Buying your dream home? Know these home loan truths to avoid nasty surprises
A home loan helps you achieve peace of mind by providing you with one of the basic necessities of lifea roof over your head. But if you dont borrow right and are not aware of the financial and tax implications, a home loan can rob you of that very peace of mind. Ask Yatindra Salian. The Bangalore-based software professional learnt a hard lesson five years ago when he and his sister jointly applied for a home loan.
No one was willing to give me a loan because the co-borrower was my sister. A big foreign bank initially agreed to lend Rs 31 lakh but later backed out, he says.
The cancellation left the Salian siblings in the lurch because they had already booked the house as joint owners. With the payment deadline fast approaching, they were forced to settle for a lender who charged a very high rate of interest. This could have been avoided had they tied up the financing before applying for the property.
ET Wealth tells you about certain home loan truths so that you dont face such a situation. Whether you are planning to take a loan, are servicing one or intend to foreclose it, these insights into home loans will help you avoid nasty surprises and get the most out of your borrowing.
Before you apply
What decides your borrowing capacity:
The green signal for the loan is given once a bank is confident of your ability to repay the sum. The criteria for deciding the home loan are primarily the cash flow and expenses of the borrower, says R K Bansal, executive director and chief financial officer of IDBI Bank .
However, its difficult for lenders to figure out the expenses of each loan applicant because every individual has a different spending pattern. So, banks typically assume that up to 40%! of your monthly income can go into paying the EMI. If an individual has a monthly income of Rs 1 lakh, the maximum EMI he would be able to pay is Rs 40,000.
The loan amount is then calculated on the basis of the tenure and interest rate. For instance, if the interest rate is 9.5% and the tenure is 20 years, the individual can take a loan of Rs 43 lakh. If the interest rate was higher at 10%, the loan eligibility would have come down to Rs 41.5 lakh. Similarly, if he had gone for a shorter term of 15 years, the loan eligibility would have dropped to Rs 38.5 lakh.
Banks also take into account other liabilities of the borrower while determining his loan eligibility. We try and assess the expenditure and liabilities of the borrower. The total expenses (including EMIs of other loans taken) should not be more than 55-60% of the total monthly income, says Kamlesh Rao, executive vice-president and business head of personal finance at Kotak Mahindra Bank .
No one was willing to give me a loan because the co-borrower was my sister. A big foreign bank initially agreed to lend Rs 31 lakh but later backed out, he says.
The cancellation left the Salian siblings in the lurch because they had already booked the house as joint owners. With the payment deadline fast approaching, they were forced to settle for a lender who charged a very high rate of interest. This could have been avoided had they tied up the financing before applying for the property.
ET Wealth tells you about certain home loan truths so that you dont face such a situation. Whether you are planning to take a loan, are servicing one or intend to foreclose it, these insights into home loans will help you avoid nasty surprises and get the most out of your borrowing.
Before you apply
What decides your borrowing capacity:
The green signal for the loan is given once a bank is confident of your ability to repay the sum. The criteria for deciding the home loan are primarily the cash flow and expenses of the borrower, says R K Bansal, executive director and chief financial officer of IDBI Bank .
However, its difficult for lenders to figure out the expenses of each loan applicant because every individual has a different spending pattern. So, banks typically assume that up to 40%! of your monthly income can go into paying the EMI. If an individual has a monthly income of Rs 1 lakh, the maximum EMI he would be able to pay is Rs 40,000.
The loan amount is then calculated on the basis of the tenure and interest rate. For instance, if the interest rate is 9.5% and the tenure is 20 years, the individual can take a loan of Rs 43 lakh. If the interest rate was higher at 10%, the loan eligibility would have come down to Rs 41.5 lakh. Similarly, if he had gone for a shorter term of 15 years, the loan eligibility would have dropped to Rs 38.5 lakh.
Banks also take into account other liabilities of the borrower while determining his loan eligibility. We try and assess the expenditure and liabilities of the borrower. The total expenses (including EMIs of other loans taken) should not be more than 55-60% of the total monthly income, says Kamlesh Rao, executive vice-president and business head of personal finance at Kotak Mahindra Bank .
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