If you are planning to purchase your dream house, then you very well know that it’s a big financial decision. So even though you would be emotional about it, you need to be extra careful from the financial angle.
Here are few things to consider before taking the final decision:
Regular Household Expenses:
No matter how hard you try, you cannot reduce your monthly expenses beyond a point. And when it comes to taking a big loan, your monthly finances are stretched to the core. So in order to protect your family in case of any unplanned expenses, try to keep at least 6 months’ worth of household expenses as a reserve for future.
Liabilities in Next Few months: Make a list of non-negotiable financial liabilities for next 6 months. For example – paying for your children’s school fees, insurance premiums, etc. This amount too should be kept in reserve before you take your home loan
If you have other loans running, then try to first clear them out before taking a new one. It is very difficult to service two loans simultaneously. The lenders too have some restrictions that depend on your level of indebtedness. Lenders don’t lend if the total EMI outgo is more than 40% of your monthly income. For example – If your monthly income is Rs 1 lac and you have a car loan EMI of Rs 17,000. Now you wish to take a home loan with an EMI of Rs 30,000. This would mean that total EMI outgo would be Rs 47,000 or 47% of your monthly income. Lender will reject your home loan application at this juncture. You can either reduce your loan requirement (and in turn EMI) or first clear your car loan and then apply for the home loan.
Reserve Home Loan EMI:
This might seem odd but it’s better to have at least 3-4 months of EMI in reserve. You don’t know when you might face some unforeseen expenses which may make it difficult for you to service home loan EMIs. In such case, having the buffer EMIs can be a lifesaver.
These points will help you take care of the risks that many home loan borrowers face. So ensure that you implement some or all of these suggestions before taking the home loan.