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Overview

It is everyone’s dream to one day own your own home, be it an apartment or a house. Fulfilling your dream to own a home can be made easy using Home Loans. Whether you want to change from a smaller home to a larger one, moving from renting to owning or just are looking to renovate your existing home.

Home Loans are offered to both salaried individuals and business owners ranging from PKR 300,000 to PKR-50 Million, up to Maximum 85% (this can vary from case to case and bank to bank) of Home Value with a tenure ranging for 3 years to 20 years.

Depending on what your goal is, most banks offer various products to handle that specific goal:

  • Buy a Home:  You use this type of Home Loan when you want to buy a specific property with a constructed home, such as an apartment.
  • Construct a Home: You can use this type of Home Loan when you own a property already but need the financing for construction.
  • Home Improvement: You can use this type of Home Loan when you already own a home and would like to upgrade or repair it.
  • Balance Transfer Facility: Balance Transfer Facility is when you change your Home Loan from one bank to another.

Islamic Banks in Pakistan also offer this facility. They use one of two models: Diminishing Musharka or Ijarah. In Diminishing Musharka, the bank becomes the co-owner of your home and you eventually buy out the bank over a period of time. In Ijarah the bank buys the home for you and you pay the bank back over a period of time. In both Islamic and Conventional options you should closely pay attention to the items mentioned in our Things to Know (hyperlink) and Beware! Sections (hyperlink).

Home Loan application require a thorough evaluation of your ability to repay the loan, go through the section below to ensure you have the best chance of secure a Home Loan.

Credit Appraisal

This is the process banks follow to judge your (eligibility) ability to repay your loan as well as your trustworthiness. There are different stages of a credit appraisal that you have to go through which vary from bank to bank.

Factors banks consider
  1. Income: You as the borrower have to prove your ability to repay the loan for which you’ll need to submit documents regarding income, current assets, liabilities, education and experience etc. For the businessmen, banks will analyze the financial statements to see how the business has been faring for the past 2-3 years
  2. Debt Burden Ratio: Your eligibility is calculated by applying Debt Burden Ratio (DBR) this is typically restricted to 50% of your monthly income. That means, that you need around 45- 50% of your income for personal expenses. All fixed obligations including the home loan applied for are restricted to a maximum 50% of your gross monthly income.
  3. Credit History: Banks look into your credit history such as existing loan repayments, mishandled accounts or delinquent credit cards. This is checked through a database of past loans and repayments available with the State Bank of Pakistan and private databases.
  4. LTV: is also a factor in eligibility calculation. Banks finance up to 70-80% of the property value as evaluated by the bank’s evaluator. For those who have not yet decided on the property, there is an option to sanction an in-principle amount, which helps to know the amount a bank would be able to give out.
How to increase your eligibility
  1. Clubbing income- Income of your spouse also can be considered if applied jointly.
  2. Increasing Tenure- Higher tenures will increase the likelihood for qualifying for the Loan
  3. Additional Income –Your consistent additional incomes like rental income qualify.
  4. Pre-closure of Existing Loans- Prepay the existing loans such as Car Loan or Personal Loans in full or part will help.
  5. Bank approved Employer – Check with the banks if there are any schemes running with your employer. Banks usually categorize companies into A, B, C based on company profiles and run different schemes like special interest rates, processing fee waiver etc. People working in MNCs can benefit from this.
6 Things You Should Know About
  1. Loan Amount: The total amount of money lent to you by the bank for your Home Loan.
  2. Loan Tenure: The total duration of your Home Loan.
  3. Mark Up / Interest Rate: This is the percentage the bank will charge you on the loan amount you will borrow on your Home Loan. There are two types of rates you can choose:
    1. Fixed Rate: In this case your Markup rate will remain the same during the tenure of your Home Loan.
    2. Variable Rate: In this case your Markup rate will be change every year based on the prevailing interest rate plus your banks margin.
  4. Monthly Payment: The monthly payments you will make to the bank to pay off your Home Loan.
  5. Property Insurance: This is the insurance of your home and is required for the tenure of your home loan.
  6. Life Insurance:  Some banks require you and your co-borrower to have life insurance, this varies from bank to bank.

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