How to determine the right mortgage amount
Home loans make the dream of owning your own home come true. Whatever your budget, a home loan can always be tailored to your home buying needs. A home loan gives individuals the freedom to purchase a property of their choice without compromising the aspirations and needs of the family. However, one must ensure that their mortgage application matches their repayment capacity and financial profile – to avoid being rejected for sanction altogether.
The key to maximizing the chances of easy home loan approval is to apply for the right home loan amount. The home loan amount you apply for should take into account your home buying expenses while remaining comfortably within your ability to repay. This is crucial to receive home loan approval, as lenders assess your home loan application based on your eligibility, as a disproportionate home loan application could lead to your application being rejected.
So how do you, an aspiring home loan seeker, know preemptively what the right home loan amount is? The right home loan amount is not the total price of the property you want to buy, but the amount you are entitled to, taking into account the value of the property, your income and obligation ratio and your credit history. More importantly, it should be an amount that is not difficult to repay, as well as its compound interest.
In this article, we’ll tell you how you can determine the right home loan amount before applying for a home loan to maximize your chances of receiving a sanction that takes care of all your needs without compromising your future financial goals.
Factors that affect eligibility for your home loan amount
Many factors affect the amount you are likely to receive as a home loan. Some are in your hands, while others are nationally predetermined. Keep reading to learn more.
1. Loan to value ratio
The loan to value ratio, popularly known as the LTV ratio, is a lending scale that the Reserve Bank of India requires all housing lenders to follow. The policy dictates how much of the property’s value the lender can offer as the home loan amount, ranging from 75% to 90% of the total cost.
However, it is not a fixed percentage and the ratio depends, among other things, on the value of the property. Refer to the pricing chart below to get a rough idea of what you might receive as a home loan penalty depending on the value of the property.
●For properties priced up to Rs. 30 Lakhs: Up to 90% of property value
●For properties priced between Rs. 30 lakhs to Rs. 75 Lakhs: Up to 80% of the property value
●For properties priced above Rs. 75 Lakhs: Up to 75% of property value
Use this LTV grid to preemptively assess how much you can get as a home loan sanction based on the actual price of your property. Once you understand which slab you belong to, prepare your finances accordingly.
2. Down payment amount
Based on the loan-to-value principle, lenders only disburse a portion of the property’s value as a loan sanction, leaving the home buyer to take care of the remaining portion – also known as the down payment name on the property.
You can consider financing the down payment from your savings, accounting for this expense just when planning the purchase of a house. Some also take out an additional loan, such as a personal loan, to find the amount. However, having planned and saved for the down payment not only bodes well for your finances, but it also increases your chances of getting a quick loan approval, as it establishes the following:
● That you are a prudent borrower with available cash
● That you are not a credit-hungry borrower and only need to borrow a reasonable amount
Making a large down payment also lowers your total cost of purchase, ensuring you’re borrowing the right home loan amount that fits your budget and future financial goals.
3. Repayment capacity
Your ability to repay is the main determinant of your home loan amount, because naturally a lender can only lend the amount you can reasonably repay – without risking default or delaying repayment.
Using your credit history and CIBIL score, lenders assess your repayment capacity and subsequent history and assess whether the loan amount you applied for matches your repayment capacity. To maximize your ability to repay, here are some steps you can take:
● Consolidate existing debts
● Declare all sources of additional income
● Apply with an eligible co-applicant
● Maintain a strong credit rating
The idea of receiving a high loan sanction as a home loan is exciting and appealing, but it’s crucial that you only borrow what you can comfortably repay. Besides the financial problems that an unmanageable repayment schedule can cause, delaying or not repaying your loan can also suggest legal troubles for you.
Use the facilities available to you, such as the online home loan eligibility calculator and home loan EMI calculator, to arrive at the ideal home loan amount before applying for a home loan.