Presently, Interest rates on Home Loans offered by Banks and other lending institutions such as NBFCs are at a multi-year low. With a good credit profile, one may get a Home Loan at an interest rate of around 7%.
Considering the prices of real estate haven’t increased over the last few years, and this could be the right time to own a home for those who live on rent.
But, there are a few important things to keep note of before you take a home loan.
The amount of loan that you are eligible to get will depend on various factors, such as your current salary income, etc.
In also addition, you need to think about the price of the house that you are considering buying. Here the Funds Instructor suggests few rules to help you in buying your own house on loan, which may vary depending on an individual’s circumstances.
1. Price of a House
Remember, the price of the house that you are looking to buy on a Home Loan shouldn’t be more than 5 times your annual income. with the help of this rule, you will be able to service the EMIs comfortably without stretching your household budget.
2. The Rule 35/50
While you taking a Home Loan, the lender will ask you about your existing liabilities as well as EMIs of your personal loan or car loan too. Banks generally do no lend an amount on which the EMI will be more than 45%-50% of your monthly take-home pay.
It’s better to take a loan where the EMI of the home loan is not more than 35% of your monthly income while total EMI including car loan etc should be restricted to 50%. And If there is no other loan, you may go up to 50% with a home loan.
With the help of this rule, you will have the opportunity to save for long-term goals as well. And you can add spouse income to enhance home loan eligibility as well.
3. Credit Score or CIBIL Score
Borrowers who have a high credit score are eligible to get lower rates of interest on home loans from some banks.
Your credit profile helps you in getting a better home loan from banks. As per the rule, a credit score of 750 and above is considered to be a good credit score by most banks and other lenders.
4. Choose Short Duration
As per this rule, if you keep a longer tenure to keep EMI’s low, the total interest burden will be high. And, to keep interest costs low, opt for a lower duration of the loan.