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How To Evaluate Your Need For A Home Loan

In today's India, compared to a decade ago, home loans are easy to get. The popular assumption is that whoever wants a home should take a home loan. But, how many of us actually evaluate our need for a home loan? Here we highlight some factors that you should consider while deciding your need for a home loan.

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1. Affordability:

   The first step that a home loan borrower should take is to analyse how much loan they can afford. The following factors should be considered to decide the loan amount:
   
   
   • Income: You must analyse whether your income will be able to support the EMI on your home loan or not. This should be done bearing in mind your current income and expenses, and how you expect these to grow in the future.
   
   
   • Down payment: You will be expected to pay around 20% of the property value that you intend to buy as down payment to the developer. Before applying for the home loan, ask yourself whether you have the funds to meet the down payment or not. Keep in mind that the bigger loan you want, the more money that you will have to put up towards the down payment.
   
   
   • Job stability: Are you in a stable job and do you feel secure about your income? In case there is a risk of you losing your job, you should avoid taking a home loan as it might not be prudent to take on a huge EMI obligation when there is a danger of an interruption in the income you earn.



2. Requirements:

   Depending on the type of home loan, the lender will have different criteria for each end use of the loan funds. Understand what specific need you have from your loan type so that you don't take a loan for the wrong purpose. Sometimes loan rates might also vary depending upon the end use, so its advisable not to take wrong kind of home loan or apply for the wrong kind of loan.
   
   
   • Buying from a developer: If you are buying property from a developer, you can either opt for a ready for delivery property or an under-construction property. You need to provide the lender with details like a copy of the sale agreement of the property, regulatory clearances, commencement and occupation certificate. The disbursal can be a lump sum payment, or based on a construction-linked plan, but in both cases will be paid directly to the developer.
   
   
   • Self-construction: Lenders can provide you a home loan for both buying a plot of land and constructing a house on it, or for only construction of a house on a previously-acquired plot of land. For a self-construction property, you need to provide the lender details of plot acquisition like the title deed, the sanctioned construction plan from the architects, and a complete construction cost breakdown. As for the loan amount, you will receive partial disbursements from the lender depending upon completion of various stages of the construction process.
   
   
   • Repair: You can also approach a lender for a loan for repair of an existing property that you own. To get a loan for repair of a property, you first need to get clearances from the concerned authority for further construction. The lender will expect you to provide documents like title deed of the property, license for the extension, estimated costs from an architect, and the sanctioned plan. As for the loan amount, the lender may disburse this amount in full or in instalments, depending on the progress of the repair work. Typically, a lender finances up to 85% of the cost of renovation.
   
   
   • Investment: You might have an existing property that you don't want to sell, but want to raise a loan against it for making another investment or for some other investment purpose. In such a situation, you can take a loan against property (LAP). Like for some other home loans, the lender will conduct thorough due diligence on the property to establish your ownership rights of the property. Interest rates for LAP might be different than for other types of home loans.



3. Track record and credit history:

   Your home loan need is based on your personal requirements. The amount of need you have may be affected by your track record with loans and your credit history. For instance, if you want a Rs. 10 lakh home loan, but have been irregular with your EMI payments on your car loan, the lender may not find you suitable enough for this amount of loan. Whereas, if you have a good credit history, the lender may even be agreeable to give you a loan for a higher amount.

So don't just blindly take a loan - understand how much loan you can afford and what type of loan might suit you best.

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