Securing a Home Loan to buy the home of your dreams has become easier with the digitization of various lenders. However, effective financial planning is vital for managing your Home Loan responsibly at every stage, ensuring a smooth and stress-free experience.
If you want to apply for an affordable Home Loan, immediate research and analysis of your requirements is required. To provide you with an integrated picture of financial planning to assist you in successfully managing your home loan, here are some tips:
Assess current investments
Prior to starting the Home Loan process, analyze your existing investments. A Home Loan is a significant financial outlay and must not be done lightly. Review all your investments to determine your financial situation correctly. This process is important since it determines substantially the amount of the home loan you would be able to pay comfortably.
It is not advisable to overexert yourself financially, since excessive borrowing creates a lot of stress. While going through your investments, sort them out into two categories: essential and discretionary. Essential investments can be Insurance premium payments, Mutual Fund SIPs, and PPF installment payments. Discretionary investments, however, might be high Credit Card dues, buy now pay later, and lifestyle loans. Reducing discretionary expenditure will improve your money management and might get you a bigger Home Loan.
Measure income to expense ratio
Lenders stringently consider your income and debt-to-income (DTI) ratio while determining a Home Loan application. The DTI ratio is the percentage of income that goes towards servicing existing debts. A good income and low DTI ratio greatly enhance your chances. Additionally, maintaining low expenses and existing liabilities enhances the possibility to afford EMI payments, and vice versa. It is also essential to evaluate your emergency fund. This fund is necessary for the unexpected expenses like loss of job or hospitalization, which can derail your steady income.
Have a good credit score
A good credit score and credit history are imperative for the Home Loan application procedure. A good credit score, in general, over 750 simplifies the application process and enables you to avail the loan on favourable terms. A bad score makes it quite cumbersome.
Having a less-than-ideal credit score doesn’t mean you won’t get an affordable Home Loan. However, it may come with stricter terms and less flexibility. Building a good credit score takes time and requires consistent effort. Pay off your EMIs on time and Credit Card balances in full, maintain a low credit utilization ratio, avoid applying for multiple Loans within a short period, close any existing small Loans, and check your credit report frequently for any discrepancies and notify the concerned bureau.
Choose the Loan amount wisely
Make sure you borrow an amount you can repay easily. Lenders do not usually lend the total purchase price of a house. You need to pay a down payment, and the lender will give the remaining amount. Lenders usually grant 75% to 80% of the value of the house as a Loan. Ponder carefully over the Loan amount since it has a direct effect on the EMI. The more you take as Loan, the more you will have to pay as EMI.
When looking for an affordable Home Loan, interest rates usually top the list. That’s because the interest rate of the Home Loan has a direct bearing on the EMI. These days, lenders usually post them on their websites. Alternatively, you can even compare interest rates across lenders using aggregator portals and opt for the one best suited to your requirements.
Nonetheless, care must be taken not to make the interest rate the only determining factor in selection. Other criteria to be considered are the lender’s reputation and credibility, flexibility in repayment, value-added services, and customer service.
Conclusion
You can also verify if you are entitled to tax relief on the Home Loan principal and interest repayments under Sections 80C and 24, respectively. The above tips make you financially cautious and secure at each stage when you apply for an affordable Home Loan.
