100% Financing a Good Idea? Know the Pros & Cons

Investment in real estate is the biggest investment one can get. After almost 5 years of the Indian real estate market shooting the roof, has come down reasonably.

An increasing number of people are ready to buy homes now with the affordably priced homes are available these days. Still, it isn’t a cakewalk to buy a home.

The right kind of financing is a must. Also, one needs to plan their home loan in a better way to yield maximum benefits out of it.

Today, let us understand how one should go about creating finance for their home purchase. Home loan is the best option to create finance for your home purchase.

However, it is vital to look into certain aspects before jumping into applying for a home loan such as the Credit Score, home loan eligibility, and home loan interest rate.

  • Compile your Finances

Once the home buying decision has been made, it is important to consolidate your finances. It is important to understand how much money one can raise to make the down payment. The more the down payment, the lesser will the home loan amount become. Eventually, it will help towards paying lower EMIs.

One shouldn’t dig into other crucial assets assigned for retirement or children’s education to soar up the down payment. Once the down payment amount is defined, it’s time to look for your home loan eligibility.

Your home loan eligibility highly depends on your Credit Score and regular income flow. Home loan lenders typically define the EMI as 30-40% of your take away salary.

The discussed method to consolidate your finances is the conventional approach implied throughout. However, many home loan buyers also consider applying for 100% home cost amount as loan. In fact, you can take the help of home loan amount eligibility calculator to get a fair idea. Let us try to understand the pros and cons of doing so.

  • Real Estate for Investment

If you are looking for a real estate property as an investment option, applying for a loan to fund 100% of the home price makes complete sense. Do you wish to buy a property for asset purpose in the future? Then, not investing from your pocket is an ideal way. Letting the finance come from the bank completely works in your favor in the 100% finance model.

  • Not a First-time Buyer

When you are looking for the real estate investment to be your home; however, if you aren’t the first time home buyer, then applying for 100% finance completely works. However, there is a flipside to this benefit. For instance, you are granted 100% loan to get the property next to no or little down payment. However, failing to make further repayments, taxes or other expenses might cost you to lose the property as well.

  • Equity Consideration

The major drawback of going for 100% finance is losing on the market appreciation and equity. Getting yourself a home loan with a zero down payment might help you to be easy on your pocket. But, it may fail to generate any equity in the short term making it an uneasy task while reselling.

  • The Higher Rate of Interest

One should also keep in mind that 100% financing demands for an impeccable Credit Score. Moreover, the interest rates aligned with 100% financing are likely to be on the higher side even if you have a decent score.

The Bottom Line

There are different ways to plan for a new home loan. However, there isn’t ‘a one size fits all.’ One must take into consideration different aspects and needs out of the real estate property and accordingly define going about with their home loans.

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