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alisha | 28 Sep 2021

Key Factors When Choosing A Home Loan

Key Factors When Choosing A Home Loan


Besides the income, there are various factors to be considered for one's eligibility for a home loan. The basic eligibility is that you should be a citizen of India and at least have reached the age of 21. The home loan interest rates at the current pandemic-hit time offered by banks and other lending institutions have reached an all-time low. This is the best time for homebuyers to make the most of their home buying experience. Hence, if you have a good credit profile, the chances of getting a home loan at a 7 percent interest rate are maximum. On the other hand, real estate property prices continue to be favourable. With both home loan interest rates and property prices being in your favour, it's time to make your smart and fast move.

Before you choose a home loan, there are a few key factors to take into account. The factors also vary depending on an individual’s circumstances and requirements. First, learn about the important factors that make you eligible for a certain amount of loan:


1. Evaluate the price of the home you are planning to buy

How much should be the price of a home? This is one of those first questions that bother you when planning to buy your dream home. Make sure to select a price range that won't feel a burden. The expert advice says that "the price of the property you plan to buy on a home loan should not be more than 5 times of your annual income". By doing so, the EMIs can be paid comfortably and you need not unnecessarily stretch your budget.


2. Practice the rule of 35/50

Make a note of your existing liabilities because that's exactly what the lender will ask you while discussing the home loan. The existing liabilities include your personal loan, car loan EMIs. It’s always advisable to take a loan where the home loan EMI is around 35 percent of your monthly income while total EMI including car loan etc should be restricted to 50 percent. Even banks generally do not lend an amount on which the EMI will be more than 45-50 percent of a person's monthly take-home pay. Moreover, if there is no other loan, you may go up to 50 percent with a home loan. Hence, the practice of 35/50 rule. The rule is favourable for long-term saving goals.


3. A check upon your credit score

A credit score is important for your financial life. Generally, a credit score of 700 or above is considered good and may result in you as a borrower receiving a lower interest rate. Scores greater than 800 are even better and considered excellent. It gives you the benefit of paying less money in the interest of the loan from banks and other lenders.

A credit score plays a key role in a lender's decision to offer a specific amount of credit, and factors that are considered in credit score include repayment history, types of loans, length of credit history, and a person's total debt.


4. To opt for a shorter duration or longer duration to repay the home loan?

The EMI and interest cost work in opposite ways. The longer the duration to repay the home loan, the EMI amount is less but the interest cost will be higher. Therefore, it is any day better to opt for a shorter duration of the loan to keep the interest cost low. 

  

What are the factors that affect one's home loan eligibility?


  • Age

Younger the age, the better! In order to fast approve a home loan, an individual who's left with many years as a working professional will have the advantage. The lender will check the age criterion. When a working professional avails a home loan decades before retirement, he/she is likely to get quick approval on the loan amount.


  • Employment status

Your income and employment status are equally considered for home loan eligibility. Make sure to avoid any unstable job or business. As an employee in a reputed MNC, private, or public-sector company makes one eligible and reliable as a borrower.


  • Your property details

The loan lender is concerned with the home you are going to buy. The details of the property will be checked thoroughly as the same property serves as security on which you get the loan. If the property's worth is high, you will get a high loan amount. Therefore, choose a property that has all the possibility to grow in terms of value in the future.


  • Are there any existing debts?

Lenders are fine with your debts and loans but unpaid dues are problematic. So, stay in discipline with your repayments. They will also be concerned about your repayment patterns.


A real estate property helps you reap numerous long-term financial benefits. And to purchase the property, a home loan is a great form of financial assistance if you do not have enough savings. Banks help make the purchase of your dream home a reality. Hence, knowing the aforementioned points on the home loan will be handy for you.

In the internet era, information available is abundant. Hence, make efforts to research online and select the ideal one among the various home loans available. Be mindful of the property you wish to buy and spend cautiously. Focus on the affordability factor of a home loan and let the monthly fixed EMIs comfortably fit within the cost of your living.

Along with achieving the milestone of purchasing your dream home, with the facilities and features you like, in a location you prefer, being able to afford the home loan is equally important.


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