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Wondering What Affects Your Home Loan Affordability? Read Here Now!

Buying houses without requiring any financial support is something that very few manage to pull off.  What most people do is apply for home loans that provide the required finances for them to complete their property purchases. Now, many people are of the thought that the only expense of taking the loan is to pay off its monthly instalments. It is very important to understand whether the loan amount that is being borrowed can be afforded, and this is much more than just clearing EMIs.

Having a good financial plan in place before applying for the loan can help in getting the best deal possible. So, go through the following factors that will help in understanding what affects your home loan affordability:

  • Lender’s down payment requirement

As per RBI guidelines, banks are only allowed to fund a certain cost of the property purchase. This means that your lender cannot offer 100% financing for the house. Usually, lenders cover 80% of the cost of the property if the loan amount is in the range of Rs 20-75 lakh and 75%, if the loan amount crosses Rs 75 lakh. Now, it is important to be aware of the exact down payment amount you are required to pay, as this will affect your budget for the home loan.

  • Your debt-to-income ratio

You might be earning a very high monthly income, but this does not necessarily mean that it guarantees you a high home loan amount. An important factor determining your loan affordability is the debt-to-income ratio. If you already have multiple loans to repay, the existing debt will already eat into your budget. This leaves you with a lesser amount for the home loan and could be a problem. This is the reason why it is best to not have any existing debt while applying for a home loan to improve your loan affordability.

  • Type of property being purchased

If you are buying a property that has completed construction, you can live in it while paying off the home loan. However, if you have chosen to buy a property that is still under construction, this could lower your home loan affordability. The reason for this is that in this case, you might also have to pay for rent while the new house is being constructed. This reduces your income and can affect your ability to borrow a higher loan amount. Therefore, this becomes an important point to think about before you apply for home loan.

So, these are the factors that a borrower needs to keep in mind to understand their home loan affordability. A simple way to understand this is to make use of a home loan affordability calculator. All that this calculator requires is details regarding the home loan’s interest rate, repayment tenure, your monthly income, down payment, and existing debt obligations. The calculator will then show the loan amount that can be afforded based on these details.

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The True Reason for Using a Home Loan Calculator & How it Ameliorates Your Process – Revealed!

Buying a house is a major sign of achievement, and with it comes a sense of immense pride. However, affording one is not easy at all. Going by the current real estate market, it is almost impossible to afford a house without the help of a home loan. While a home loan does provide the required financial assistance, there are many people who are worried about applying for such loans. The reason for this is that they believe repaying the loan will not be easy.

While this is a valid concern considering a home loan is most probably going to be the biggest liability that they take on, it is not something that cannot be managed. This is where a home loan EMI calculator steps in to help manage the loan EMI payments.

This calculator is an online tool that anyone can use for no cost at all. It is usually made available on most financial institutions’ official websites. Here is why it is important to use one before you apply for home loan:

  • The calculator helps maintain financial stability

After using the home loan EMI calculator, you get familiarised with the monthly instalments of the loan right from the beginning. This helps in being aware of whether the loan plan is affordable and a good option to go for. Since you opt for the loan plan only after taking a look at the EMIs, you are in a good financial position to start saving for the loan.

  • It helps in picking the right loan amount and tenure

The calculator lets you try out different variations. This means that it is possible to change the numbers in the loan amount and tenure to look at different EMI options. This way, you can find the right loan amount as well as a suitable tenure to repay the loan.

  • It gives accurate results in no time

Before these online calculators, the only way of finding out the housing loan’s monthly instalments was through manual calculation. However, this was error-prone and could cause major problems at the time of repaying the loan. Thanks to the EMI calculator, it is now possible to get accurate EMI results that you can rely on.

  • It is very simple to operate

The manual calculation of home loan EMIs was not just prone to human errors but was also quite time-consuming. After these EMI calculators were made available, they made life much easier for an applicant looking to borrow a housing loan. Now, all you need to find out about the monthly instalments of the loan is to just fill up details regarding the loan amount, interest rate, and repayment tenure. The calculator will then display the EMI results.

Now that you know the value of an EMI calculator, make sure to use it before you apply for home loan. This will help in ensuring that the repayment of the housing loan is smooth and hassle-free.

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What is the maximum home loan amount one can apply for?

Owning a house is a big deal nowadays. Hence, a home loan is beneficial when it comes to buying or building your own home. There are certain things that need to be kept in mind if you want to know more about the whole process of buying your own home. Read further to know how much home loan amount you can be eligible for.

How to know if you are eligible for a home loan?

Wondering if you are even eligible for a home loan? You can find out with the help of the home loan eligibility calculator. This calculator makes sure you know the criteria as well as whether or not you meet the standard criteria required to get a home loan. To know if the applicant is eligible for a home loan, the calculations of a salaried /self-employed customer are done based on the applicant’s age, income, expected loan amount, loan tenure and the type of company they work for.

Tips to know before applying for a home loan

  • You can enhance the eligibility of your home loan application by adding a co-borrower/ co-owner
  • You can also opt for a longer tenure loan
  • An additional source of income can strengthen your application as well.

Factors that determine your home loan eligibility 

There are certain factors that determine your eligibility for a home loan; they are as follow:

Steps to take for a home loan

As mentioned above, there are several things you need to understand before you take a further step in this process.

  1. Eligibility

With a few eligibility criteria already mentioned above, different banks have different requirements you need to meet if you want to choose them as your home loan provider. One of the essential requirements is credit history to know how often you tend to repay. The preferred credit score is 750, so make sure you have a tight credit score. Using a home loan eligibility calculator is also one of the ways to determine eligibility for a home loan. The eligibility is estimated considering various factors, including age, occupation, collateral security, income, etc. If you meet these requirements, you are considered for your home loan application.

  1. Pay the down payment amount after meeting your eligibility requirements.

Generally, the applicant is only supposed to pay 10-20% of the total amount as a down payment, but if you can afford to pay more, you can go ahead and do so. The rest can be arranged by taking a home loan from the bank or HFC. For cases when the applicant does not have 10% to pay as the down payment, they can take a soft loan from their friends, relatives or employers. But keep in mind that the lesser the borrowed amount, the lesser the burden of repaying.

  1. Check your affordability beforehand.

Before you finalize an amount you will be paying as your home loan EMI, make sure it doesn’t become a burden. The basic formula to keep in mind while paying the EMI is to look at your loan to income ratio, which should be 20-30% from your income. Don’t decide the EMI amount based on your future raise. And the rest will go easy for you.

Conclusion

These were the things you need to keep in mind if you are planning to buy your own house with the help of a home loan. Choose a trusted home loan provider and unleash your dream of owning a home.

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Here’s How You Can Actually Reduce Your Home Loan Interest Rate!

Your equated monthly instalments (EMI) amount is based on a few core factors like loan amount, tenure chosen and interest rates. While you can pick your tenure and loan amount yourself, interest rates are levied by lenders. However, your interest rate has a significant impact on your home loan EMI. If you get a higher interest rate, you are bound to have a higher EMI. Therefore, you must try to reduce your home loan interest rate while applying.

Here are some ways through which you can reduce your home loan interest rates.

  • Choose lender carefully

You must choose your lender carefully. Not all lenders offer the same interest rates. Some lenders offer the lowest home loan interest rates in the market, provided you fulfil the eligibility. You would need to do some research to check a lender that helps you reduce your interest rates. Opting for lenders that help you restructure your loan and tenure can help you decrease your interest rates during the tenure. In addition, you must note which lender transfers the cut in repo rate to the borrowers. Consider the different home loan interest rates before applying for a home loan.

  • Check your credit score

Your credit score can help you reduce your interest rates. However, for that, you must have an excellent credit score. Lenders usually offer a low interest rate for borrowers who have a credit score of 700 or above. Before you apply for a home loan, check your credit score and fetch your credit report. In case of a low credit score, you should defer applying for a home loan until it is improved. Moreover, if there are any discrepancies in your credit report, request the credit bureau for rectification.

  • Opt for transfer balance

If you find a lender offering lower interest rates, you can opt for a transfer balance. With a home loan transfer balance, you can switch your loan and save on your interest outgo. However, ensure that the difference in interest outgo is substantial, as only a slight difference might not help you save against the cost of the transfer balance. Therefore, it would be best to do a cost-benefit analysis, comparing the total cost and gain of transfer balance before making the switch.

  • Change interest type

Fixed interest rates are usually charged higher than floating interest rates. Therefore, if you have opted for fixed interest rates, you could be paying high interest rates. You can switch to a floating interest rate to reduce the interest rates. Moreover, the home loan interest rates are historically low, but its benefit can be availed only if you have a floating interest rate. You can make the switch with the same lender or with a different lender. However, ensure to do the calculation to know the savings it will help you do.

A high-interest rate can make you spend a high EMI every month, impacting your personal finance. However, these tips can help you save money by reducing the housing loan interest rates. Apply for a home loan today.

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How ‘buy now pay later’ differs from personal loan?

Ecommerce websites are finding newer avenues to lure customers into buying stuff. While discounts, deals, and cashback have become more important than ever, ‘Buy Now Pay Later’ has been introduced by several online sellers to make life easier for buyers. With BNPL, you can purchase the product of choice even if you are short on funds and pay the entire sum at a later point in time.

Although this sounds like an exciting proposition on the part of the online sellers, the concept here resembles a credit card more, instead of a personal loan. BNPL, without a doubt, is slowly emerging as one of the most sought-after online payment schemes and it might not be surprising to see it capture 9 percent of the payment-specific market scheme by the end of 2024.

However, you can even get a personal loan to buy a product of choice, which is an entirely different approach as compared to the BNPL.

How do Personal Loan and BNPL differ?

  • Loan Value

As mentioned, BNPL doesn’t offer cash in hand and is only meant to ease your eCommerce purchase. Therefore, if you want products valued at less than Rs . 1 lakhs, BNPL can be a reliable option to consider. However, a personal loan puts cash in your hands and is the best way forward if you need a bigger sum to manage concurrent expenses.

  • Repayment

Here comes the tricky part that drastically separates these two credit availing schemes. BNPL requires the borrower to pay out the sum within 15 to 30 days, in full. However, if the amount is a sizable one, you can even opt for a 3-month EMI scheme. Personal loans are way more flexible in this regard as you can borrow the sum and select the repayment tenure at 12 to even 84 months, depending on the EMI value you wish to pay.

  • Interest Rates

Personal rate interest rates are fixed. This means, your EMIs will be calculated as per the interest rate agreed upon with the lender in the first place. However, interest calculation can be a tad complex when BNPL payments are concerned. If you plan on paying the sum within the stipulated time frame, the lender doesn’t charge any interest.

However, for delayed payments, the interest rates are more like the revolving credit card liabilities.

  • Goals

As far as the requirements are concerned, BNPL is mainly used to purchase premium goods by paying nothing upfront. Personal loans, however, are more conducive to handling emergencies like house renovation, marriage, higher education, and more.

In addition to these differences, procuring a personal loan and a BNPL facility are also dissimilar when it comes to documentation. Unlike a personal loan that requires several authenticating documents, BNPL depends on your eligibility, eKYC, and credit score.

Bottom-Line

While a BNPL is quite effective and rewarding, it is advisable to get a personal loan for managing scenarios more complex than shopping online. However, if you are confused regarding lenders, pick one at the Finserv MARKETS and get the best deals on any lending scheme.

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How to Get a Personal Loan When You Have Bad Credit

A bad credit score should not hinder you from getting that personal loan to take care of an emergency or consolidate your debts.

 However, you have to put in a lot of work to qualify for these loans, especially if you don’t have a credit history.

Here are a few steps you should consider to get a personal loan with bad credit.

Improve Your Financial Health

If you’re not taking a loan to respond to an emergency, then begin by improving your credit score. This will enable you to afford the loan that you want.

Improve your creditworthiness by paying your bills on time. Ensure the balance on your credit cards is less than 30 percent.

After that, don’t apply for any new credit. The combination of these factors, ranging from on-time payment, no new credit to low credit utilization, will account for 75 percent of your credit score. You’ll not be at 100 percent yet, so you need to move to the next step.

Check Your Credit Score

Lenders have a minimum credit score requirement, so they can reject your application if you have a lower score than their minimum. Also, you’ll find lenders who see it as a business opportunity to offer you a bad credit loan. These bad credit loans come with a higher origination fee and interest rate.

You’re entitled to access one free credit report. So take advantage of that and check your credit report from AnnualCreditReport.com.

Although the report won’t include your credit score, you can still purchase it from the credit bureau or get it free from some financial institutions. If you find any error in your report, get it fixed to improve your creditworthiness.

Get Loan Pre-Qualification

Many personal loan lenders would want you to submit a prequalification before contacting a personal loan Montreal lender.

Prequalification allows the lenders to find out if you can qualify for a loan. They’ll also see if they can offer you a loan without hurting your credit. So take this as an advantage before you apply for a loan.

With prequalification, you can determine whether you qualify for a loan or not, so you know what to do. You can also compare different loan offers that are available online and from some banks.

Add a Co-Signer to Your Application

With a co-signer, you can easily qualify for a loan and get a lower interest rate loan. This is possible because a co-signer’s credit and income information are added to your application.

A co-signer must agree to pay the loan on your behalf if you default.

It’s important to discuss all your loan details and agreement with your co-signer. A co-signer should be able to understand their involvement in your loan terms before agreeing to co-sign.

Research the Available Lenders

As you do your research, try to compare lenders since not all lenders have the same borrowing requirements. Their rates and charges are also different. Compare many options available.

A bad credit lender will offer you an affordable rate. They also offer other important features such as credit-building tools, fat funding, and a mobile app to help you manage your loan payments.

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Banks vs NBFCs – Different Home Loan Variables Explained!

Home loans are long term financial commitments that can span up to decades. Therefore, you must do adequate research on different housing loans to find the one suitable for you. While the home loan interest rate should be a vital determinant of your choice, you must also consider the services offered by a lender and the convenience of dealing with them. To do so, you might have to make one crucial choice – bank vs NBFCs. It could get confusing to pick one of the two. Though they may seem similar on the surface, there are differences between them, which affects your overall home loan experience.

If you are planning to avail a home loan, here is a small guide on banks vs NBFCs to help you make the right decision.

Banks

Banks in India are regulated by Reserve bank of India. Here are the advantages of availing a housing loan with a bank.

  • Overdraft facility

Banks provide you with an overdraft facility on a home loan. Your home loan is linked to a bank account where you can park your surplus funds. The funds over and above the EMI amount are considered as prepayment, reducing your interest outgo and total borrowing cost.

  • Transfer of interest rate changes

RBI has made it mandatory for the banks to follow the marginal cost of funds based lending rate (MCLR) regime for home loan interest rates. With this regime, banks usually transfer the change in interest rates faster to the borrowers.

However, the stringent home loan process and documentation of banks often leads to delay in home loan approval and disbursal for borrowers. Also, if you have a low credit score, you might not be able to avail a home loan with a bank.

NBFCs

National Housing Bank (NHB) governs non-banking financial companies or housing finance companies. NBFCs have to procure certificates from NHB to lend home loans.

  • Higher loan amount

Based on your eligibility, NBFCs usually sanction a higher loan amount. In addition, they include stamp duty and registration charges of the property in the home loan amount.

  • Easier processing

With a relaxed home loan process, you can get a home loan with an NBFC quickly. You might also get a home loan with a lower credit score from an NBFC. NBFCs also have a lesser documentation process. So, if you are unable to get a loan from a bank due to its stringent process, NBFCs can be of great help.

However, keep in mind that NBFCs usually charge higher interest rates.

Summary

Amidst the plethora of options available, it is better to weigh the features of the bank and NBFC while making the decision. While with NBFCs, you might get a higher loan amount, they usually charge higher interest rates. On the other hand, banks have a complicated documentation process and require a high credit score. Therefore, it would be best to assess your needs and then make a decision. If you have a low credit score but are in search of a high loan value, you can opt for a loan from NBFCs. However, if you wish to have an overdraft facility and low interest rates, banks could be a better option for a home loan.

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How to Get a Home Loan with Minimal Documentation?

The enormous price hike in the real estate market has prompted many homebuyers to avail a home loan for purchasing a property. With reputed lenders, it’s possible to avail a housing loan through a hassle-free online application process. Simple eligibility criteria, minimal and paperless documentation have further encouraged a great number of homebuyers to apply for a housing loan.

If you too are looking for a housing loan, you must keep all the necessary documents handy. This will reduce the processing time, and help you avail the loan amount within a short span.

Some of the important documents required for a home loan are mentioned below:

Documents Required for Home Loan

  • Passport size photograph
  • Identity proofs- PAN Card/ Aadhaar Card/ Voter ID
  • Residence proof – Passport/ Voter ID/ Driving Licence/ Aadhar Card/ Electricity Bill

In addition to the above-mentioned documents, you will also have to furnish the income proof as follows:

For salaried applicants

  • Salary slips for the last three months
  • Form 16 and Income tax returns for the last two years
  • Original six months bank statements
  • Original six months bank statement of any other bank account
  • Details of any existing loan availed along with its track record.
  • Property documents
  • Sanction letter

For self-employed applicants

  • Bank statement/passbook for at least past 1 year
  • Bank statement of last 1 year of any other bank account. The bank details must contain the account holder’s name, account number, bank name, and branch.
  • Last 3 years profit and loss account and balance sheet certified by a Chartered Accountant.
  • Degree certificate
  • Last 3 years Income Tax Returns, including your Business’s IT returns.
  • In case you have a partnership firm, you will have to provide registered partnership deed.

Make sure to keep these documents handy before starting your loan application process. Apart from verifying these documents, the lender may also evaluate various aspects such as your credit score, monthly income, job profile, employment history, etc. while determining your home loan eligibility. You can boost the approval chances of your loan application by minimizing your debt-to-income ratio and improving your credit score before beginning the process.

Once your home loan is approved and the loan amount is disbursed, it should be your prime responsibility to make timely loan repayment. Make sure that you do not delay or default on your EMI payments. You can make use of an online home loan EMI calculator to get an estimate of your monthly instalments. It’s advisable to settle for an affordable EMI, as it will help you repay the loan without straining your finances.  If you have a high repayment capacity, you must consider opting for a higher EMI outgo. This will allow you to close your loan sooner and save on the total interest pay-out. In case of any query while applying for a home loan, you can seek the help of a financial advisor for making a well-informed decision.

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Tips for applying for home loans when you are self-employed

Many banks and financial institutions have a streamlined process for home loans that are similar for salaried and self-employed individuals. However, when it comes to your income and employment, the eligibility criteria differ. This is because the nature of income and its stability are different.

They ask for a varied set of home loan documents required to fulfil the set parameters. You also get the loan amount sanctioned differently than salaried professionals. It is best to check the same with the home loan eligibility calculator. If you are confused going into the process due to separate parameters, read on to find out what you need.

Documentation: The paperwork for the loan process consists of personal identity proof, resident proof, age verification, banks statements of the last six months, a professional practice or business certificate, tax returns of the previous two years, proof of business continuity, profit and loss statements, etc. These requirements vary from lender to lender. However, it is best to stay prepared with the standard documentation to calculate home loan eligibility with ease.

Stability: Lenders evaluate your income based on the past two years’ performance or your business or professional practice. They are concerned not only about your earnings but its feasibility. They want to see the tangible profits you produce to gauge the longevity of your entrepreneurship.  This is why most start-ups struggle with being eligible despite backable funding. So, make sure you have sustainable revenue to show for your home loan eligibility.

Tax returns: Inconsistent tax filing is a norm if you have a small-scale business without a proper auditor. However, not only does this affect your financial statements but also your home loan application. To satisfy eligibility for home loan, you should have filed tax returns properly for the past two years of application. You should also have all the documents required to prove the same. So, make sure to stay up to date with your filing and avoid delay.

Good credit history: This remains the top priority for lenders for sanctioning loan to all applicants. It becomes even more prudent for self-employed as there is a frequency of debts involved. They finalise your home loans eligibility by evaluating your credit history. They analyse your credit score, which should be 750 or above. They also look at your repayment patterns from the credit report. It is advisable to pay off debts that are written off to sustain a healthy rating.

Most of the parameters remain the same. However, your maintenance of profit and loss statements and other financial documents is essential for a smooth loan process. The lenders scrutinise your applications with stringent terms due to fluctuating income. It is best to create a solid financial standing to counter such concerns.

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Top 5 Mistakes to Avoid Before Opting for Loan Against Property

A Loan Against Property can be of great help when you require a large amount of money. It is basically a secured loan, wherein you can mortgage the property to the lender in order to borrow the loan amount. Since it is a multipurpose loan, the loan amount can be utilized for various purposes such as funding your child’s higher education, managing his/her wedding expenses, etc. In case you wish to apply for a Loan Against Property to fulfil your monetary requirements, ensure to avoid these critical mistakes as they can cost you dearly in the long run.

Avoid These Mistakes before Availing a Loan Against Property

  1. Not checking your loan eligibility

Your loan application will be approved only if you satisfy the eligibility criteria set by the lender. You can check your eligibility using a home loan eligibility calculator. Not checking your loan eligibility before applying for a Loan Against Property can lead to the rejection of loan application. Lenders usually check your age, income, existing EMIs, credit history, and the current value of your property to decide on your loan eligibility. Moreover, for processing the loan application, you would be required to submit documents such as age proof, income proof, address proof, property documents, etc. To ensure a smooth loan application process, ensure to check the loan eligibility beforehand and keep all the necessary documents handy.

  1. Not evaluating your repayment capacity

You must not forget that a Loan Against Property is a secured loan wherein your property acts as collateral. Thus, if you fail to repay the loan amount within the stipulated time, the lender reserves the right to seize your property to recover the loan amount. To avoid this, it’s better to apply for a Loan Against Property only after evaluating your repayment capacity. Also, do not overborrow, as it can be financially burdensome at a later stage

  1. Not choosing the loan tenure wisely

It’s advisable to settle for a loan tenure that works the best for you. However, opt for a shorter tenure if you foresee an increased income in near future, or you can afford to pay back the loan sooner. A shorter tenure attracts a lower interest cost.

  1. Neglecting your credit score

Your credit score not only enhances the chances of loan approval but also makes you eligible for a competitive interest rate and favourable loan terms. A credit score of 750 or above is considered to be good enough by most lenders. Therefore, do not ignore the importance of a high credit score and work towards improving it before applying for a Loan Against Property. You can boost your credit score by clearing outstanding dues, having the right credit mix, and decreasing your credit utilization ratio.

  1. Not checking the prepayment and foreclosure charges

The prepayment facility would allow you to close the loan sooner and save on the interest pay-out. However, lenders usually levy a foreclosure charge in case you prepay your loan. Ensure to read the prepayment clauses and charges set by the lender before applying for a Loan Against Property.

At Kotak Mahindra Bank, you can easily avail a Loan Against Property up to Rs 5 crores, and with minimal prepayment charges. The application process is online and hassle-free. Apply for a Loan Against Property and take care of your monetary needs with ease, today.

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