An individual can apply for home loans to get sufficient funds for investment in buying property. Potential home buyers need to bear several expenses while investing in a property. Housing loans help to reduce the financial strain on buyers.
However, one should factor in the appropriate time for a home loan application to receive maximum benefits for minimum expenses.
Factors that determine the right time for a housing loan application
Obtaining housing loans at the right time can impact a borrower’s financial health. Although applying for such loans is not difficult, finding the right time is crucial. Here are some instances to consider while deciding on the time of a home loan application:
- Other obligations
Potential borrowers having no other existing loans or credit card payments should consider opting for a home loan procedure. When a person has current obligations, the responsibility toward loan repayment increases and lending institutions sanction a lower loan amount if the existing obligations are more. This is because such institutions verify a person’s financial status when he or she obtains multiple loans at a time.
So, one should apply for a home loan only after clearing existing loans. In this way, an individual’s credit score will be higher, and he or she will be eligible for high-quantum loans at competitive interest rates.
- Sufficient savings
Individuals should save substantial amounts to pay the down payment part of a home loan conveniently. While applying for housing loans, one needs to factor in a property’s Loan to Value Ratio (LTV). A lending institution sanctions a particular loan amount based on this factor in addition to other points like salary, credit score, etc. Thus, the difference is the amount that needs to be paid as a down payment. For instance, if a property’s value is Rs. 1 crore and a lender offers a housing loan of Rs. 80 lakhs, the borrower needs to pay Rs. 20 lakhs as a down payment.
However, one can choose to pay a higher down payment amount and lower the EMI burden. If a borrower’s existing lender does not offer a better deal in terms of interest rate, he or she can opt for a home loan balance transfer and further decrease the burden.
- Additional sources of income
There are several reasons why the 20s are an ideal time for taking a home loan. At this age, an individual’s earning capacity is more, and he or she can opt for additional sources of income effortlessly. A person’s salary strength directly determines his or her repayment capacity. So, lenders evaluate this point before sanctioning a substantial housing loan amount.
Ideally, a borrower’s EMI should not exceed 40% of his or her monthly income. Using a home loan EMI calculator, one can easily calculate the EMI due towards a housing loan. This way, they can ensure to pay suitable EMI amounts without any burden. Additionally, one can increase the loan amount effectively without an increase in EMI by utilising the maximum available tenor. This applies to individuals in their 20s who have considerable time left till retirement.
- Interest rates
Ideally, potential home buyers find it convenient to apply for home loans when the lending institutions offer loans at a lower interest rate. A lower home loan interest rate means a borrower’s EMI burden reduces. While applying for housing loans, one can choose a fixed or floating interest rate per requirements. In the case of fixed interest rates, the rate remains constant throughout a tenor. On the other hand, it fluctuates based on market conditions for floating rates.
Additionally, one can follow a few tips to reduce the home loan interest.
- Due diligence
Lending institutions carry out their due diligence before disbursing and processing a housing loan amount. If they find any issues, they can reject the loan. Therefore, applying for home loans is practical once the due diligence is completed.
Some lenders also provide pre-approved offers to simplify the loan approval process. These offers are available on several products including home loan and loan against property. Borrowers can check their pre-approved offers by entering basic details like name and phone number.
So, potential borrowers wondering when is the right time to apply for home loans can refer to the above-mentioned points and make an informed decision.