Buying a home is a simple task – if you get all the information, especially that which is not immediately apparent!
Having a permanent roof over your head is important, especially in financially straitened times. Taking a home loan is one of the easiest ways to finance a home purchase in an escalated real estate environment. But are you certain that you know everything about buying a house? There may be certain aspects of taking a home loan, or even calculating the home loan EMI, that you may not be aware of, such as –
1 Your eligibility determines the loan amount.Generally, a high income does not automatically translate into a high loan amount. There is a factor known as ‘home loan eligibility’ that is computed basis your net income, age, credit history and existing liabilities. The eligibility is the loan amount you are likely to get – so you can look for houses accordingly.
2 It is possible to overspend on the EMI. Housing finance companies caution that the EMI you pay every month must not exceed 50% of your take-home income. In fact, the lower the EMI, the better will be the state of your monthly finances. You can calculate the home loan EMI payable by using an online loan EMI calculator. Calculating the home loan EMI helps you get a better idea of how to repurpose your finances so that sufficient money is apportioned for other expenses.
3 You cannot get a loan unless you register the sale agreement. A first time home buyer will not know about one vital part of the loan application and disbursal process – getting the sale agreement registered. This is necessary because unless you have a registered sale agreement, you cannot get the loan money. To register the sale agreement, you must pay at least 10% of the property price to the seller or developer. This means that you must keep a percentage of the house’s price ready to pay upfront. Thus, if the house you wish to buy costs Rs 50 lakh, you must pay the seller at least Rs 8 lakh, plus the stamp duty and registration costs. You can then register the sale agreement and apply for the loan.
4You might over-leverage your income.It is basic human tendency to plan for the future, and it is also a good approach in most cases. But it can lead to a wrong decision in terms of the size of the house you buy. If you buy a 2 BHK or a 3 BHK to account for a large family in the future, you might end up over-leveraging your current income. When the real estate market is prohibitively priced, it is wiser to buy for the present needs. So instead of taking a large loan for a 2 BHK house and spending a bulk of the monthly income on EMIs, it is better to take a smaller loan for a 1 BHK house – you can always upgrade later!
5 Periodic prepayment reduces the loan burden. The monthly EMI payment can strain your finances, at least in the initial months of repayment. After a few months, you will get used to juggling your income after paying the EMI. But repaying the loan via the EMI route alone can result in a large sum of money being repaid. Instead, you can aim to save money every month and repay a larger sum of money (apart from the EMI) every six months. Periodic repayment will decrease the principal as well as interest burden on you.