As a first time home buyer or otherwise, taking out a home loan is one of the best available ways to transform your dream into reality. It wasn’t very long ago that constructing one’s own house was a huge accomplishment. It would generally come at the end of one’s career, when retirement funds could be pressed into use. In spite of this, most people struggled to find the necessary finance to complete the project to their satisfaction.
Today, the landscape has changed dramatically. There are many schemes that offer attractive schemes tailored to meet your unique circumstances and preferences. Home buying is no longer the prerogative of the senior citizen. There is enough information available with lenders, articles by financial experts, loan events, and on the Internet. You can use tools such as a home loan calculator online to conduct your own valuation.
Is there such a thing as the correct age to purchase one’s own home? A glance at the scenario today tells it all.
Take a look at why younger Indians can buy their homes at an earlier age:
- One of the best large investments that can be made
- Gives a sense of security
- Both spouses may be working
- Risk is much lower at a younger age
- Better salaries and job opportunities
- Higher purchasing power
- More aspirational
- Attractive loan schemes
- Ability to spread the liability over a longer period
- Unmarried persons prioritize home ownership and invest as soon as they are financially stable
- There are certain tax advantages
- The EMI can be such that it does not seriously impact their way of life
Are You Ready To Buy?
Since this is a major financial decision that could impact you, your family and your lifestyle for a long time, it’s wise to check whether you’re truly ready to purchase a home. A convenient and simple method is to use a housing loan calculator to assess your current situation.
The factors that affect your decision could be based on several aspects. The nature and stability of your career, location, your plans for a family, your lifestyle and social aspirations, proximity to locations that matter to you, how much space you need at present and in the future, and the kind of EMI loads that you can safely take.
Other factors that matter include:
Financial fitness: When you’re taking out a long-term loan, ensure that you have the financial muscle to handle the strain. Remember that you will have to incur various expenses during the tenure of the loan, including possible health issues and career uncertainty. You have to make a significant down payment to avail of a loan, and this has to be made available.
Purpose: Most people buy a home to live in, but many buy it as an investment that will give good returns when it is re-sold. It’s wise to remember that property values could fluctuate and the market could be impacted by many different forces. Some people buy a home to rent it out as an additional source of income, and this comes with its own set of issues.
Common Issues Faced By Home Loan Applicants
Poor Credit Score: Bankers and financial institutions have access to your financial history. Your score is calculated on a monthly basis. Credit scores give information about repayment history, credit utilization, too many inquiries into credit history, loans availed or applied and more. If your credit score falls below 750, your loan application will not be entertained.
Early Rejection: Prospective borrowers may find themselves rejected in the first stage itself. This happens because of criteria that have been set by the lender who may have placed limits on age, qualifications, financial status, type of documents required or other such points of reference. Banks usually have screening policies that are quite stringent. Based on the documents you provide, the lender may decide that you don’t have the financial capability to handle repayments, or your career shows too many changes indicating instability, your income levels are not up to the required standard or you don’t fall in the right age bracket.
Down Payment: According to the RBI mandate, financial institutions cannot fund the entire value of the home. They can fund between 75-90% of the property value. The remaining portion has to be paid by the borrower. In case of properties with higher value, the percentage of loan granted is on the lower side and the down payment is higher. In general, you will have to deposit at least 20% of the price of the house. If you fail to deposit this amount, your loan application will be rejected. Many first-time home buyers may not have this amount readily available with them.
Valuation of Property: The lender also conducts an independent evaluation of the property. Here, lenders calculate a loan-to-value ratio which conveys how much financing you can receive based on the property’s recent valuation. If your property is more expensive than the lender’s evaluation of it, you may find it difficult to manage with only the loan amount they provide, as you will have to make up the difference yourself.
Inadequate Sanction of Loan Amount: The lender may conclude that you are not capable of repaying the loan and hence may sanction less than the amount you applied for. This could be because of a poor credit score or your current income status. If you have a co-applicant with a low credit score, this could be a hurdle. Another problem could be that you or the co-applicant works for a firm that doesn’t match the corporate standards set by the lender.
Technical/Legal Valuation: Before any loan is sanctioned, the lender’s team of lawyers and technical experts conduct a thorough survey. The legal team goes through the property documents such as the sale deeds, maps, licenses and permissions, while the technical team assesses the construction and building aspects. If your property doesn’t match the criteria set by the lender’s technical and legal valuation, the loan may not go through. The property may have legal problems, or the building plan may not be in compliance with current laws.
Negotiating Interest Rates: While rates are pretty standards across the industry, there is always room for negotiation. You also need to judge whether your lower EMI rates do not mean a higher interest outgo. Use a reliable home loan interest rate calculator to give you the right information. Check whether a fixed or floating rate best suits your financial situation. There are several other charges that you must keep in mind. These would include processing fees, legal and technical evaluation charges, documentation fees, administrative fees, charges if applicable for transfer of loan from one lender to another, stamp duty and registration, pre-payment, or foreclosure charges and more.
The Way Forward
While applying for a home loan, it’s a smart move to ensure that your application is not rejected for these reasons.
