Investing in home loans as a first-time loan buyer can be a nerve-wracking experience. From determining your home loan eligibility to calculating your equated monthly installment (EMI), you might need a little assistance as you first start the process of looking at housing loans and finding the one that’s right for you. Here are some key terms that you should be familiar with:
1) Home loan eligibility
This is the amount that a bank will loan to you after discounting your gross salary and personal credit history. Each bank has certain set of calculations to derive your home loan eligibility from your net monthly income.
2) Down payment
Banks require that a person seeking to buy a home loan contributes a certain amount as well. It can be in the range of 15% to 30% of the purchase price, depending on your lender and your own credit history and income.
3) Interest rate
There are two types of interest rates available. The type of home loan you will eventually select is based on the interest rate – fixed or floating.
Fixed interest rate: In this case, the interest rate remains the same for the entire tenure of a loan. Some banks might offer to you the option of the interest rate to be reset after a 2-years period, while some other banks might give you the option to switch to a floating interest rate after completing five years of your loan period.
Floating interest rate: In this case, the home loan interest rate changes frequently during the tenure of your house loan.
This is the amount that you will have to pay to the bank every month for a given period of time (loan tenure), depending on the interest charged on your loan.
5) EMI calculator
A home loan EMI calculator should be used as a guide to help you understand what loan amount you are eligible for and what your EMI will be. Using a calculator is especially useful because when you approach a bank or financial institute for a loan, you can directly apply as per your eligibility.
You might also consider sharing the ownership of your loan with a co-applicant. Having a co-applicant who earns a regular monthly income will increase your combined home loan eligibility.
7) Credit appraisal
Credit appraisal is the examination of your credibility to judge your ability to repay the home loan. Banks check your income, age, past experience, qualification and even any existing loans, if you’re not a first-time loan buyer. The credit appraisal gives the lending bank an insight into your past record to determine your home loan eligibility.
Let nothing stop you from finding your dream home, least of all lack of funds. To finance your purchase, you will need to apply for an appropriate home loan. The jargon involved when buying home loans can be confusing. Make your home buying process easier by being acquainted with the relevant terms. Become an expert on the subject and find the perfect home with no trouble for you and your family.