The home loan helps the people financially for fulfilling their dream of own home. The home loan provides fund to the applicant for purchasing new home or to construct new home in his own plot.
This article contains the information about home loan and its benefits along with the procedure to avail the home loan and also has details of the document requirement, eligibility criteria, types of home loan etc.
What is home loan?
It is the loan provided by the lender to the applicant to purchase/ construct/ extend the house/ flat/ plot and In this loan the property of the borrower is considered as collateral for the loan.
The home loan also provides funding for the repair or renovation of your home. The home loan provides the benefits of lower interest, tax benefits, no prepayment penalty to the applicant. The home loan also has the maximum repay tenure of up to 25 to 30 years.
Things to consider before taking home loan :
Selection of the bank or lender for the home loan is one of the crucial task. Purchasing home is the one of the biggest decisions for anyone. hence choosing the proper lender also has much importance. It is mostly difficult task for the person who is new to this procedure.
Here are some factors which will help you to choose the right and affordable plan of the home loan.
1] Rate of interest: It is the important factor which says how much you have to pay extra to the lender for taking home loan. Hence it is necessary to compare interest rates of the different lenders. The minimum interest rate will lower the cost of interest even a small difference in percentage of interest can make a considerable difference in amount of interest.
The bank generally provides two options for interest rates :
I] Floating rate of interest: The floating rate of interest fluctuates as per the market. Hence it may increase or decrease throughout the tenure. Therefore cost of EMI also varies within repay period.
II] Fixed rate of interest :- This type of interest rate remains constant through out the tenure hence the cost of EMI also remains constant through out the term.
2] Processing fees: Most of the banks charge the processing fees for the home loan hence it is necessary to compare the different lenders for the processing fees. Generally banks charges the processing fees up to the 1% of your sanctioned loan amount.
e.g. If your loan amount is 2,00,000 and the bank charges 1% of processing fees then you have to pay 2,000 rupees as a processing fees.
So it is important to choose the financial institution which charges least processing fees.
3] Additional charges and penalties: Some of the banks charges penalties for late payment of EMI as well as in some banks the borrower also has to pay penalty on to the prepayment. Therefore the applicant has to choose the bank which allows the prepayment of the loan so you can decrease the interest amount.
4] Applicants credit score: Your credit score also plays a vital role for deciding the rate of interest by the bank. It is a 3 digit number ranging from 300 to 900. The credit score between 750 to 900 is considered as decent score and can avail concession in interest rate for home loan.
5] Repayment period: Applicant can choose the suitable tenure while applying for the home loan. The term of repayment decides the amount of EMI to pay.
The shorter repayment tenure will reduce the total interest amount but it may increase the EMI. While by choosing longest tenure you get much time to repay with comparatively smaller EMI but it may increase the burden of interest on you which will increase the total cost of home loan. Therefore the applicant should choose the proper and affordable tenure for home loan.
6] Down payment: It is the part of amount of home loan to be paid by borrower at the time of loan procedure. The banks never provides 100% of the home loan amount. Loan provided by banks depends on the loan to value ratio (LTV). Mostly the bank provides LTV ratio from 75 % to 90%.
e.g. If you apply for the home loan amount of 10 lakh and if the bank applies 90% of LTV ratio therefore the bank will provide 9 lakh of loan and the borrower has to pay 1 lakh as down payment.
By comparing the different home loan proposal on the basis of above factors the applicant can choose the proper and affordable plan for the home loan.
Types of home loan :
Based on the purpose of the individual, the home loan has multiple policies. Some of the well known plans for home loans are listed below.
i) Home loan for purchase of new home:
Under this scheme the bank offers the home loan to purchase constructed home/ flat (new or pre-owned).
ii) Home loan for purchase of new plot: ln this proposal the financial institute provides the home loan to purchase a new plot for the construction of home.
iii) Home loan to construct a new house: The bank also provides loan to build a new home in your own land/ plot. One can also get the loan for purchasing new plot as well as to construct home loan. Under this policy the loan is disbursed separately for plot purchase and for construction.
iv) Home loan for repair and renovation: You can also make modification or renovate your home by purchasing home loan. This loan helps into the major repairs of your home like electrical repair, building repair, plumbing etc.
v) Home extension loan: If you want to make the major modification or to expand your house then also you can avail the home loan.
vi) Home loan transfer: In this option the borrower can transfer his home loan from one bank to another bank and can avoid the benefit of low interest rate offered by another bank.
Along with this popular home loan schemes there are also many other types of Home loans available which will suit for your purpose.
Benefits of home loan :
By taking the home loan you can avail following benefits,
i) Less rate of interest: In comparison with other loans the rate of interest incurred on home loan is lower. Hence the borrower has to pay less interest cost as well as it makes the home loan affordable for the borrower.
ii) Tax benefits: The home loan also provides the advantage of tax deduction as per the section 80C of Income tax act.
iii) Longer repay period: The borrower can get the maximum tenure period of 30 years. Mostly the bank provides maximum tenure period of around 25 to 30 years. The longest time reduces the EMI cost hence the burden on borrowers income also reduces.
iv) No prepayment penalties: The prepayment helps to clear the loan faster and to lower the cost of interest. lnto the home loan facility most of the lender never charges the prepayment penalty for certain policies.
What is eligibility criteria for home loan?
For providing home loan to the lender the banks verify the applicant’s information to check his eligibility and to check his repay capability. Therefore for availing the benefit of home loan the applicant has to fit within the criteria of eligibility.
Following are the some of factors on which the bank decides the eligibility of applicant.
i) Income of applicant: the sure income of applicant assures the bank about repay capability of the applicant. The minimum income criteria for the home loan also varies as per the location of the applicant. It means that if the applicant belongs to the metro cities then the limit of income is also higher and if he belongs to the rural area then the limit of minimum income is comparatively lower. The bank also has different income criteria for the salaried and self employed person.
ii) Credit score: The credit score reflects the credit history of the borrower which is described by the three digit numbers from 300 to 900. The credit score above 750 is better considered by almost all banks to provide home loan. The applicant with better credit score also gets benefit of lower interest rate.
iii) Age of applicant: The age of applicant gives an idea about remaining service years of the applicant as the applicant with sufficient service years is more capable to repay the loan amount. Hence as much you are younger, you have more eligible for the home loan.
iv) Current employer: The details of current employer and the experience of the employee reflects the stability of the job.
v) Details of the property to be purchase/ construct:
The property which we are purchasing is considered as the security for home loan hence the bank check the details of the property to decide the eligibility.
The above factors are generally used by the lender for checking the eligibility of the applicant hence the applicant can easily check his eligibility for home loan.
Documents required for home loan :
The documents required for home loan are slightly different for salaried and self employed person. Following is the list of documents required for the home loan.
i) Proof of Identity:
The any one of the following document can be used as proof of Identity.
PAN card
Voter ID card
Aadhar
Driving licence
Passport etc.
ii) Residential address proof:
Any one of the following documents can be used as residential address proof.
Voter ID
driving licence
Aadhar card
Bills (electricity, LPG, telephone, water etc.)
iii) Property documents:
a) NOC from builder
b) Sales deed
c) Possession certificate
d) Estimation of construction cost
e) Occupancy certificate (for ready flat)
f) Payment receipt of builder for the bank statement showing the payment made to the builder.
iv) For salaried person:
Latest salary slip
Form 16 from employer
Past 3 month bank statement (salary account)
v) For self employed person
a) Proof of business existence
b) Past three year ITR with income details
c) Last 3 year profit and loss account
d) Last 6 month bank statement
Process of home loan :
The process of home loan is almost same for all the lenders with the slight difference. The general steps followed by the lenders for home loan procedure are as follows.
i) Loan application and document submission:
The process of the home loan starts with filling of application form. The applicant has to fill all the details properly with correct information. Along with the application the applicant has to submit necessary documents to the lender.
ii) Pay the processing fees: After the submission of application form and documents the applicant has to pay the processing fees to the lender. The processing fees is generally in percentage of your loan amount. The lenders generally charges from 0.25% to 1% of processing fees.
iii) Verification of documents and application: After completion of application procedure the lender verifies the documents and information provided by applicant. Sometimes the applicant has to visit the branch for discussion. The lender verifies documents for checking information like your residential address, employment details, business existence etc. Therefore the applicant has to provide the real information otherwise the application gets rejected by the lender.
iv) Home loan approval process: In this process the verification and evaluation is done to find the maximum limit of the loan amount, interest rate and to check your capability to repay the loan. For this purpose the lender check your employment or business details, your sure income status etc.
v) Offer letter: After approval process the bank generate an offer letter which contains details of sanctioned loan, interest rate, repayment tenure, terms and conditions etc.
If the applicant accepts the offer letter then the bank takes sign of applicant onto the copy of offer letter.
vi) Legal check of the property: After acceptance of offer letter the bank starts the legal verification of the property documents. The original property papers submitted by the applicant gets checked by the lawyer of the bank.
vii) Site estimation: For the site estimation the banks and their employees or an engineer to visit the property of the applicant. The engineer check the site based on parameters provided by bank and does the valuation of your property.
viii) Final deal and agreement: After completion of legal and technical check the bank generate final agreement of the loan and the applicant has to sign on the agreement. the applicant also has to submit the original property papers to the lender.
After the completion of procedure the bank disbursed the loan to the applicant in the form of cheque.
Home loan providers in India :
Here we have mentioned some of the top home loan providers present in India. Along with this list there are much lenders are present into the market which will fit for your requirement.
i) HDFC
ii) IIFL
iii) SBI home loan
iv) Tata capital
v) BOI home loan
vi) Sundaram home finance
vii) Punjab national bank
viii) Indiabulls
ix) LT housing finance
x) United Bank of India home loan
Conclusion :
The home loan helps the applicant to meet the expenses related to the personal home or flat. Some of the schemes of home loan also provides moratorium period in which the applicant has to pay only interest instead of capital amount. It is necessary to check the home loan policy for the factors mentioned above which will help you for choosing proper plan.
