Have you spotted a house in DHA Karachi that you simply adore? Is buying a 500 sq. yd. house in Clifton, Karachi one of your biggest dreams? Are you planning to buy a house of your own, but do not have the finances for it? If you want to live in your dream home, then find out which banks can provide you with home finances. You can take your pick. There are conventional banks and the Sharia-compliant banks that will lend you money so that your dream of buying a house comes true. Let us look at the steps you need to follow in order to take a home loan.
1- Check out your monthly income
Your income holds great significance in deciding if you are eligible to take a home loan. The bank through which you will take this loan will keep a check on your monthly income details. If you are working in a company that offers a handsome salary and perks then it is very much likely that the bank will lend you the money. You can then commit to a higher loan repayment amount and select a short tenure of 10 years.
It is recommended to invest in a property when you can. As the saying goes, make hay while the sun shines; your prime earning years are the best for taking a home loan. While on the other hand if you do not have a sound financial capacity, you will select a 20 year tenure to repay the loan. Your bank will also assess you based on the credit history – which is the amount of loans you have taken in the past and whether you have paid back the money.
2- Make decisions
While planning how you will manage paying the installments, you must decide on the following points:
- Choose the area where you want to invest
- If you are looking to explore the options for houses available for sale before taking the loan, visit the Zameen portal
- Choose the bank for home finance services
- The total amount of home loan that you are planning to take from the financial institution
- What would be the tenure for your home loan?
- What will be the interest rate? The higher the markup the higher your installments will be
- The monthly installment payments that you will make
3- Assessing the capacity to repay debt
Whether you will be able to repay the amount is another factor your financial institution will take into consideration. The bank will not only decide the installment after looking at your monthly income but also assess the financial value of the assets you own. In the event of bankruptcy, the assets that you possess can be sold and the commitment can be fulfilled.
4- Interested in conventional banking or Islamic banking?
In taking a house loan through conventional banking, you will have to pay a certain amount of interest, known as mark-up. It depends if you have agreed to take the loan on a fixed interest rate or on a variable rate that is suggested through the KIBOR rate. For people interested in Islamic Banking, they should know that there are two models known as Ijarah and the Diminishing Musharka. For the Diminishing Musharka model, the bank becomes a co-owner of the house. You purchase some of the house units from the bank over a period of time. For the Ijarah model, the bank purchases the house and you repay the bank on a monthly payment plan, which the bank suggests as the rent. After a certain duration, the bank gifts the house to the individual – the property rights are then transferred to the individual.
For example, Dubai Islamic Bank, a Zameen.com partner, works on the Shirkat-ul-melk cum Ijarah policy. Both parties will sign a Musharakah agreement and establish partnership in the property, according to the ratios determined and agreed upon. Once Dubai Islamic Bank takes the possession, it leases its property share to the customer with the help of an Ijarah agreement, mentioning the rentals. In case the customer wants to purchase the bank’s entire share in the property before the specified time period, the bank will sell its share of the property. If the lease period is matured, the bank transfers the ownership in a gift deed.
4- Check out the eligibility criteria
There are different eligibility criteria for the installment plan. Your net income salary, the assets you possess and your financial position. The society or area where you want to invest in has no scams. The owners of the property are not involved in any fraudulent practices. There is transparency in dealing with property related matters. Also, your age. If you have used home finance services at the start of your career, then you can easily pay off the debt in the coming years. But if you are already in your middle age, there is less possibility that your salary will increase. Therefore, you won’t be able to repay the home loan in the initial years. In such cases, paying off the home loan will be a bit difficult.
6- Measure the loan time
The time required to pay off the home loan is another factor that is very important when applying for a home loan in Pakistan. If you have the resources to pay off the loan early, then you need to be prepared to take out a large chunk of your salary. So maybe you can pay the loan in 10 years. But if your financial situation is not sound, it might take you a longer period of time to pay off the debt. It could even take you 25 years to repay the home loan. You will have to dedicate a huge amount of your salary each month for about 20 to 25 years. Make sure you do the math before you take home finance services of the bank.
7- Submit required documents for a home loan
You need to submit the following documents to your bank in order to avail the home finance services.
- A copy of CNIC
- Your salary slip which clearly shows your sources of income
- FBR tax returns
- The area where you live and if you are a tenant or an owner – all documents related to it
- Documents that can show that you are financially stable to take the home loan
Your chosen bank will charge you a nominal fee processing the application. They would also take time to verify the information provided in the documents. These are a few steps that you should follow when taking a home loan in Pakistan.