Everyone wishes to purchase their own dream home, but buying a home is an expensive and risky obligation because if you cannot repay the monthly instalments, the lender has a legal claim over the property.
You must apply for a home loan when the interest rates offered are low and when you have your finances in order. Here are some factors that you must take into consideration when applying for a home loan:
1. Savings: A lender will only finance up to 80 to 90% of your property’s market value and the remaining will have to be paid by you as a down payment. For example, if the property you are looking to purchase is valued at Rs. 1 Crore then the lender will finance Rs. 80 Lakhs and the remaining Rs. 20 Lakhs will be paid by you as a down payment. It is advised that you should pay a higher down payment to reduce your EMI burden. A considerable amount of savings is required to tackle this expense.
2. Interest Rates: Each lender operates on its own lending terms and interest rates but the benchmark remains the same between all the lenders. When you are applying for a home loan you can opt for a fixed interest rate wherein the rate of interest remains the same throughout the tenor of the loan or you could opt for a floating interest rate wherein the rate of interest keeps fluctuating based on the current market condition.
3. Age: It is best that you apply for a home loan when you are early in your career because lenders are looking for applicants that are capable of earning a stable monthly income to pay the home loan EMI for the duration of the home loan.
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