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calenderJan 5, 2024

Tips to check Home Loan affordability & its factors

Purchasing a house is a milestone filled with excitement and significant financial decisions, where understanding your Home Loan affordability is paramount. Navigating the options can be scary, but with the right tools and knowledge of the process, you can confidently choose the perfect Home Loan.

Home Loan affordability

The first step is to know how much you can comfortably spend on a property without stretching your finances. Home Loan affordability is not just about whether you can obtain a loan; it is about managing it over the years without financial strain.

A Home Loan Eligibility Calculator becomes an indispensable tool here. With a few clicks, you can enter your income, existing debts, and expected loan terms to receive an estimate of the amount you can comfortably afford. This saves time and gives you a clear picture of your financial status.

Factors that affect affordability

When it comes to determining how much you can afford for a Home Loan, several key factors play a crucial role. Understanding these elements helps in making informed decisions:

1. Income stability and level: Your income is the cornerstone of your Home Loan affordability. Lenders meticulously examine not just the amount you earn but also the stability and consistency of your income. Regular, stable income sources reassure lenders of your capability to meet monthly payments. Higher-income typically increases your loan eligibility, as it suggests a higher capacity to repay.

2. Debt-to-income ratio (DTI): This ratio is a critical factor in the loan approval process. It represents the portion of your monthly income that goes towards paying off debts, including credit bills, car loans, and other financial obligations. A lower DTI ratio is preferable as it indicates that a smaller portion of your income is already committed to other debts, making you a more attractive candidate for lenders. Generally, lenders look for a DTI ratio of 40% or lower.

3. Credit score: Your credit score is a numerical expression of your creditworthiness, based on an analysis of your credit files. A high credit score suggests you have a history of timely payments and responsible credit management, which can significantly enhance your loan eligibility.

4. Interest rates: The prevailing interest rates at the time of your loan application can greatly influence the affordability of your Home Loan. Higher interest rates translate to higher monthly payments and a larger total repayment amount over the loan tenure. It is beneficial to research and compare various loan offers to find the most competitive rates.

Also Read: Ways to choose the right Home Loan for your needs

5. Down payment: The amount of money you can put down upfront as a down payment directly affects the loan amount and, consequently, your monthly repayments. A larger down payment can reduce the loan-to-value ratio, potentially qualifying you for lower interest rates and smaller monthly payments.

6. Employment history: Lenders often look at your employment history alongside your current income. A steady employment history, ideally with the same employer or within the same industry for several years, demonstrates job stability, making you a more desirable borrower.

7. Economic conditions: Economic factors, such as inflation rates and the economy's overall health, can influence Home Loan interest rates and availability. During times of economic uncertainty, lenders might tighten their lending criteria.

8. Property value and type: The value and type of property you intend to purchase also impact loan affordability. Some lenders may restrict lending for certain properties, or the loan amount may vary depending on the property's appraisal value.

For those interested in exploring a range of Home Loan options that combine competitive interest rates with flexible features, it is worth looking into Axis Bank's offerings. By understanding the products and how they can be tailored to your needs, you step closer to making your dream home a reality.

Also Read: Buy your dream home even if you are in your 40s

Conclusion

A Home Loan is more than just borrowing money; it is a commitment that lasts for a good part of your adult life. Therefore, understanding your Home Loan affordability is not about fitting into a lender's criteria but about ensuring you can live comfortably while paying off your home. By carefully considering key factors, you can understand your Home Loan affordability comprehensively.

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision