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Irrespective of your financial standing, a first home has a very special emotional place in your heart. Then, why should it be a cause for anxiety? The reason is obviously the housing loan that we need for buying the house. Questions that arise are before buying a home are: How much will I get as loan? How much paperwork will be involved? Will my application be rejected? What if I get a raw deal on the interest rate?. And so on.
The Down payment dilemma
Most banks and housing finance companies fund only up to 80% of the cost of the house. It means that we have to arrange for the balance 20%. The best way to do this is to have sizeable savings, which can be used for down payment. In fact, if you have cash, it is better to make as big a down payment as possible. You straightaway save on interest.
What if you have no cash in hand?
Ideally, one should not take a home loan if there isn't enough savings for the down payment. Nevertheless, in situations where it is not possible, see if any of the ways mentioned below can help:
Bridge Loans:
Many employers offer bridge loans at minimal interest to help employees buy assets. Enquire if your employer can give you a bridge loan.
Request the builder:
Some promoters/builders can be magnanimous enough to let you pay a minimal down payment and pay the balance later. The key is to ask.
Jewel Loans:
If there is gold jewellery in the house, you could encash it as a loan to tide over the immediate need. Simultaneously, we need to be aware that the interest will be an extra burden!
Check your investments:
If you have investments, and if the returns on them is at least 2% less than the interest rate being charged on the loan, then it is better to redeem them and use the amount for downpayment.
Credit rating and eligibility dilemma
Knowing how a bank calculates your loan eligibility will help you put things in place before you apply for the loan. Principally, every lender looks for two things in a borrower:
Ability to repay:
This is decided by looking at your current income, other income sources, monthly cash flow (to decide whether you can service your EMI and still live a good life style), age to retirement, job profile, employer profile, etc.
Intention to repay:
This is decided based on your history of loans/credit cards with the same lender or other lenders. Your Cibil score will be a big indicator of the same.
How to meet a bank's 'ability-to-repay' criterion?
Income:
Good income is the main criterion. A lender will look at your salary statements or income-tax filings to ensure if you can service the loan properly. In case you are expecting a hike or bigger profits, apply for the loan after you get the hike or after having shown higher profits on your returns.
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