It is not an exaggeration to say that one of the goals common to people across the world is to own a home. However, for most people, buying a home automatically means having to get a home loan to help them finance the huge cost. In India too, buying a house of your own is perceived as a much desired sign of stability and security. Fortunately, it has never been easier to borrow money for buying a house and the market is flush with a multitude of loan products and offers to choose from.
What is the amount I can borrow on a home loan?
The amount that the bank is willing to offer as credit is dependent on a variety of factors including your credit history and credit score, your age, your income and employment status, and your existing loan obligations. The home loan amount can go up to 85% of the value of the property, but this is a variable figure and the final decision lies with your lender. In general, you will be eligible to borrow a high loan amount if:
1. You have a credit score of 750 or above.
2. You have a healthy credit profile with no delinquencies or accounts with ‘Closed’ or ‘Written-Off’ status
3. You have steady employment and a reasonable monthly income. If you have a healthy projection of your future salary, you stand to be eligible for a higher loan amount.
4. Your monthly loan obligations (including all your existing EMIs) do not exceed 50% of your net monthly income. How much the bank/financial institution decides to lend you depends on, among other factors, your existing loan obligations and your ability to take on further debt and service it over the long duration of the loan.
If the loan amount you are asking for is greater than what you can afford, lenders may be unwilling to take on the risk of default. Make sure that you choose a property that is not too expensive and that fits in with your income.
What are the tenure interest rates on a home loan?
Since home loans can be large, the repayment period is commensurately long. The tenure can stretch to up to 30 years.
There are two basic types of interest rates and you need to study all the interest rate options carefully before deciding which one to choose:
Fixed rate: You pay one fixed interest rate for the entire tenure of your loan and you have a fixed EMI for the entire duration of the loan.
Floating rate: The interest rate you pay varies during your loan tenure, depending on external market conditions. You would choose this option if you are confident that interest rates will go down during your loan period.
A home loan is a substantial financial commitment and you need to learn about all the options or consult a professional to determine which combination of loan amount, tenure and interest rate suits your needs the best.