Is it the Right Time To Apply for a Home Loan?
Most home buyers in India look for a home loan while buying a property. But, is there a right time to apply for a home loan? With the present economic uncertainties, one must think whether it is a good time to apply for a home loan or one should wait for better economic stability and correction in property prices in certain real estate markets in the country.
Factors to consider
Applying for a home loan has gained more significance in present times. In the past people were inclined towards saving some money and then buying a property while today people are willing to go for a home loan for buying a property. But before applying for a home loan one must consider several aspects.
1. The location of the property is a primary factor to be considered. For example, one may be able to buy a property in Bangalore with a smaller home loan while the same property in Mumbai will cost more leading to a higher loan amount. Applying for a home loan also depends on what the person’s future plans are. If you are planning to settle down in a particular location for a long term then you can apply for a home loan. Else, staying in a rented property would be ideal.
2. If you are confused whether paying a housing loan EMI is a wiser choice than paying a rent, it depends on the loan amount you plan to go for. You must also consider this thumb rule: A person’s home loan EMI should be within a rational percentage of his/her net monthly disposable income. EMIs on home loans can generally amount to about 50% of the monthly income.
3. If you are looking from a perspective of investments, there are certain markets in India at the moment such as Bangalore, Pune and Hyderabad which are ideal for investment. These cities are growing very fast in terms of real estate and promise good returns in the future. Hence, this is the right time for applying a loan if you plan to buy a property in these cities.
4. In other cities such as Mumbai and Delhi where people are currently following the wait-and-watch policy in anticipation of price correction, one must understand that there may be low to no chance of price correction. The real estate markets in these cities have, at best, shown minor price correction in certain micro-markets. Else, prices have remained stable over the past few quarters. Furthermore, economic indicators suggest that inflation will only drive the costs higher and there are no prospects of interest rates on home loans rationalizing over the mid-term. Hence, it may be the right time to go for a home loan and purchase a property.
Apart from these factors, one should remember that he/she is under legal obligation to make regular payments of their home loan EMIs. One should undertake due diligence regarding their financial capabilities of taking a loan and repaying it. If not, they may find themselves in debt traps and possibly default on their repayments. This could have legal implications as well. A home loan strategy should also not be based on anticipated financial windfalls. It should be based on realistic income factors such as a salary hike, maturing insurance policies and investments.
While there is no perfect time for taking a home loan, it is advantageous to consider these factors before applying for a home loan.
