Owning a house is a wonderful thing but it comes with its own sets of requirements and preparations as there is a huge sum of money involved.
While you may weigh the location, vicinity, access to transportation and market as main factors when looking for a house, there are many financial factors too which you need to consider to determine if you can afford the house and to help you get the right mortgage.
So, let’s look at the financial aspect of acquiring your dream house;
Down Payment: The bank only gives 80% of the property value as loan and the rest 20% needs to be paid on your own. So, before you decide to purchase your dream home, make sure you have saved up enough capital to make this payment. Before you start, plan, budget and save well to build up on your down payment amount.
Interest Rate: Every bank will offer a home loan at varied rates. Also, there is an option to go for fixed or floating rate of interest. Fixed means there will be no change in the interest rate throughout the tenure while floating rate means the rate payable will change every time there is a new rate announced.
Make sure you shop around and not go with the first bank that approaches you. If you are an old account holder with your bank, you can even bargain a bit to get a good rate of interest.
CIBIL Score: Everyone has their credit score being monitored by CIBIL. A good score can make your application get approved quickly. You need to maintain a good score by making sure you make your bill payments on time and not faulter with them. And by bills, it doesn’t mean just credit card, but if you are late for payment of any bill, your score will drop. Banks would not be keen to lend money to someone who is late at making payments.
Debt to Income Ratio: In my earlier blog Manage Your Debt, I had mentioned about the Debt to Income ratio. You need to calculate this ratio so don’t get in a situation where you are left with only Maggie to eat after put all your money in down payment and paying your EMI’s. This ratio help you to know how much income you have and how much debt you can afford to take. The banks also calculate this ratio to gauge your ability to pay. If you are a family person with 2 children and your monthly income is INR 70,000/- and you apply for a loan where your EMI would be INR 45,000/- a month, the bank would blatantly reject the application as you are taking more that you can afford to pay after considering you have family requirements and fees to pay too and there would be a chance of you to falter or a delay in making payments.
Fees and Penalties: When you apply for a loan, there are a number of charges that come even before your loan could be processed. Also, you need to know about various charges like late fee and penalties associated with the loan as some banks charge pre-payment penalty if you wish to pay off your loan well in advance. So read the fine lines before you sign on the dotted lines.
Documents: Make sure to have all the ducks in row when you apply for a loan. You don’t want the process of application to be delayed by running to and fro for each document that you missed to get on time. Have a checklist and arrange your papers to save time and set the wheels in motion.
Buying a house requires lots of commitment and time and with the money that is involved, yes lots of paperwork, checks and approvals are also needed. The above factors are really important and as they will help you make the right decision and the home buying process more manageable.
Next blog is going to be about “Mistakes to avoid when buying a new house”. Again, this will be from financial perspective so stay tuned.
Till Next Time
Stay home Stay Safe
This blog is a part of Blogchatter’s #blogchatterA2Z challenge.