How to Assess Your Home Loan Requirement?
Everyone dreams of buying a house and staying in it. The joy of living in your own house is something you cannot explain. You have to experience it to understand the feeling. Not everyone can afford to buy their dream home with their savings alone. Not everyone is blessed to have ancestral property to dispose of, and fund their new home. Applying for Home Loan is the best option available to an overwhelming majority of Indians. Fortunately, banks and Non-Banking Financial Companies (NBFCs) have attractive Home Loan products. You get income tax concessions as you repay your Home Loan. It adds to your savings. How do you assess your Home Loan requirement? We shall help you to do so.
The first step towards assessing your Home Loan requirement is to know your Home Loan eligibility. Your eligibility depends on various factors:
a) Your income:
Higher your income, higher will be your Home Loan eligibility.
b) Availability of co-applicant:
You can add the name of your spouse, parents, or any closely related family member as a co-applicant. Banks consider their income also while assessing your eligibility.
c) Repayment Capacity:
Your repayment capacity depends on the fixed obligations you have on the date of your Home Loan application. The higher the FOIR (Fixed Obligation to Income Ratio), the lower will be your repaying capacity.
d) Take-home pay:
Banks usually stipulate a minimum take-home pay of 50% for loans. Some banks provide higher amounts considering the future salary increments. Banks account for the prospective loan Equated Monthly Instalment (EMI) while calculating the eligibility amount.
Once you have calculated the eligibility, you can proceed with determining your budget. Your budget depends on the following factors:
- Your savings play a significant role in finalising your budget.
- Banks provide Home Loans in the range of 75% to 90% of the value of the property depending on the loan amount.
- The loan amount does not include the cost of stamp duty and registration you incur on the purchase of the property.
- Banks do not finance for the interior decorations you make to your house the regular Home Loan. You can take a home improvement loan from the bank. However, it will be a separate loan subject to the satisfaction of other eligibility norms.
Banks approve Home Loan up to your eligibility level or cost of the house less margin, whichever is less. Accordingly, you have to make arrangements for the following:
- The difference between the cost of the house and the bank Home Loan
- The cost of stamp duty and registration for purchasing the new house
- The transfer charges in case you buy a flat in a registered cooperative housing society
- Escalation of costs in case you opt for a house under construction
- Brokerage fees incurred for searching for the home
- Cost of additional interior decorations
- Other expenses you incur while searching for your house
Also, you have to make arrangements for the following expenses related to your loan:
a) Processing fees:
Usually in the range of 0.50% to 1% plus GST @ 18%.
b) Legal scrutiny fee:
Most of the banks include the legal scrutiny fees in their processing fees. However, some banks require the applicant to pay for these charges separately.
c) Valuation charges:
Banks have to evaluate the house before arriving at your eligibility. If the value of the home is substantial, they go for a second opinion. Some PS banks charge separately for these expenses.
d) The charges for creating an equitable mortgage and registering it with the respective SRO. These expenses vary from state to state.
e) Some banks insist on payment of Pre EMI interest payments especially when you go for purchasing a house under construction, and banks give moratorium for a maximum of 18 months.
f) Any other emergency that can crop up from time to time.
How Can You Increase Your Eligibility?
Get a co-applicant:
Getting a co-applicant on board is the easiest way to increase your Home Loan eligibility. Banks today, insist borrowers to have a co-applicant. Submit the income particulars of the co-applicant to enhance your eligibility amount.
- Some banks offer a step-up EMI facility where the EMI in the initial years is low. It increases progressively to coincide with the increments in your salary.
- Close some of your loans and reduce the FOIR. It will help to increase your loan eligibility.
This information should suffice to help you calculate your home loan requirement.
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