How to Decide Your Affordability

Ms. Kruti Jain, Director, Kumar Urban Development Ltd A home is made up of hope and dreams and it is seldom that snap decisions are taken in making this important purchase.

Today the customers are more aware and conscious when buying homes, especially when it comes to seeking a home loan. But there are certain important factors that determine a customer's affordability to buy a home. Onset, credit score is something the customers must be well acquainted with. Good credit score can be maintained by being responsible with debts you already have. One must pay more than the minimum required monthly payment, and be sure to make payments on time. Hold off on applying for new credit. Too many credit requests in a short period of time can weigh down your score. Once your score improves, you can start thinking about new lines of credit, and you'll receive lower interest rates, which can save you money for years to come.As far as home loan eligibility factors are concerned, they too play an important role in customer's affordability to buy a home. However the following factors are important:

1. Income of the applicant: The amount of loan you are eligible for depends directly on your income. Your actual situation might be anything, but the simple logic is that higher income person can pay more EMI and hence he/she can take higher loan.

2. Age of the applicant: Paying a home loan is a long term commitment thus the age of the applicant does matter because banks have to ascertain the tenure you can pay off the EMI. People in their 30's stand a better chance while people in the 50's may not get loan owing to the nearing of their retirement age.

3. Past Credit: If someone has a bad repayment record, then he/she might not get the loan itself. But in some cases where bank considers the application it might happen that they only approve a certain percentage of the eligibility.

4. Relationship with the Bank: A lot of banks (especially PSU and cooperative banks) still look at your past relationship very seriously. If you have an account with bank from last 10 yrs, it will matter a lot sometimes.

5. Profession and Employer Category: Some professions are categorised as negative or risky by the lenders. People in such professions may find it difficult to get a loan sanctioned. What a lender requires is a stable income for a very long term. Almost all the banks categorize various big companies into A,B,C category and offer different interest rates to their employees.

Lower interest rates offer a lot of relief to the customers. It means cheaper finance, higher eligibility, and best of all, lower EMIs for new borrowers. However for existing borrowers want to truly benefit from a drop in interest rates, they should not wait and draw down their loan. If you are offered a minimum margin with the base rate, it is definitely a better deal for you. If tomorrow, the base rate goes further down, you may end up getting a higher margin & the same rate.

Lastly, it is advisable to save as much you can to make a down payment for the purchase. The more you can pay without a bank loan help, the better it would be for you. Apart from saving some money, sell some assets if needed; or seek help from parents or other willing family members for making a substantial down payment. You won't need to pay interest back to your family, just the principal some. The lesser loan you take from the bank, the shorter will be the payment course and the lesser the interest payment.