By Amit Diwan

As home loan rates are rising, it is important to ensure that you have flexibility in your overall financial planning. Here are certain key factors to keep in mind before taking a home loan.

Income eligibility
Loan tenor defines the number of EMIs for repayment of the loan and the maximum is a function of customer’s age at time of loan application and the maximum permissible age as per bank policy. A five-year incremental tenor can have a significant impact on the loan amount that the customer is eligible for and it offers substantial flexibility to customers from a financial planning perspective.

Co-applicant addition
Usually, children and spouse can be added as co-applicants and loan tenors can be extended based on their age. This can be useful especially if they are financially independent or are involved actively in the same line of business or profession. Certain home loan providers give extensions of 6-10 years beyond retirement age in case of self employed borrowers or borrowers with pensionable employments. You could look at availing a loan from an institution which has that specific policy.

EMI to Monthly Income Ratio
The maximum permissible ratio which banks are comfortable with is 50-60% on incomes which are consistent, have specific vintage and evidenced by bank statements and income tax returns. In case this ratio is creating a gap in your desired and sanctioned loan amount, you will have to reduce your short-term obligations by paying off personal loans and auto loans.

Loan amount to Fair Market Value
It is calculated on the purchase price of the property. However, there are some nuances which could impact the financial institution’s assessment and thereby increase your down payment requirement. For buying a property worth Rs 1.5 crore, a 10% reduction in valuation by the bank can lead to an increase in down payment by about 30%.

Direct developer purchase
Each financial institution has stipulated guidelines on inclusion of elements beyond the basic sale price. These can comprise 10-15% of the cost you are incurring for the property. A few examples are external/infrastructural development charges, club house charges, parking cost and lumpsum maintenance. Banks either go by the basic sale price or “Box price” which is based on the prevailing market rates and inclusive of all charges.

A customer today has a plethora of options— bank and financial institutions —to avail a loan. Being aware of the loan evaluation process can help you choose a lender who caters best to your needs.