The right home loan product can be the perfect answer for most people aspiring to buy a home. Buying a house using personal savings is not always a good idea as it can be time taking. Someone else might purchase the home you are planning to buy in future through personal savings. Also, home prices keep increasing by the day. Taking a home loan will reduce your financial burden to a great extent. You won’t have to compromise with the accommodations or neighbourhood. However, it’s crucial to note that home loans are a long-term financial commitment and choosing the right loan amount is critical.
How much home loan amount can you get?
The home loan amount one can get for a home purchase is contingent on multiple factors. Here are some crucial factors that influence your home loan amount eligibility.
1. Loan-to-value ratio
The loan-to-value ratio measures the percentage of current home value issued as a loan. For example, if the house you are planning to buy costs INR 50,00,000 and the loan amount sanctioned is 45,00,000, the loan to value ratio will be 90%. Generally, this ratio is between 75% to 90%. However, it can vary greatly depending on the lender’s policies and the borrower’s profile. PNB housing loans offer an excellent LTV ratio.
2. Down payment requirements
Most home loan institutions ask borrowers to deposit a down payment amount for the home loan. It is also contingent on the LTV ratio. For example, if the LTV ratio is 80%, the borrower will have to deposit 20% of the property’s value as a down payment. This is the minimum requirement. However, you can always pay a higher down payment to reduce interest expenses.
3. Repayment capacity
The third and most crucial factor determining your eligibility for a given home loan is your repayment capacity. The lender will evaluate your repayment capacity by assessing your credit history, score, income, and debt obligations. It is essential from the lender’s point of view as they want to minimise the bad debts. Even though it‘s a secured loan, the lender evaluates the borrower’s repayment capacity before finalising the loan amount.
Tips for choosing the right home loan amount
Now that we have discussed the eligibility for a home loan amount let’s learn how to choose the right amount. Here are some crucial factors you must consider to select the right home loan amount.
1. Cost of borrowing funds
The cost of borrowing funds or interest rate is an essential factor to consider before applying for a home loan. Home loans have a relatively lower interest rate. However, the exact rate of interest offered varies based on the borrower’s credit score and history. If the cost of borrowing funds is high, you must try to pay a high down payment to reduce the overall interest expenses. Comparing different home loan products can help you find the most affordable one.
2. Prepayment charges
Prepaying a home loan in part or full can reduce interest expenses. However, in some cases, financial institutions levy a prepayment charge. If you plan to prepay a significant portion of the loan amount soon, it’s crucial to learn about the prepayment policies. If there is a considerable fine, try to borrow the minimum required loan amount.
3. Income and existing debt obligations
Assessing your income and existing debt obligations is crucial before choosing a home loan amount. One can use a home loan eligibility calculator to see if they match the minimum income criteria. Assessing existing debt obligations, current & projected income is crucial to finding the right EMI amount. You must carefully plan the EMIs to avoid defaulting on the home loan.
These were some crucial factors to consider before applying for a home loan. Choosing the right home loan amount is vital for your financial well-being and credit history. PNB housing loans are among the most affordable home loans in the market. Apply for a home loan today!