Everybody envisions owning their ideal home, and acquiring that dream home is one of the most significant decisions your family will make for settling down. For newcomers looking to realize their dream of a new home, obtaining a home loan is a practical path to achieving this aspiration.
So, if you're contemplating applying for a home loan, it's crucial to comprehend the entire home loan process, as it represents a commitment you'll be bound to for several years until the loan is fully repaid. That's precisely why we're here to guide you; we're going to share 10 essential tips to consider before committing to a home loan.
First and foremost, the initial step you should take is to determine your eligibility for a home loan. In the past, lenders would assess your qualification for a home loan primarily based on your income and repayment capacity. Nowadays, in addition to income and repayment capacity, other crucial factors taken into account include age, education, financial standing, the number of dependents, spouse's income, and job stability.
There are various types of home loans available:
1. Adjustable/Floating Rate Loans:
In this type of loan, the interest rate is linked to the prevailing rate set by banks or financial institutions. Therefore, if there is a change in the benchmark rate, the home loan interest rate will also adjust accordingly.
2. Fixed-Rate Loans:
With this loan, the interest rate is fixed at the time of application and remains unchanged for a predetermined period, typically five years.
3. Combination Loans:
This type of loan combines a portion of the loan at a fixed interest rate with another portion at an adjustable or floating interest rate.
Prior to selecting your ideal home, we recommend getting your home loan pre-approved. This enables you to plan and establish your budget for purchasing a home. Pre-approval also expedites negotiations and transaction closure. Additionally, your lender can provide insights into suitable properties in desirable locations. Some banks and financial institutions even offer lists of approved projects, reducing the documentation required and expediting the loan application and approval process.
Regarding the loan amount, most retail loan providers typically offer housing loans ranging from 75% to 90% of the property's cost, varying based on the property's value and your loan eligibility. For example, if a property is appraised at ₹50 lakh by the bank or financial institution, you may be eligible for a maximum loan of ₹40 lakhs (80% of the property cost) depending on your home loan eligibility. Involving a co-applicant with a stable income may increase your loan eligibility. Co-applicants can be adult children, parents, spouses, or their close relatives as permitted by Union Home guidelines.
When determining the suitability of a home loan, consider the entire cost, including interest payments, processing fees, administrative charges, and prepayment penalties. Typically, adjustable/floating rate loans should have zero prepayment charges, allowing you to convert your loan to a lower rate for a nominal fee. During the loan sanctioning process, ensure there are no hidden costs imposed by the lender.
EMI (Equated Monthly Installment) is the amount you repay to your bank or financial institution every month, consisting of principal and interest on the outstanding loan amount.
Home loans are typically sanctioned for a maximum of 30 years, subject to your eligibility. A longer loan tenure can help alleviate the monthly EMI burden. For example, for a ₹10 lakh loan with a 20-year tenure at an interest rate of 10.40 percent, the EMI would be ₹9,917, and for a 30-year tenure, it would be ₹9073.
Documentation requirements for a home loan include:
KYC Documents:
These documents establish your identity and address and may include a valid passport, voter ID card, Aadhaar card, etc.
Credit/Income Documents:
These documents help the bank or financial institution assess your loan eligibility. If you are employed, you can submit your salary slips for the past three months along with your income tax returns (ITRs). If you are self-employed, provide your ITRs showing income for the past three years.
Property Documents:
This set of documents includes the agreement to sell, title deeds, and other property-related documents. The bank or financial institution conducts due diligence on the property based on these documents.
In addition to KYC and credit/income documents required for loan approval, original property documents must be submitted for loan disbursement.
In conclusion, buying a house is a significant decision and a fulfilling experience. A home loan is an excellent means to achieve homeownership. So, are you prepared to take this step? Click here to apply.
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