Tuesday, 12 January 2016

Is buying your own house your new year’s resolution?



Owning your own house is a much cherished dream for most people. If you think the time is right for you to make that all-important purchase as well, let’s get down to some homework. Do you know about CIBIL score requirements? Are you aware of the various home loan options available to you? Read on to know more, and make an informed decision.
Make a checklist
The first thing to do when planning to purchase a house would be to compile a checklist, not just of dos and don’ts but also pen down your finances (be realistic!), the amount of money you would need to put down as down payment on the house as well as the documentation requirement. You may also want to estimate the resale value of the property you are considering, as this will give you a fair idea of the value of the investment you are planning to make.
Understand the home buying process and see what best you can afford. It is best not to over-extend yourself but to stay within a reasonable budget.
Purchase versus renting
Buying a home comes with both pros and cons. Estimates say that buying a home is 35% cheaper than renting, so it may not be a bad idea at all to take that first big step. Further, property is an asset that keeps appreciating in value, so over the years your money has earned well for itself. On the other hand, renting comes with easier solutions – no maintenance cost, taxes to pay or repair and renovation to be done, as this is all taken care of by the homeowner.
On the other hand, the sheer satisfaction of being able to hammer a nail into the wall without having to clear it with the landlord first is also incentive enough to own a home of your own!
Before you decide, make a list that weighs both the pros and cons: and then take a call. This is where shopping around really helps.
How does your CIBIL score matter?
CIBIL score is a three-digit indicator of your credit health. When you apply for a loan, the lender in question scrutinises your loan application, but even before that they call for a copy of your credit report, of which the score is an integral part. This score helps a lender gauge whether you are creditworthy or not, i.e. what are the chances that the loan will go bad.
Prior to availing of a home loan, it is prudent to call for a copy of your credit report from any of the four credit bureaus – namely CIBIL, Equifax, Experian and CRIF High Mark – operating in India as on date. Typically, a higher score indicates that you would be more likely to be creditworthy, and hence a lender is liable to look at your application more positively. Chances are that your loan would therefore be approved at a competitive rate of interest, compared to someone with a lower score. Having a healthy or ‘good’ credit score will help you save money in the long run.
Let us take an example. Rohan and Sumit both apply home loan of Rs. 1.50 crore with a leading housing finance company. However, their credit scores differ – Rohan has a score higher than Sumit does, which the lender takes into consideration and therefore offers him a loan at 9%, while Sumit is offered a loan at 11% for a tenure of 20 years. Rohan has a monthly EMI of Rs. 134,959 while Sumit has to pay Rs. 154,828. Effectively, over one year, Rohan saves Rs. 238,428. Consider that over the loan tenure, and Rohan has paid Rs. 4,768,560 less than Sumit – a tidy saving indeed!
Of course, do keep in mind that the score alone is not the only factor taken into consideration while approving a loan, but it does play a very critical role and hence having a good score becomes vital.
When do I check my score?
Ideally, do avail of a copy of your credit report at least six months before applying for a loan. If your score needs improvement, you will have sufficient time to work on the same before making your home loan application. Also do keep in mind that not applying for a fresh line of credit – be it another loan or a credit card – may not be a wise move immediately prior to applying for the all-important home loan.
If your credit score needs some boosting, consider availing of the services of a credit health management company. In tandem with qualified credit counsellors you can, over a period of time, build a good score and maintain it too. This will ensure that when you really do require a loan, there is nothing to stop you! Remember that being credit healthy may just help you meet your new year resolution of buying your dream home this year!
How do I check my credit score?
One can go to any of the four bureau’s sites, namely, CIBIL, Equifax, Experian and Crif Highmark and obtain the credit report and credit score by paying a fee. Alternately a free credit score can also be obtained from portals like freescoreindia.

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