7 Tips to Determine the Right Home Loan Amount to Borrow
Regardless of the rich or the poor, the financially able or the weak, almost all of the home buyers in the country rely on home loans to get their dream homes. But the process of deciding the loan amount and the actual necessity of the money can be really hard to find for someone who doesn’t know how these things work. To know the same, an applicant should understand his/her own needs, the income, potential future, savings at hand, ability to handle the monthly repayments and also take care of miscellaneous & unexpected expenses.
Lenders do not usually approve the total mentioned amount of the loan. And because of the same, it requires careful financial planning with the ability to manage the income between expenses, loan repayments and also investments. This helped me so much to plan my repayment tenure when I bought one of the apartments for sale in Pallavaram Thoraipakkam Road.
To find out how much money that an applicant should borrow, the following tips can be noted down:
- How much ever the home costs, lenders usually aid in funding only up to 80% of the average market value. If the price of the property is more than 30 to 40 lakhs, few banks provide a loan amount of 90% of the market value. This percentile also depends on other important factors like past repayment records, income records, and credit ratings. If any of these parameters are low, the financial aid sanctioned by the lender might be low.
- We have to forget the notion that the banks/financial institutions sanction the loan by evaluating the gross income. They refer the net income to find out the ability to pay the monthly repayment installments.
- As discussed earlier, the lender might provide up to 90% of the total loan amount. The remaining contribution, which is called as margin money for the loan should come from the applicant’s pockets. Every borrower is supposed to give at least this 10% of the total amount and if the margin money is high, the EMIs and the interest rates will be low for specific loan tenure.
- One of the ideal ways to find out the loan amount to borrow is to evaluate the debt to income ratio. This ratio calculates the debt payments of the borrower to the overall income he/she incurs. There are calculators to determine this online and they come in handy to identify the perfect loan amount.
- The type of property also plays a major role in determining this home loan amount sanctioned. For instance, for under construction projects, the applicant has to include the service tax and the value-added tax whereas the same doesn’t hold for ready to move in properties.
- Rates of interest should also be considered to identify the amount to be borrowed as a loan. The rate of interest depends majorly on the tenure of the loan repayment chosen. For longer loan repayment tenure, the interest levied by the lenders will be more. Also, the applicant should be aware of the teaser rates that banks and financial institutions promise on housing loans.
- For tenants who pay rent, it is better to purchase an own flat in Chennai with and pay the EMIs rather than shedding it for rent every month.
Kindly check out our other blog which helps you in Acquiring a Home Loan.