FINANCIAL NUMBERS THAT ASCERTAIN YOUR HOME BUYING CAPACITY

 

While you plan to avail a home loan, it is important to understand certain numbers that are of utmost significance to mortgage lenders. 99acres shares a list of such numbers that not only ascertain your home buying capacity but also create a favourable financial image.

As you decide to purchase a house, there are a plethora of things that need careful scrutiny. Right from the exteriors to the interiors of the house, all factors should be closely scanned to avoid later regrets. Nevertheless, before you go to the point of property investigation, one thing that is utmost imperative to understand is your financial position.

Evaluating your buying power is significant to ascertain the loan amount that will be granted by mortgage lenders. Basically, there are four financial factors that lending institutions prominently zero in on - credit score, down payment, debt-to-income ratio, and assets to determine a buyers economic background. Comprehending how these numbers affect the chances of credit approval is crucial for every prospective home buyer.

Credit score

Credit score is one of the most basic ways a lender determines your ability to repay home loan. The score ranges from 300 to 900. According to Muralidhar, a financial expert, 'The closer the score to 900, the higher is one's ability to repay a loan and, therefore, better the chances of loan approval. Ideally, anything above 750 is considered as a good credit score. Anything lower than 750, does not necessarily mean that the mortgage will be denied, however, it will impact the quality of loan offered. For instance, a loan for a borrower with a credit score between 580 and 699 comes with a higher interest rate, which would make the mortgage more expensive to repay.

There are five factors that influence one's credit score, each varying in importance: payment history (35 percent), previously owed debts (30 percent), length of the credit history of the customer (15 percent), credit mix (10 percent), and new credit (10 percent). In India CIBIL, Equifax and Experian are three institutions authorised by the Reserve Bank of India (RBI) to determine credit scores.

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Down payment

The amount of cash payment made during property purchase is another important factor that determines your mortgage eligibility. Remember, while you are jostling with the loan approval process, a higher down payment wou Id improve your overall buying ability.

Ideally, 20 percent of the total amount should be utilized towards down payment. Remember the higher the amount of cash payment, the lesser the future liability and stronger is your position to negotiate with the lending institution for lower interest rate.

Debt-to-income ratio (DTI)

As important as credit score, debt-to-income ratio is a financial calculation that determines your ability to pay the mortgage amount in addition to other outstanding arrears in your name. Basically, there are two types of DTIs':

Front-end ratio: Also referred to as housing expenses, front-end ratio is the percentage of income that would be used for housing expenses, inclusive of monthly EMIs for other real estate mortgages, insurances, and other dues. This is calculated by summing up the housing expenses and dividing it by gross income (before taxes). The ideal ratio recommended is 28 percent.

Back-end ratio: This includes your monthly debt liabilities such as credit card bills, car loans, student loans, and other expenses, exclusive of house dues. To calculate back end ratio, monthly debt expenses are added and divided by monthly gross income. The ratio should not be higher than 36 percent as it poses a challenge to your financial health.

Asset proofs

A bank's biggest concern is whether the buyer would be able to repay the whole amount regardless of other financial problems that may arise in the future. Considering the surge in the number of defaulters over the years, banks have become more cautious and scan stacks of documents afore disbursing the loan amount.

Tax returns, pay stubs, income proofs, letter of employment, proof of funds, and photo ID are some important documents required. These are not the only documents needed though and a lender may ask for many more if needed.

On the whole, while you plan for a house purchase, do the above financial calculations at your end and evaluate your buying power before approaching a lending institution.

Check out Real estate projects in Thane by Squarefeet Group in Thane

Squarefeet Group

Satyam Building, 2nd Floor, M G Road,
Opposite Navpada Telephone Exchange, Above Punjab National Bank,
Naupada, Thane West - 400601
Maharashtra, India

+(91)-22-25452903, 66543333

info@squarefeetgroup.in

Source - 99acres.com