Thumb Rules to Consider Before Taking a Home Loan

Whether you are seeking a new investment avenue or a mode of finance for your dream home, several lenders provide home loan opportunities that are lucrative and beneficial for you as a borrower. For aspiring home buyers who are short on cash or do not want to liquidate their savings, a home loan is their best bet.

While mulling over the decision of taking a home loan, various steps and processes tied to the entire journey might seem like a daunting task. There are, of course, a host of factors that you should be aware of in order to get a home loan on favorable terms and conditions. Here are some of the factors you should take into account to facilitate a seamless home buying journey.


Since home loans are sizeable in nature and a long-term commitment, lenders are meticulous when it comes to sanctioning a loan to an individual. A number of aspects come into play while determining the housing loan eligibility. To put it simply, lenders just want to make sure that you can repay the entire loan amount within the agreed tenor.

To instill this confidence, a borrower needs to fulfill various parameters set by the lender. To name a few, the most promising parameters are – age, income, and credit health. Paying off your existing debts on time and furnishing the right set of documents to corroborate your income and other details, are some of the ways through which you can fit in the eligibility criteria of the lender.

Credit Health

A credit score is a three-digit numeric expression which quantifies your past debt and the way you managed it – timely repayments, less debt, etc. A credit score is derived from a confluence of factors and boils down to your creditworthiness. A low credit score brands you as an unreliable borrower who lenders often refrain from providing a line of credit.

Checking your credit score, therefore, is an important step before you apply for a home loan. While checking the score, there may be chances of discrepancies in the credit report. You can get this corrected by identifying and reporting the errors to the credit agency.

Down Payment

Down payment refers to the upfront amount you have to pay over and above the approved home loan amount. Lenders typically require you to pay at least 10 to 25% of the property’s purchase amount as a down payment, which means that around 75–90% of the total property value is sanctioned as a home loan. This remains as one of the obstacles for potential home buyers, especially for millennials who find it difficult to save such a lump sum amount.

It is advisable to arrange the down payment amount in advance, as this will significantly reduce the need to borrow a large sum of home loans. This means the lesser you borrow, the more quickly you will be able to repay.

Debt-to-Income Ratio

Debt-to-income ratio measures how much debt you owe and how much you earn per month. It helps lenders assess the quantum of your existing debt in addition to the home loan you will be availing of. Debt-to-income ratio increases or decreases your chances of home loan approval as it numerically evaluates how comfortably you can pay off the home loan. You know your finances better than anyone else; hence, ensure that your home loan venture won’t burden you with a pile of debt, which can result in defaulting.

Job or Business Security

Your job or business security is as important as your income. This substantiates your steady source of income, which will eventually convince your lender with regards to timely repayments. If you are a salaried employee in a multinational or an established private sector, your chances of loan approval becomes high. Same is the case with self-employed applicants who can support their steady and high-income source through their existing business.  However, if you have just started off with your job or business, it is still possible to secure a good home loan – but you’ll need to demonstrate your strong financial position.

Final Thoughts

Availing of a home loan is one of the biggest decisions you will make, as it involves a confluence of factors that affect your financial health at large. While you factor in the thumb rules mentioned above, it is equally important to accommodate your personal goals to avoid any unpleasant surprises in the future.

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