Investing in a new house in 2022? Check These 4 Points To See If You Are Ready For A Home Loan
New Delhi: With mortgage interest rates dropping to historic lows, many new investors are looking to buy a home. When buying a home, many people keep their future needs in mind and strain their finances to buy a larger home taking into account their possible pay rise in the near future. However, this calculation can seriously go wrong and become a noose if your income / salary does not increase as expected.
When the Covid pandemic erupted early last year, many people who had stretched out by taking out a larger home loan went through a severe financial crisis as their incomes actually fell amid the Covid-induced foreclosure. and forced them to either restructure the loan or sell their house to get rid of the NDE maintenance. To make sure these types of situations don’t happen again in the future, review the following checklist before you take on the financial burden.
Is your emergency corpus in place?
Before you start planning for the big financial expense, make sure your contingency corpus is in place. The emergency corpus should be large enough to cover your expenses including the EMI home loan for the next 12 months. Having such an emergency corpus will provide an immediate financial cushion in the event of loss of income due to job loss, accident or prolonged illness. Over the past 18 months, people have come to realize the importance of having such an emergency body of work.
Do you have the money for the deposit and the registration fee?
Banks typically require the home loan borrower to pay at least 20% of the cost of the house as a down payment before authorizing a loan for the remaining amount. For example, if you buy a house worth Rs 50 lakh, you have to pay at least Rs 10 lakh as a down payment for the loan. On top of that, you also have to pay registration fees and GST (in case of properties under construction), which could be around 7-10% of the cost of the home depending on the state in which you purchase the property. In addition, you must take into account the expenses related to renovations or furnishing your new home. All of these expenses could be around 30-35% of the total cost of the home that you need to organize before you buy a home on loan.
It should be mentioned here that it will be better to put a larger down payment as your loan amount will be lower and you will be able to get a better interest rate from your bank. In addition, a smaller loan component reduces your overall interest expense and allows for faster repayment.
It may be noted that you should have the above corpus in addition to the emergency corpus mentioned above and that you should not touch savings set aside for other long term goals such as retirement and retirement. education of children to pay the deposit.
What EMI Home Loan Can You Handle?
The EMI you can use with your current income will decide the amount and length of the loan. Banks generally assume that 50% of your monthly take-home pay can be used to maintain your home and other existing loans. For example, if your take home pay is Rs 1 lakh, banks assume that you can pay a maximum of Rs 50,000 as a loan NMI. But if you already have existing loans, your ability to handle real estate loans decreases further.
Moreover, if your fixed monthly expenses represent more than 50% of your income, then even a home loan of Rs 50,000 EMI will be unaffordable for you. Additionally, if you are buying a property under construction, you will likely be paying rent with your EMI. Make sure you can afford it even if the bank is willing to give you a large loan. It is not advisable to stretch your budget beyond a point. Always have a buffer to account for any possible reduction in your income due to factors beyond your control.
Review your credit score at regular intervals
Lenders take the credit rating of loan applicants into account when assessing their loan applications. Those with higher credit scores i.e. 750 and above generally have a better chance of getting loan approved. Many lenders have also started offering lower interest rates to applicants with good credit scores.
Therefore, those who are considering availing a home loan should check their credit score at regular intervals before applying for a loan. One can access free credit reports from credit bureaus or visit online financial markets to do so, as well as monthly updates. Following this practice would allow borrowers to take corrective action in the event that they detect clerical errors in their credit report and have them corrected. If these mistakes are not rectified, they can negatively impact the chances of a mortgage loan approval.