Home buying should not begin with comparing home loan interest rates or visiting properties. It should begin with knowing your finances. Even if you can comfortably afford an EMI, your loan eligibility depends on factors such as your income, existing financial obligations, and credit profile. Planning these aspects first can help you search within a realistic budget and make better borrowing decisions.
In this guide, we’ll walk you through the steps to take before you start house hunting.
Know Your Consistent Monthly Savings Before Home Search
An EMI may seem manageable today, but a home loan stays with you through different phases of life. An amount that feels comfortable now may become difficult to manage later if your household expenses increase or your financial priorities change. To avoid stretching your finances, calculate all your regular expenses, existing EMIs, investments, insurance premiums, and other recurring payments. You can also leave some room for future increases in your monthly expenses instead of planning only around your current budget. After that, check how much money is consistently left each month. Do not base your decision on one or two months of savings, as they may not reflect your usual financial position. A consistent monthly surplus gives a better picture of how comfortably you may be able to manage a home loan.
Decide If You Should Apply for a Joint Home Loan
Applying jointly does not just improve your home loan eligibility or approval prospects. It can also offer several practical benefits throughout your home buying journey.
- If the income of both eligible co-applicants is considered, you may be able to choose a shorter loan tenure, which can help reduce the total interest paid over the loan period
- If both borrowers meet the applicable conditions and opt for the old tax regime, each may also claim eligible home loan tax benefits
- A joint home loan also allows both borrowers to share the EMI responsibility
- Having another borrower can provide additional financial support if one borrower faces temporary financial difficulties, helping the loan repayments continue smoothly
Narrow Down Your Home Search With a Pre-Approved Home Loan
Now that you know how much you can comfortably afford every month, the next step is to find out how much a lender may actually be willing to lend. Your monthly affordability alone is not enough, as home loan eligibility depends on several factors, such as your credit profile, existing EMIs, income, and other financial obligations. Applying for a pre-approved home loan gives you an idea of the budget you can realistically look for before starting your property search. If the estimated loan amount is lower than expected, you still have time to improve your credit profile, reduce existing financial obligations, or save a larger down payment so you can borrow less. Once your financial profile improves, you may also become eligible for better loan terms, subject to the lender’s assessment.
Use a home loan calculator to compare how different loan amounts affect your monthly EMI and the total interest payable.
Start Your Property Search With a Realistic Budget
Avoid looking at properties that match the entire approved loan amount. Keep a buffer in your budget for expenses that cannot be avoided, such as the down payment, stamp duty, registration charges, and other applicable charges. These are mandatory expenses and cannot be deferred like interior work or furnishings.
You can also explore properties that are slightly above your current approved budget if you are planning to buy after some time. The window between your property search and final home loan application gives you an opportunity to further strengthen your financial position before applying.
The Window Between Property Search and Home Loan Application
While you are searching for a property, continue strengthening your financial position by:
- Saving more for your down payment to reduce the amount you need to borrow
- Improving your credit profile/score as it may help you qualify for better loan terms
- Building emergency savings so you are better prepared for unexpected expenses
- Maintaining job and income stability until your final home loan application and throughout the loan tenure, so you can comfortably manage your EMIs
- Reducing existing EMIs or other financial obligations, if possible, to strengthen your overall financial profile
Final Thoughts
When you know how much you can comfortably save and how much a lender may be willing to lend, it becomes easier to narrow down your property search. If a property fits your current budget, you can move forward with confidence. If not, you can use the time to strengthen your finances before applying for the final home loan.
