Planning To Take A Home Loan? Here Are 6 Things To Consider Before Applying

For many Indians, buying a house is one of life’s most important goals. It is also likely to be one of the most expensive purchases of one’s lifetime. A recent pan-India personal finance survey titled Aspiration Index notes homeownership to be among the top three goals that Indians aspire to. And, most potential homeowners rely on home loans to fund this aspiration. 

Now, home loans, typically stretching up to 30 years, are a long-term financial commitment. Given the long-standing ramifications that loan defaults have, it is essential to assess your financial readiness and preparedness before entering into a loan agreement. To begin with, here are six factors you can evaluate to gauge your preparedness for a home loan. 

How Much Do You Save?

Your savings have a significant bearing in your home loan journey and can help you measure whether or not you are ready to take a loan. A regular and disciplined saving habit can ensure you have the required funds to service the loan and its related expenses without straining your finances. But, if you don’t have regular savings, it may be wiser to delay your home loan application and focus on building a stronger financial cushion.

Can You Afford The Down Payment? 

Your down payment is a percentage of the property’s value—typically 10-20%—that you must pay upfront. A higher down payment reduces your loan amount and, in turn, lowers your EMIs. However, the exact amount depends on the property’s value, so it’s essential to calculate it before committing to a loan. Ensure you have the necessary funds before proceeding; if not, consider postponing your decision and focus on saving.

For example, if the property is valued at ₹80 lakh and you opt for a 15% down payment, you’ll need around ₹12 lakh upfront, excluding additional costs like interest and processing fees. Planning ahead helps you avoid financial strain and ensures a smoother home loan process.

Can You Cover The EMIs Sustainably?

For home loans, a general rule is that EMIs should not exceed 40% of your monthly income, ensuring you can meet other financial needs. Over time, EMIs reduce as you repay the principal. Use a home loan EMI calculator to check if the repayment amount fits your long-term budget. If the projected EMIs may strain your essential expenses, consider waiting until your income grows. Alternatively, extending the loan tenure or opting for a smaller loan can improve affordability.

Will Your Income Increase In The Future?

A steady or growing income makes long-term repayments more manageable, especially if you have a stable job with regular increments or career growth. However, if your income is uncertain or irregular, taking on a home loan could lead to financial strain and impact your creditworthiness in the future.

Can You Apply With A Co-borrower?

Applying for a home loan with a co-borrower, such as a spouse or parent, can enhance your eligibility. Lenders assess the combined income and credit profiles of both applicants, which may increase your loan amount or secure a lower interest rate, easing your financial burden. Additionally, all co-borrowers making loan repayments can benefit from tax deductions.

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Do You Have A High Credit Score?

Credit scores play a key role in the borrowing process, with higher scores making it easier to secure loans on favourable terms. A score of 750 or above can help you access lower interest rates, reducing your overall debt burden. On the other hand, a low score can lead to higher interest rates or even loan rejections. Before applying for a loan, check your credit score. If it’s low, focus on improving it first by paying bills on time, keeping your credit utilization low, and reducing existing debt.

A home loan is a big step and planning ahead for it will help you avoid financial stress. Strengthen your savings, repayment ability, and credit score beforehand to make sure you’re financially prepared.

(The author is the Senior Manager – Communications at BankBazaar.com. This article has been published as part of a special arrangement with BankBazaar)