Deciding to purchase property and fulfilling one’s dream of having a roof over one’s head to call one’s own is a dream that is cherished by many. But before taking that final step towards realizing that dream, one needs to be completely prepared. Preparing to take a mortgage requires an immense amount of hard work and research. While researching for property purchase looking up home loans interest rates or finding out the best home loan rates in India is not enough. You need to really ask yourself whether you are really prepared to invest in your own house. Here are some metrics that you can judge your own preparedness by.
Affordability with total purchase price as a premise
Affordability is the obviously the first thing you need to ask yourself if you are planning to opt for a mortgage soon. While calculating their purchasing power people take into consideration the EMI on just the value of the property. More often than not they fail to take into consideration the loan to value ratio. As per the guidelines from the Reserve Bank of India, the loan to value ratio for properties less than Rs 20 lakhs is 90% and for loans above Rs 20 lakhs the loan to value ratio is 80%.
Therefore, if the price of your property is Rs 50 lakhs, the bank will only give you a Loan Against Property of Rs 40 lakhs and the remaining Rs 10 lakhs have to be sourced by you. Besides there are other related costs of property purchase such as stamp duty, registration and brokerage fee which can go up to as much as 15% of the total cost of the property. All of these funds has to be arranged by you so you need to adequately prepared and aware of your purchasing power and affordability.
A high CIBIL score
The RBI has now made it mandatory for all lenders to check out the CIBIL score of an individual as a part of their credit assessment procedure. If you are planning to invest in your own property with a mortgage it is therefore an imperative to have a high CIBIL score of at least 750–800 (out of 900). In order to improve CIBIL score before applying for a home loan, you have to maintain strict financial discipline. This means meeting all your credit commitments on time and displaying good credit behavior. Make sure that you have not enquired or opted for any fresh credit prior at least six months prior to opting for a home loan. These result in fresh enquiries on your CIBIL report and shaves off CIBIL points. The higher your CIBIL score, the better are your chances of procuring a home loan at an attractive rate of interest.
Stable on the personal and professional front
There is no doubt about the fact that a home loan or a mortgage is long term financial commitment and you must be adequately prepared for the same. If you are planning to take a joint loan with your spouse, ensure that you both are equally committed not just to your relationship but also the fact that your will bear the debt burden jointly. If there is even a niggling doubt about whether you both are equally committed and ready for the purchase, you should indeed re–consider your decision. Just as stability matters on the personal front if you are planning to take a joint home loan, stability is just as important on the professional front. If you are planning to take a home loan, your lender will ask for your salary slips and the longer you are employed with your company, the better are your chances of instilling confidence in your lender about your re–payment capabilities. Thus quitting a steady job before you opt for a home loan is certainly not advisable.
Ready for a long term financial commitment
At the risk of sounding repetitive it must be re–iterated that a home loan for the purchase of your own property is a long term financial commitment and you need to stay focused and even consider making some changes big and small to your lifestyle. Financial prudence says that one should follow the 50–30–20 rule while opting for a home loan, wherein 50% of your salary must go towards your home loan repayment and other fixed costs, 30% should be directed towards variable income and 20% of your salary must certainly go towards savings. Just because you are purchasing property, does not mean your financial plan should go haywire. On the contrary, property purchase should be a part of your financial plan and you should have had saved towards it.