Owning a home is one of the major financial decisions that you as well as your family ever make. For many first-time buyers of home, taking a home loan from HDFC home loan, Bank of India, Bank of Baroda, etc. is the only way you can bring alive your aspirations and passion of becoming a homeowner. In case you are looking to avail a home loan, it is very important to understand what it is, after all, it is a long-term commitment that will run into 3 decades until you finally repay your whole loan proceeds. Here are the top 10 things you must know before you place an application for a home loan.
Eligibility criteria –
The initial step you must take into consideration is ensure you qualify for a home loan. Lenders tend to evaluate your home loan based on your repayment potential and income. The other crucial consideration points include your financial position, age, qualification, number of dependents, job stability, etc. If all these factors fall in the correct place, then you may be eligible for a home loan deal. For instance, suppose you applied for HDFC home loan, if you tend to meet all the criteria of HDFC, then you may avail a lower HDFC home loan interest rate on your loan deal.
What are the kinds of home loans available in the market?
The distinct kinds of home loan available in the market are –
∙ Combination loan –
This loan provides a part of loan at fixed interest rate and a part at floating or adjustable interest rate.
∙ Fixed rate loan –
Under fixed rate loan, rate of interest is fixed when availing the loan. This interest rate is applicable across loan tenure.
∙ Adjustable or floating rate loan –
Under a kind of loan, the rate of interest is attached with the lender’s benchmark interest rate. If there’s any benchmark rate change, the rate of interest too changes in proportion.
Should zero on loan first or home first?
It is recommended to avail a pre-approved home loan deal before choosing your home. Pre-approval assists you fix to the exact budget as the sanctioned loan amount and make your search for home focused. Pre approvals also assist you to negotiate for a better deal and close the loan deal quickly. Also, you can check with the lender about availability of desired properties in preferred areas. In fact, there are certain projects that get approved by lenders, which not relaxes you from the need for carrying property documents for lenders, but even assures you of the project quality.
Loan amount –
As defined by the regulator, many lenders offer a home loan that ranges anywhere between 75 percent and 90 per cent of property cost based on the value of the loan. Thus, if property is valued at an amount of Rs 50 lakh by the lender, you can take a maximum of Rs 40 lakh based on your eligibility for home loan. If you add in a co-applicant, then the co-applicant’s income may be factored in by the bank or lender to enhance your loan proceeds. The co-applicant might be your parent, spouse or adult child. The payment balance towards the property’s purchase must be contributed by you. For instance, if a property has the value of Rs 50 lakh and you are provided a sanction on home loan an amount of Rs 35 lakh, your contribution must be the balance amount i.e., Rs 15 lakh. You may use the home loan calculator in case you want to know your eligibility for a home loan.
Your home loan cost –
Your home loan cost is even an important parameter to consider while evaluating the deal. The cost will be added to your interest constituent, processing charges, administrative fees, prepayment charges, etc. Ideally your loan must hold zero prepayment fees for the adjustable or floating interest rate loan. When you consider a home loan deal, you must make sure to check if it does not have any hidden fees. According to the regulator, lenders must transparently disclose the info regarding the charges on its site.
EMI or pre – EMI –
EMI’s full form is equated monthly instalment. This is basically the amount you must pay to the lender every month. It involves principal repayment amount and payment of interest on outstanding loan amount.
Pre-EMI refers to the concept that is utilised for properties that usually are under construction. Here, you are usually required to begin making payment of the interest on loan proceeds disbursed. In the case, you want to begin with the principal repayment instantly, you might go for the loan tranche and begin paying EMI on the cumulative amount disbursed.
Repayment tenure –
Home loans can get processed for a maximum repayment period of thirty years, subject to your eligibility. A higher repayment assists you to lower the loan burden. For instance, for a twenty-year-old loan equalling Rs 10 lakh at a rate of interest of 10.40 per cent, the EMI may be Rs 9,917. Now, if you enhance the repayment tenure, then the EMI would fall to Rs 9,073.
Documents required –
Documents required for home loan may be categorised in the following ways –
KYC documents –
Such documents involve address and identity proof. Few documents that you may submit for this purpose involve valid passport, Aadhaar card, voter ID, etc.
Income documents –
Such documents assist the lenders to evaluate your eligibility for loan. In case you are employed, you may submit your income slips of the previous three months. However, in case you are self-employed in nature, you may submit the income tax return documents besides income computation of the past three years.
Property documents –
Such documents involve the sell agreement, title deeds and others. The lender does the thorough due diligence of your desired property depending on the documents you submitted and other external sources. While you must submit photo copies of your KYC documents along with income documents, lenders ask you to submit the original document of your property documents for disbursing the loan.