What is My Budget to Purchase a House?
The first and the most obvious question that you have in mind is how much is the value of the house you can afford? Majority of the home buyer finance their house by way of a mortgage loan and it is the value of the loan that the lender is willing to lend to them that determines their affordability and budget.
There are various quality and quantitative parameters that the lending institute evaluates related to your credit appraisal before fixing the credit exposure that it is willing to take on you.
The biggest and perhaps the most critical factor looked by the lender is your ability to service the loan in the form of mortgage payments.
They look at the take home salary that an individual has and allocate a portion of the same to service the borrower's monthly expenditure.
The net amount would determine the individual's capacity to repay the home loan which in turn determines the loan amount.
The most convenient way of getting to know how much home loan you would be eligible for based on your current salary is to avail a facility called as pre-approval of home loan.
This requires submitting income and personal details to the lending institute who would based on their analysis give you an approximate amount of the loan that are willing to provide with you.
The pre-approval helps you freeze your budget as you are ware of your won equity contribution that you can contribute towards home purchase.
Your Credit Score is your biggest friend or enemy when it comes to getting your loan approved and the amount of loan sanctioned to you.
A high credit score reflects your high credibility and ability to service your home loan.
This not only enhances your loan eligibility but also reduces the cost of your home loan since a high credit score reduces your mortgage interest rate compared to the others.
You would have to exercise caution and restraint on your spending once you decide to buy a home.
No high value purchases on your credit card, no revolving of credit card bill, making prompt and timely payments of your loan and credit card payments, making loan repayments against any other loan outstanding are a few steps that you can take to ensure you are sanctioned a higher loan amount by the lender.
Most financial planners would suggest that your monthly repayment towards the servicing the various outstanding loans should not exceed half your net salary.
Any thing over 50% would be difficult to sustain over longer periods of time.
At the same time you need a contingency fund which would allow you to service your loan for a period of no less than 6 months just in case things go wrong on your employment front.
Make a detailed estimation of how are you going to manage your expenses given your repayment amount and account for various high value transactions related to children's education, insurance premium, annual contracts etc that you need to pay.
Once this exercise is complete, you would get an answer of how much can you repay in a comfortable manner per month.
This is what gives you the value of the house that you can purchase.
There are various quality and quantitative parameters that the lending institute evaluates related to your credit appraisal before fixing the credit exposure that it is willing to take on you.
The biggest and perhaps the most critical factor looked by the lender is your ability to service the loan in the form of mortgage payments.
They look at the take home salary that an individual has and allocate a portion of the same to service the borrower's monthly expenditure.
The net amount would determine the individual's capacity to repay the home loan which in turn determines the loan amount.
The most convenient way of getting to know how much home loan you would be eligible for based on your current salary is to avail a facility called as pre-approval of home loan.
This requires submitting income and personal details to the lending institute who would based on their analysis give you an approximate amount of the loan that are willing to provide with you.
The pre-approval helps you freeze your budget as you are ware of your won equity contribution that you can contribute towards home purchase.
Your Credit Score is your biggest friend or enemy when it comes to getting your loan approved and the amount of loan sanctioned to you.
A high credit score reflects your high credibility and ability to service your home loan.
This not only enhances your loan eligibility but also reduces the cost of your home loan since a high credit score reduces your mortgage interest rate compared to the others.
You would have to exercise caution and restraint on your spending once you decide to buy a home.
No high value purchases on your credit card, no revolving of credit card bill, making prompt and timely payments of your loan and credit card payments, making loan repayments against any other loan outstanding are a few steps that you can take to ensure you are sanctioned a higher loan amount by the lender.
Most financial planners would suggest that your monthly repayment towards the servicing the various outstanding loans should not exceed half your net salary.
Any thing over 50% would be difficult to sustain over longer periods of time.
At the same time you need a contingency fund which would allow you to service your loan for a period of no less than 6 months just in case things go wrong on your employment front.
Make a detailed estimation of how are you going to manage your expenses given your repayment amount and account for various high value transactions related to children's education, insurance premium, annual contracts etc that you need to pay.
Once this exercise is complete, you would get an answer of how much can you repay in a comfortable manner per month.
This is what gives you the value of the house that you can purchase.
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