One of the most important financial decisions you will ever make is applying for a home loan to buy a house. With property prices higher than ever before, opting for a home loan is the only way to fund the purchase of a home. However, there are a few things you must know about home loan before you begin the home loan application process.
Before you apply for a home loan in India, here are some things you should know.
Home Loan Eligibility Criteria
First, you need to make sure you can get home loan, the process will not start if you’re not eligible. Before sanctioning you a loan, lenders will evaluate your income and repayment ability first. Age, credit score, income, number of dependents, spouse’s income, and job stability are some of the important factors that affect your home loan eligibility.
Types of Interest Rates
In India, home loans can be availed of on three different types of interest rates.
- Floating Interest Rates: This home loan interest rate is tied to the lender’s benchmark rate. If the benchmark rate changes, the interest rate will also change.
- Fixed Interest Rates: The interest rate on a fixed-rate loan is set at the time the loan is taken out. The interest rate stays the same throughout the tenor of the loan.
- Combination Interest Rates: In the case of loans availed of on these interest rates, a portion of the loan is repaid at a fixed interest rate and another portion is repaid at an adjustable or floating interest rate.
Home Loan Pre-Approval
Before you choose a home, you should get your home loan pre-approves. Pre-approval narrows your house search and sets your budget. Even better, pre-approvals help people negotiate and close deals faster. You can also ask the lender about good properties in your desired location. Some projects are approves by the lender, which not only reduces the number of property documents requires by the lender but also guarantees the quality of the projects.
Home Loan Amount
Most lenders offer home loans equivalent to 75 to 90% of the property’s value. So, if the property is worth INR 60 lakh, you can get a loan of up to INR 48 lakh, which is 80% of the cost of the property. If you have a co-applicant, the lender can use his or her income to make the loan amount bigger. The co-applicant can be your adult child, parent, or spouse. You are expects to pay the rest of the money needs to buy the property. For example, if the property is worth INR 60 lakh and you’ve been approves for an INR 48 lakh home loan, you will have to arrange for down payment, which will be 12 Lakhs.
Cost of Securing a Home Loan
When deciding if your home loan is right for you, you should also think about how much it will cost you. The total cost of a loan also includes interest payments, processing fees, administrative fees, penalties for paying off the loan early, and so on. If you have availed of the home loan at floating rates, you won’t have to pay any fees for foreclosing the loan or part-pre-paying it.
Lenders are requires to disclose all information regarding fees and charges on their websites in order to comply with the requirements of the regulatory agency. Check these fees and charges before applying.
EMI and Pre-EMI
Your EMI is how much you will have to pay your lender each month to be able to pay back your loan on time. Your EMIs constitute a principal component and an interest component. Use a home loan EMI calculator to know your monthly payments and plan your loan journey is such a way that you are never behind on your EMIs.
Pre-EMI is a term that refers to payments made towards loans taken to purchase homes that are still being built. In this case, your loan is given to you in stages base on how much you need to pay the developer each month. Usually, you are requires to pay interest only on the loan amount that has already been given to you (the pre-EMI interest). If you want to start paying back the principal right away, you can choose to split the loan into parts and start paying EMIs that cover the total amount.
Home Loan Tenor
Home loans can be approve for up to 30 years, depending on the borrower’s eligibility. A longer term makes EMIs less of a burden. For example, if you borrow INR 50 lakh for 20 years at an interest rate of 9%, your EMI will be INR 81,034. Now, if we lengthen the time to 30 years, the EMI goes down to INR 79,445.
Home Loan Documents
Documents needs for a home loan can be grouped as:
KYC documents: This includes identification and evidence of residence, such as a valid passport, voter ID card, Aadhaar card, etc.
Credit/Income Documents: Lenders use these documents to determine loan eligibility. If you’re currently employee, you can provide salary slips from the previous three months; if you’re self-employee, you can provide your most recent three years’ tax returns and profit and loss statements.
Property documents: Property documents include the sale agreement, title deeds, etc.
To secure house loan disbursement, you must provide property documents in original along with your KYC and credit/income records. Keep all the documents ready with your to experience a hassle-free home loan process.
Final Thoughts
Buying a home is not just a huge accomplishment but also one of the most rewarding things you’ll ever do. Getting a home loan is a great way to get one step closer to being a home owner. Use the information provided in this article to your best advantage while availing yourself of a home loan.