Are You Really Ready to Buy a House with a Home Loan?

Buying a home is not just an investment but a large piece of most of our dreams. It’s a place we can call our own and live with our loved ones.

The current economic climate makes it challenging for most of us to afford a home. So, does this mean we ought to give up on our dreams? Not really. There are options out there to finance this dream. And home loans are one of those popular options.

Let’s assume you have some money saved up. For the rest, you plan to avail yourself of home loans to meet your home construction budget. The question here is, ‘Are you in a position to repay the loans?’

Here’s a checklist to ask yourself before you consider opting for home loans.

Do I have a stable income?

Financial stability is important when buying a house. It is also a reassuring element to demonstrate your ability to repay loans. When you have a stable source of income, it inspires confidence among lenders. If you are self-employed, you must show your audited income statements to prove your income stream.

Do I have enough savings?

We mainly delay buying a house because we don’t believe we have enough saved. Ideally, having an amount equivalent to 30% of your investment’s value is good. It also ensures you pay a lower monthly EMI. The larger your own investment, the lower your loan amount and, subsequently, your monthly instalments.

Have I researched the place I’m going to be moving into?

You must research the area or locality you’re going to live in. The area must have access to amenities and facilities for a comfortable way of life. This area must be affordable, in terms of your financial situation, if you’re going to be making it your home.

Am I prepared to stay in this place for many years?

Are you prepared to live in that place for the rest of your life? Is it something you foresee at least for the next twenty years? Because it is common nowadays to move when your job demands you to or due to personal circumstances. However, it could pose a challenge to sell your home, repay your loan, and repeat the process all over again at a new place.

Do I have a good credit score?

Having a good credit score shows your creditworthiness. It guarantees your lenders you will repay the sanctioned home loan. Things become easier with a good credit score; you get home loans faster and at lower interest rates.

Am I ready for the expenses that come with a new home?

Ask yourself if you can meet the repairs, insurance, property tax, and maintenance expenses. You must also be prepared to make lifestyle sacrifices until your loan is repaid.

Okay, so your plan to avail yourself of home loans is in place, and you’ve gone through the process of getting one. Now, how do you ensure optimal repayment to avoid financial stress?

Ensure pre-payments

Try to repay a chunk of your loan amount as pre-payment. Do this at least once a year. This helps reduce your principal and the duration of loan repayment. Pro tip: Use your yearly bonus for this; it’s a good way to use it when you have a loan to repay.

Choose higher monthly instalments

If your financial situation allows it, choose a higher EMI amount that needs a shorter repayment duration. Use the EMI calculators to understand your position and plan to repay loans faster.

Higher down payment

Make a down payment of up to 30% of the property’s value if possible. This will reduce the principal amount and, hence, the monthly instalment. By doing this, you will also decrease the repayment period of your house loans.

Make timely instalments

Do not default on your repayments. Delayed repayments will attract penalties and negatively affect your credit score. A low or poor credit score will destroy your creditworthiness, making it difficult to get low-interest loans in the future.

In Closing

A home is where the heart is. It is where happiness is born and where you’re really your true self. Aiming to buy or build your home is a good aspiration to have. However, you need to be sure that you have the required investment to make this dream a reality.

Home loans make it accessible for anyone to own a home. One must, however, be aware of their financial situation. If the answer to ‘Am I ready to buy a home with a home loan?’ is a YES, you must ensure you take steps to repay your loan without defaulting.

When banks and lending institutions make it easy to get house loans, you should use them to your advantage. At the end of the day, this decision is up to you and your financial position.