- - Check your home loan eligibility
- - Know the types of home loans you can avail
- - Get your home loan pre-approved
- - Assess –
- the loan amount available
- the cost of loan
- the EMI payable
- the loan tenure
- - KYC, Income and Original Property documents need to be submitted for loan disbursal
- - Ensure safe storage and easy retrieval of property documents with the lender
- - Purchase a loan cover term assurance plan
- - Be regular in paying EMIs
Owning a house is one of the biggest financial decisions that you and your family will ever make. For most first-time home buyers, availing a home loan is the only way they can bring alive their aspirations of home ownership.
If you are planning to take a home loan, it’s important to understand all about it; after all, it’s a commitment that will run into years till you can repay the entire loan amount. Here are 10 things you should know before you apply for a home loan:
The first step you need to take is to make sure that you qualify for a housing loan. At the beginning, lenders will assess your eligibility for home loan on the basis of your income and repayment capacity. The other important considerations include age, qualification, financial position, number of dependants, spouse’s income and job stability.
TYPES OF HOME LOANS
The different types of home loans that are available are:Adjustable/Floating Rate Loans:
In this type of loan, the interest rate is linked to the lender’s benchmark rate. If there is a change in the benchmark rate, the interest rate also changes proportionately.Fixed Rate Loan:
In a fixed rate loan, the interest rate is fixed at the time of taking the loan. This rate of interest is applicable throughout the tenure of the loan.Combination Loans:
These loans offer a part of the loan at a fixed rate of interest and part at an adjustable or floating rate of interest.
HOME FIRST OR LOAN FIRST
It is advisable to get your home loan pre-approved before you select your home. Pre-approval helps you fix your exact budget and makes your home search focused. Pre-approvals even help negotiate better and close deals faster. You can also check with the lender about the availability of good properties in your preferred location. In fact, there are some projects that are approved by the lender, which not only relaxes the number of property documents needed by the lender, but also assures you of the quality of the projects.
As defined by the regulator, most lenders provide a housing loan ranging from 75 to 90 percent of the cost of the property depending on your loan value. Therefore, if the property is valued at Rs 50 lakh by the lender, you can avail a maximum loan of Rs 40 lakh (80% of the property cost for loan amount up to Rs. 75 lakh), depending on your home loan eligibility. If you include a co-applicant, his/her income can be considered by the lender to increase the loan amount. The co-applicant may be your adult child, parent or spouse. The balance payment towards purchase of the property is expected to be contributed by you. For instance, if the property is valued at Rs 50 lakh and you have been sanctioned a home loan of Rs 35 lakh, your contribution will be the balance Rs 15 lakh. You can use a housing loan eligibility calculator to check your eligibility for home loan.
COST OF YOUR HOME LOAN
The cost of your housing loan is also a factor to take into consideration while assessing its suitability. The cost will include the interest payments, processing fees, administrative charges, prepayment penalties, etc. Ideally your home loan should have zero prepayment charges for adjustable/floating rate loans. You should also be able to convert your loan to a lower rate by just paying a nominal fee. When considering a home loan, ensure that there are no hidden charges. As per the regulator, lenders need to transparently disclose information about fees and charges on their website.
EMI stands for Equated Monthly Instalment. This is the amount you need to pay to the lender each month. It includes repayment of the principal amount and payment of the interest on the outstanding amount of loan.
Pre-EMI is a concept that is used for properties that are under construction. In this case, you get your loan disbursed in stages based on the instalment amount you need to pay the developer. You are generally required to start paying only the interest on the loan amount disbursed (called the pre-EMI interest). In case you wish to start principal repayment immediately, you may opt to tranche the loan and start paying EMIs on the cumulative amounts disbursed.
Home loans can be sanctioned for a maximum period of 30 years, subject to the customer’s eligibility. A longer tenure helps reduce the EMI burden. For example, for a 20-year home loan of Rs 10 lakh at an interest rate of 10.40 percent, the EMI works out to be Rs. 9,917. Now if we increase the tenure to 30 years, the EMI falls to Rs. 9,073.*
Documents needed for a home loan can be categorized as:KYC Documents:
These include your identity and address proofs. Some documents that you can submit for this requirement include a valid passport, voter ID card, Aadhaar card, etc.Credit/Income Documents:
These documents help the lender assess your loan eligibility. If you are employed, you can submit your salary slips of the last 3 months; if you are self-employed, you can submit income tax returns along with computation of income of the last 3 years.Property Documents:
These documents include the agreement to sell, the title deeds, etc. The lender does a due diligence on the property based on these documents.
While you need to submit your KYC documents and credit/income documents along with the home loan application to avail the home loan approval, you need to submit the property documents in original to get your home loan disbursement.
To see the complete list of documents needed for your home loan, visit www.hdfc.com
Your property papers are important. Since your original property documents such as title deed, agreement to sell, own contribution receipts, etc are mortgaged with the lender as security interest on the property being financed, it is important that the lender offers you safe storage. Another important aspect to consider is easy retrieval of the documents. Check whether the lender has decentralized the storage facilities so that retrieval of documents is quick and easy when the customer requires them.
|10 Things you must know before you avail a home loan||Did you know?|
|Eligibility criteria||Home loan eligibility is primarily determined on the basis of your income and repayment capacity.|
|Types of home loans||Floating rate loans are popular due to the flexibility which they offer to the customers.|
|Home first or loan first||You can enhance your loan eligibility by adding in an earning family member as a co-applicant.|
|Loan amount||The rate of interest applicable on your home loan is the rate prevalent on the date of disbursement.|
|Cost of your home loan||You can apply for a home loan even before you shortlist a property.|
|EMI/Pre-EMI||Longer the tenure, lower are the EMIs.|
|Tenure||All co-owners to the property will have to be co-applicants of the home loan. However all co-applicants need not be co-owners.|
|Documentation||You can be in one location, buy a property in another location and service your home loan from a third location.|
|Insurance cover||You can convert your fixed rate loans into floating rate loans and vice versa, by paying a small fee.|
|Default||You get tax benefits on both, principal repayment and interest payment on housing loans.|
You must purchase a loan cover term assurance plan that will cover the loan amount. It’s important to do your research to find out the best home loan insurance available. This will relieve your family from the liability of an outstanding loan as the loan is repaid by the insurance company in case something unfortunate happens to you. In fact, several lenders will insist that you purchase insurance at the time of availing the home loan.
It is best to be regular in paying your EMIs. If the customer misses more than 3 instalments, lenders have the power to take action against default directly without intervention of courts according to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). In case you are facing financial difficulties, it’s best to apprise your lender about your situation and check the possibility of an extension in the repayment tenure.
Purchasing a house is a big step; it is also the most satisfying experience you will have in life. A home loan is one of the best ways to help you own your own home.
Also Read - Home Loan Prepayment
Home calculations made easy to help you plan your home