5 tips to help you plan your finances better before considering a Home Loan EMI
Discover 5 essential tips to organize your finances smartly before applying for a home loan. Plan better to manage your EMI stress-free and achieve your dream home with confidence.
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Applying for a Home Loan without financial planning is like shooting in the dark. You end up feeling overwhelmed by all the expenses you had not considered, along with EMI payments. Proper financial planning helps you manage your costs more effectively, making your dream of owning a home a reality. Here are some tips:
- Reduce your debt-to-income ratio
When considering your Home Loan application, banks often look closely at your debt-to-income ratio. Your monthly debt obligations drawn against your monthly income are a good way to gauge your paying capacity. So, get your Credit Card balance down as low as possible and consolidate your debts into lower monthly payments.
- Loan amount
Currently, you get 80% of the property value as the Loan amount. You will need to arrange a down payment of 20%. This amount should not be raised through a Loan or debt. It is advisable to have at least 40% down payment from savings so that your Loan would not be a significant burden.
The best way to do this is by putting aside an amount equal to the EMI in a recurring deposit. This will help you get into the habit of saving that amount every month and accumulate a larger down payment.
- Show your best credit behaviour
The way you have handled debt in your past is the best indicator banks have of how responsible you would be with future debt. Missed payments or accounts in collections will give them pause. Think about how reliable a borrower you have been. To boost credibility, ensure you repay all debts on time before applying for any new type of credit from the bank.
- Maintain a good CIBIL score
A credit score above 750 is good. All banks typically consider it as one of the many factors they evaluate before advancing a Loan. Clear all your existing Loans or debts, such as Car Loans and Personal Loans, before buying a house. You may still be able to get a Loan without good credit, but the rates available might leave you paying more than you should.
A good credit score offers numerous benefits, including a lower interest rate, a higher Loan amount, a quicker Loan approval process, and a longer repayment period.
- Contingency fund
Before calculating your instalment amount using the House Loan EMI calculator, leave a margin of at least three months' EMI as a reserve. It might seem like a small amount, but this reserve will come in handy in case of any unforeseen circumstance where you are unable to pay EMI on time. Any default on EMI can damage your creditworthiness for future purposes.
Conclusion
Familiarise yourself with the changing trends of the real estate market by reading newspapers, websites, and magazines. The Indian Government has launched the Pradhan Mantri Awas Yojana, which offers lower Home Loan interest rates. Do thorough research to make your home-buying experience profitable.
