The Basics of a Home Loan

 

The Basics of a Home Loan

What is a home loan?

A Home Loan is a loan, or financing, that you take for the purpose of buying or renovating your home. The facility of Home Loan makes it easier, and more affordable, to make or buy your dream home. 

Most banks and many different kinds of financial institutions offer home loans to the public at fairly low interest rates. Whether it is for the purpose of buying a house or apartment, or constructing one, a home loan can be the simplest route towards achieving your dream.

How much can I get?

The actual amount of the loan you are eligible for, or can get, varies, and depends upon many factors such as your capacity to repay it, your age, your family income, the number of dependents you are responsible for, and so on. The amount of the loan will also depend upon the tenure of the loan and the current interest rate. 

Tenure is the total amount of time that you are given for the repayment of the loan. Most institutions and banks will extend home loans for the purpose of buying a house or even a flat, for renovation of an existing property, or for extensions or repairs to be made to your existing home. 

However, in the case of buying a second property, when you already have one house or flat, most banks will have a different policy and set of rules, so be sure to ask some relevant questions and get clarifications about the specifics from your bank before you sign.

Home loan process

There is a process for seeking a home loan, which partly depends on your need for information ad clarification, and partly on the internal bank processes. The first step is to apply to a few banks and financial institutions, and begin the process of comparing rates and tenures. (Or you can compare rates on our sites). Once you have decided on the bank, the steps are as follows.

· Filling out the relevant applications and submitting the necessary documents.

· The sanction of the loan from the bank or financial institution depending on their criteria for age, repayment capacity, and property value.

· The disbursement of the loan, transferring the home loan amount to you via check.

There will be some documents which are required before the bank will sanction or disburse your home loan. The information in these documents will decide whether or not you are given the loan, as well as the interest rate you will be charged, and the tenure that will be allowed.

These documents include:

· The application form, filled out correctly and truthfully

· Passport size photographs of the applicant and co-applicant (if any)

· The record of your repayment record for any existing loans

· Photo ID

· Proof of age

· Proof of residence

· Signature verification

· A copy of the sanctioned plan for the house/flat

· Loan sanction letter

· A check for the processing fee amount

· Additional documents that are required may include

· Bank Statement for the salary account for 6 months (personal/current account in case of business owners)

· Income Tax return for up to three years

· TDS Certificate (for employed)

· Copy of company issued Identity card

· Salary slip and Form 16 for three months (for employed)


Home loan tips

· Do some homework before you apply for a Home Loan.

· Figure out how much of your income you can afford to pay as EMI.

· Check out bank rates to get a rough idea of how much your total loan can come to and look for properties in that price bracket.

· Different banks and financial institutions offer different interest rates for home loans, so compare rates and processing fees before you decide on a particular bank.

· Take your time, don't be in a hurry. Discuss all aspects of thee loan with the bank, and get complete information about terms, conditions, waivers and so on.

· When you get the form, and the loan document, be sure to read through the fine print and ask for clarifications on any point you don't understand.


Frequently Asked Questions About Home Loans!


What is a home loan?

It is the capital that is offered by a bank or a Housing Finance Company to a prospective home buyer against a fixed or a floating interest rate for a specific period of time, repayable through monthly installments known as EMIs (Equated Monthly Installments). 

In India these are available both for resident Indians and for NRIs (Non-Resident Indians), as dictated by the Foreign Exchange Regulatory Act.

What are the different types of this option available in India?


Not one, but several types of loans for homes are available in India, depending on the purpose for which it is required, namely -

Home Purchase

Home Construction

Home Improvement

Home Extension

Land Purchase

Loan against Property

Home purchase specific to NRIs (Non-Resident Indians)

Refinance or Loan Transfer

What is EMI and how is it calculated for the repayment of the funds?

EMI is an abbreviation for Easy Monthly Installments, which is an amount that is owed to the financing institution each month, until the full amount due is paid back. It includes a part of the principal as well as the interest.

It is calculated on the basis of the amount sanctioned, the interest paid and the tenure.

How to determine eligibility in India?

To be eligible, you must be -

Over 21 years of age

Below 65 years at the time of loan maturity

A salaried employee or self-employed

What are the prevailing interest rates in the country?

The prevailing interest rates in the country are 9.25%-12%, which are calculated on monthly reducing, annual reducing or daily reducing basis.

How to choose the cheapest option?

This is simple - while choosing you need to hold the tenure (repayment period) as constant and work out the net amount that is shelled out for the debt in varied options. The cheapest offer will automatically pop up.

What is fixed interest rate and floating interest rate?

A fixed interest rate remains unaltered for the full tenure, irrespective of the rates prevailing in the market, while a floating interest rate is subject to fluctuations in the market, i.e. you pay more when the rates are up and less, if the rates take a nosedive.

Is there any other cost associated?

A few additional charges exist in India. They are-

Processing charge

Pre-payment penalty if you choose to pay back ahead of the repayment time frame

A documentation or consultant charge, if the financial institution mandates it

What are the general repayment tenures?

The tenure for repayment in India ranges from 5-15 years.

Any collateral needed?

Most institutions would consider the property that is purchased with the lent capital as the security and it is mortgaged to it till the total amount due is repaid. Some housing finance companies may ask for extra securities in the form of fixed deposits, saving certificates or a loan guarantor.

What is the rough time required for approval?

Expect approval within 15 days if all the documents, regarding your credit profile and the property you are planning to purchase, are in place and all the information provided is correct.



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