemes available to allow borrowers of all financial backgrounds to avail loans to fulfill their dream of owning a house. That said, investing in a house is a big responsibility that requires you to take several financial aspects into consideration before actually making the plunge.
Here are five financial aspects that you should keep in mind before you actually purchase a house.
Funds available for the down payment
For all loans, including Andhra Bank Home Loan, a down payment from the borrower is necessary for the loan to be sanctioned. The down payment is an amount that you will pay to the builder or the seller directly. According to the Reserve Bank of India (RBI) guidelines, banks and any non-banking financial companies (NBFCs) can only cover 80% of the property value through the loan. The remaining 20% will have to be paid by the borrower as the down payment towards securing the property. There are some Home Loan schemes that do not require you to pay any down payment. Most often, this depends upon the eligibility criteria of the borrower as well as the interest rate on loan.
Having enough down payment is a way for you to improve your Home Loan eligibility. The larger the down payment amount you can shell out, the lesser the loan amount required by you. Down payment funds show the bank that you are less likely to default on the loan as you have put in a large chunk of your own money into the property. On the other hand, a borrower who does not make any down payment may become a defaulter and let the bank take the property for foreclosure.
Your current debt to income ratio
One of the most important criteria for qualifying for an Andhra Bank Home Loan or any other Home Loan is your current debt to income ratio. This ratio shows your repayment capacity and also helps you understand if you can realistically afford a certain Home Loan plan that you are applying for. This number determines the portion of your monthly income that you will be paying towards repaying your loan.
With most banks, the debt to income ratio should be between 25-40%. This means that after you have paid the equated monthly instalment (EMI), you must have between 75% and 60% of income that you can take home. The most ideal debt to income ratio is below 30%. This ensures that you are able to fund your daily expenses and also pay your monthly installment easily. The lower the ratio, the lower are your chances of defaulting on your EMIs. Whether you are a salaried individual or a self-employed individual, you will have to show sufficient income to support the debt to income ratio that is required by the bank to sanction a loan to you. Ensuring that you have enough income will also ensure that you have some financial security even after borrowing a Home Loan.
Your current credit score
Before any Best Home Loan in India is sanctioned, the credit score of the individual is checked thoroughly. A credit score of at least 650 is a pre-requisite for you to be able to get a loan to purchase a house.
Before you apply for a loan or even plan to buy a house, it is necessary to improve your credit score. A credit score is an indication of your credit history. It shows how consistent you have been in repaying any loans that you may have borrowed in the past.
Improving your credit score before applying for a Home Loan also means that you are clearing past debts. This will ease the monthly outgoing payments and will help you pay your EMI towards your Home Loan without any hassle.
It is advised that you check your credit score or CIBIL Score with different credit bureaus such as CIBIL, TransUnion, or Experian before you think about buying a home. You can also check this score online. You can then take the necessary measures to improve your credit score and thereby improve your chances of getting approval on your Home Loan.
Monthly mortgage payment
The monthly mortgage payment or the EMI is, undoubtedly, the most important financial aspect when it comes to buying a home. If you want to retain your property, you need to be sure that you will be able to make regular monthly payments towards the mortgage without any hassles.
Any default will reflect in your credit history and can also lead to the foreclosure of the loan by selling your property. The house that you buy or construct with a Home Loan is usually considered as collateral automatically.
The best way to check if you can afford a certain loan is to use an online EMI calculator. You can enter the loan amount, the duration and the interest rate on this calculator and get the exact amount that you will be liable to pay towards your loan each month. If you are certain that you can afford to make this payment, you can opt for a loan and purchase the property of your dreams.
While you are considering the payments towards your property, you must also make sure that you check the property taxes associated with the property. This is usually a large sum that can throw your budget out of place completely. Ensure that you have enough funds to pay your property tax on time.
Closing cost on the property
This is the most ignored financial aspect when buying a property. If you are applying for a loan, then you must be aware of the fact that there are several fees such as recording fees, agent fees, processing fees, etc. that are associated with it. In addition to this, a closing cost is collected by the bank to pay towards documentation necessary and close the deal on a property. This cost can be as high as 5% of the value of the property. Look for deals that provide you with minimal closing costs before you move ahead and purchase your property.