As applying for home loans has become easier, more people are making the decision to buy a house. Further, taxation benefits and much lower interest rates are also motivating individuals to buy a new house. However, purchasing a home is not a split-second decision and requires some consideration. So to help you make an informed choice, here are the things you need to keep in mind:

1.Determine what your budget is:

The very first thing you need to do is identify how much you can spend on a house. It’s important to know what type of house and what budget fits in your requirements. Without a clear idea of what you can afford to spend, you may end up taking out a loan that you won’t be able to pay off or exhaust your current asset base for the down payment without thinking much about other goals. Consulting a financial planner is the best way for you to arrive at a clear estimate of how you should be able to put into purchasing a home. 

2.Loan and Down Payment:

It’s important to have an idea of how much loan has to be taken and how much down payment has to be made – without exhausting your financial asset base.  Here it is imperative to keep your debt-service coverage ratio in mind to understand if you will have enough cash flow to cover your EMIs over any other debts you may have – so as not to affect your savings. Individuals are often willing to pay high EMIs, thinking the burden would ease with time due to increments in their annual income. However, that increase is uncertainty. Important to understand that your ability to pay could be different from your willingness to pay.

3.Do not compromise on your other Critical Goals:

As mentioned in the above point, it is important to have an idea of how much money you can use from your existing asset base for the down payment. Most of the times people in order to lessen the stress on a monthly budget, go for a bigger down payment. What is more important is to have sound financial backing for any emergencies and critical goals like retirement, children’s goals, etc. It’s important not to dip into investments for these goals for the down payment. Striking a balance between all the goals is imperative.

4.Review your credit history and make improvements if necessary:

For most home loans, the interest rate that you will have to pay is determined based on your credit score. In this sense, it may be a good idea for you to review and try to improve your score before you apply for a loan. A quick way to improve your score by a few points is to pay off all credit card dues and stop using them for a few months before you apply for a loan. Many banks today offer the best rates of interest for customers who have a CIBIL score of 750 or more. Those who fall below this benchmark may have to pay a marginally higher interest rate. A lower rate of interest allows you to borrow higher amounts in order to buy a pricier property – within the scope of your budget.

5.Take a loan only after comparing your options:

There are different kinds of home loans; different lenders may also offer varying rates for a similar tenure and comparable loan amount. Therefore, it is essential that you thoroughly scour all your options before making a decision. The things you will have to look out for in order to find the right loan are the differences in the EMIs, tenure, interest rates, processing fees, and other such associated charges. Making a calculated and informed choice can allow you to save a significant amount of money towards interest payments on home loans.

6.Liabilities are also required to be protected:

When the loan is taken from a bank, they offer a cover against the home loan. It is to ensure if there is a job loss or if some mishappening takes place. To make a right decision, take help from your financial advisor. They may help you to show a broad picture and compare buying term insurance for home or for protecting other requirements also.

Buying a house is an extremely important event in your life. It is a decision that you should be sure of, and have the necessary finances to execute. In this sense, making the transition to a homeowner can be very exciting, but there are many things to think about. The best way to start the process is to consult your financial advisor and review the various options that are available to you, so that purchasing a home does not affect your other goals detrimentally.