A home loan may be available to those with good credit ratings. Besides, you need to consider other aspects before you apply for a home loan. Your income, your salary and other factors will all affect the amount of loan you can get. You will also need to know the cost of the house you are looking.
The price of the house you want to buy
A home loan should not cost you more than 5 times your annual income. It will allow you to pay the EMI without affecting your household budget. If you have been in a long-term banking relationship with the lender, do not hesitate to negotiate a lower rate. To get a lower rate, you should also make use of your credit score. A bank would never lose a customer. Therefore, you may get a lower rate of interest.
The ratio between lender and borrower
The lender will ask about any existing debts, including personal loans and car loan EMI, when you apply for a home loan. The EMI on a loan amount exceeding 45-50 percent of your monthly take-home income is not approved by banks, in most cases. It is better to borrow a home loan where your EMI does not exceed 35 percent of your monthly income. To increase your home loan eligibility, you can also add your spouse’s income.
What is your credit score?
High credit scores can help you qualify for the lowest home loan interest rate when you apply for a loan. Banks will offer a better deal if you have a good credit score. Most banks and lenders consider a credit score of at least 750 to be good credit.
Choose a shorter duration
For the same loan amount, the EMI is lower for a longer term and higher for a shorter one. To keep EMI low, you should opt for a longer term. Otherwise, your total interest burden will rise. To keep the interest cost low, choose a shorter loan term. The situation will entirely depend on your monthly income, loan taken, tenure, and property cost.
Loan tenure is important
Banks will offer you a longer-term and encourage you to use it as a way to lower your EMI when you apply for a home loan. A longer tenure will result in higher interest rates. The principal component of the loan is smaller while the interest component is greater during the initial tenure.