- Should I apply for a Home Loan now or do it later?
- Check out the factors that will help you decide the right time to apply
When should I apply for a Home Loan? Is it better to take it now or should I opt for it a year later? These are some common questions that an individual who is looking to get a roof over his/ her head generally asks. And these questions are pretty important to ask if you are serious about your finances and do not want to take a hit on your hard-earned money. There are so many banks and financial institutions that provide home loans to customers, but they do not tell you when is the right time to apply for a home loan. This is one thing that you need to decide for yourself.
Individuals who do not consider the right time while applying for a home loan face many difficulties on their loan payments. Moreover, a home loan at the wrong time can hurt your overall finances. There are a few factors that you can consider while deciding when is the right time to apply for a home loan, such as deciding home loan interest rates, your monthly income, the property for which you want to take the home loan and some others. In this article, we will be telling you about all the factors that will help you in deciding the right time to apply for a home loan. Keep reading so that you can make a better decision.
Factors that can Help You Decide the Right Time to Apply for a Home Loan
To decide the right time to apply for a home loan, you need to consider a few factors. If you are confused about whether the current time is right to opt for a home loan or not, you should check these conditions and then make up your mind about it. We are detailing them below. Don’t forget to check them.
When the Interest Rates are Lower
When any lender decides to provide you a home loan, it expects that you will be able to repay the loan amount within a fixed tenure via EMIs. And the most important thing that determines your EMI amount is the Home Loan Interest Rates. A lender charges a certain interest rate on the loan amount given to you. Higher the home loan interest rates, higher would be your EMI amount. The interest rates on a home loan tend to change from one lender to another and depend on several factors such as your age, employment type, job history, property type, credit score, etc.
So to decide whether it is the right time to apply for a home loan or not, you should review if you can get lower home loan interest rates from the lender. Lower interest rates will reduce your EMI amount and you will be able to pay the EMI amount without any delay. You should also check if the EMI amount is within your repayment capacity, otherwise, you may face difficulty in repaying the loan amount. Let’s understand the difference in choosing higher interest rates as compared to lower interest rates via an example.
Suppose you are looking to opt for a home loan amount of INR 40 lakh for 20 years. In the below table, you can look at the EMI amount and interest outgo for two different Home Loan Interest Rates.
|Loan Amount||Tenure||Rate of Interest||EMI Amount||Interest Outgo||Total Amount Payable|
|INR 40 lakh||20 years||8.75% per annum||INR 35,348||INR 44,83,623||INR 84,83,623|
|INR 40 lakh||20 years||7.25% per annum||INR 31,615||INR 35,87,609||INR 75,87,609|
So, you can see how choosing an interest rate of 7.25% per annum, you could save around INR 4,000 on the EMI amount and INR 9 lakh on the interest outgo. It is quite evident from the above example that home loan interest rates make a substantial impact on your EMI amount and interest outgo.
At the time of choosing the home loan interest rates, you will have two options to choose from – Floating and Fixed Rate of Interest. On choosing the Floating Type, your rate of interest will increase or decrease during your tenure according to the external benchmarking known as Repo Rate. So, for example, if you know that interest rates are higher currently and will decrease after six months then that would be the ideal time to opt for the home loan. On the other hand, if you choose a Fixed type, your rate of interest will remain the same for overall tenure. We are providing the current home loan interest rates of some of the top lenders in the table below. Check them out!
|Home Loan Lenders||Rate of Interest (in per annum)|
|State Bank of India (SBI)||8.05%-8.55%|
|Axis Bank||7.60% - 8.05%|
|ICICI Bank||8.75% - 9.80%|
|Citibank||6.50% - 7.40%|
|LIC Housing Finance (LIC HFL)||8.65% - 10.25%|
|Tata Capital||7.75% onwards|
|Indiabulls Housing Finance||8.65% Onwards|
|Bank of India||6.90% - 8.75%|
|PNB Housing Finance (PNBHFL)||8.50% - 10.35%|
|Piramal Capital & Housing Finance (PCHF)||10.50% Onwards|
When You’ve a Good Monthly Income
As we told you that you will need to repay the amount via EMI and you will be paying this EMI amount from your monthly income only. So, your monthly income will play a crucial role in determining whether it is the right time to apply for a home loan or not. Home Loans are usually big-ticket purchases. So, you would need a monthly income by which you can pay the required EMI amount.
Generally, a lender checks your repayment capacity by having an estimate of your monthly income. A lender makes sure that the EMI amount must be under 50% of your monthly income and free from any obligations (such as EMI of personal loan, car loan, etc). This condition about the monthly income not only changes from one lender to another but also from one applicant to another based on their monthly income and loan amount. Chances of getting a higher loan amount are pretty high for an individual with higher income.
To know if it is the right time to apply for a home loan or not, you should see if you have enough monthly income with which you can repay the loan amount without missing any installments. Let’s understand this through an example.
Suppose your monthly income is INR 60,000 and you want to opt for a loan amount of INR 30 lakh for 20 years at an interest rate of 7.25% per annum. For this amount, you would be paying an EMI amount of INR 23,711 which is clearly below 50% of your monthly income.
On the other hand, if you want to take a loan amount of INR 50 lakh at the same interest rate for the same tenure then the EMI amount will be INR 39,519 which is way above 50% of your monthly income and it would not be a wise decision for you to opt for this loan amount. So, you can see how it is important to check your monthly income to know if it is the right time to apply for a home loan. If the need for a home loan is pretty urgent, you can lower your loan amount accordingly to adjust the EMI amount with your monthly income.
When You’ve a Reasonably Long Work Experience
As you know that a home loan can be taken by both salaried and self-employed individuals. One of the factors that an individual must keep in mind before applying for a home loan is the employment history; the time since he or she has been working in a particular profession. It is important for a lender to check your overall employment history. Different lenders have different eligibility conditions about the employment history for applicants who want to opt for a home loan.
Suppose an individual has just started his professional career and wants to obtain a home loan then it would be tough for a lender to provide the loan amount. Also, it would not be a wise decision to opt for a home loan at such an early stage of your career as a home loan is a long commitment.
An individual working in an MNC or some government company for several years has higher chances of getting a home loan than an individual who has just joined a non-listed private company simply because of their professional experience. So, while choosing the right time to apply for a home loan, you must consider this factor with high importance. The right time to apply for a home loan will be with a good number of years as experience in your respective profession with higher repayment capacity.
When You Get the Right Property to Buy
Why do you need a home loan? To buy the property you like. So, one of the most important things that you should check is whether the property for which you want to take the home loan is suitable for you or not. To know if it is the right time to apply for a home loan or not, you should check if the property is worthy of taking a home loan.
First things first, the cost of the property must be within your repayment capacity otherwise you will not be able to get the loan from any lender. Other than this, the property must be at a prime location with all the amenities nearby. If you are buying the home from a builder, you must check the credibility of that particular builder so that you won’t have to face any kind of fraud in the future. If you are satisfied with all the factors of the property then only you should opt for a home loan. As we told before also that home loans can lead to massive payments over time, it would be wise to not hurry while opting for the same.
When You’ve Sufficient Back-up Savings for the Required Down Payment
In the case of home loans, you can get a maximum of 75%-90% of the total property value as the loan amount. You need to fund the remaining 10%-25% amount by yourself and need to submit it upfront at the time of purchasing the home you want. This remaining amount is known as the Down-payment amount.
Suppose the overall property value is INR 30 lakh then you can get a loan amount of INR 27 lakh. The remaining amount of INR 3 lakh has to be funded by your own sources.
So, one of the important things that can help you in deciding if it is the right time to apply for a home loan or not by checking whether you have sufficient back-up savings for the required down payment. If you do not have a down-payment amount and you are thinking you would opt for another loan to collect this amount then it would be a wrong financial decision.
In this regard, your employment experience also counts as a longer experience also indicates a higher savings amount to fund the down-payment amount. Also, if you have a higher savings amount then you can make a higher down-payment amount that will reduce your loan burden as you will need to opt for a lower loan amount. There are several sources through which you can fund your down-payment amount, such as Fixed Deposits (FD), Recurring Deposits (RD), Mutual Fund Investments, etc.
When You’ve No Other Obligations
Before opting for the home loan, you must make sure that you don’t have any existing obligations in the form of personal loan EMIs, Car Loan EMIs, etc. Any existing obligation will reduce your repayment capacity. Hence, the loan amount will be less as compared to a situation if you have no existing obligations.
The right time to apply for a home loan will be the time when you don’t have any obligations to pay. This will also boost your credit score as you have repaid all your loans on time. Higher credit scores can help you in getting lower interest rates on the home loan facility.