Owning a house is one of the greatest financial decisions that an individual has to make. Since buying a house is a matter of a lot of money, seeking a home loan becomes the only rational option for first-time homebuyers. A home loan is a type of secured loan and it aims to help people buy their houses. Home loans are of large fundings at affordable interest rates for long tenures (usually up to 30 years) based on some economical criteria. Borrowers repay these loans through EMIs. After the repayment process is completed, the property’s title is transferred back to the borrower.
Things to consider while applying for a Home Loan
Before applying for a home loan, individuals must understand some important points, which are listed below.
Types of home loans
There are different types of home loans one can opt for. These are adjustable/floating rate home loans, fixed-rate home loans and semi-fixed rate home loans. For floating rate home loans the interest rate is linked to the lender’s benchmark rate, where the interest rate changes proportionately. In fixed-rate home loans, the interest rate is fixed at the time of taking the loan, where the rate of interest is applicable throughout the tenure of the loan. Furthermore, when it comes to semi-fixed rate home loans, a part of the interest rate is fixed and another part is adjustable or floating.
Eligibility criteria
It is important to make sure whether the borrower is eligible to apply for a home loan or not. The eligibility criteria for home loans is based on the income and repayment capacity of the borrower. Other important considerations include age, financial position, qualification, number of dependents, spouse’s income (if you are married) and job stability.
Documentation
There are various documents needed to get the home loan process started. Also, nowadays you can apply home loan online which is time-saving as well as hassle-free.
- KYC documents: This consists of identity and address proofs like Aadhar Card, Voter’s Card, valid passport (optional), etc.
- Income documents or credit documents: These documents help lenders evaluate a borrower’s loan eligibility. If you are a salaried person, you need to submit salary slips for your first three months. On the other hand, self-employed individuals are required to present the last 3 years’ income tax returns as well as income computation.
- Property documents: These documents comprise the agreement to sell, title deeds, etc.
Obtaining the loan
Before selecting the house, homebuyers should get their loans pre-approved. Pre-approval helps them plan their budget and also makes their home search focused. It even allows borrowers to negotiate better and close deals faster. With pre-approved home loans, individuals can ask lenders about the availability of any project near their location that also matches the budget.
Loan amount
As the regulators have defined, most lenders offer a home loan ranging from 75% to 90% of the cost of the property depending on the loan value. If a person adds a co-applicant, after evaluating his/her income, the lender can increase the loan amount. The co-applicant can be a parent, spouse or adult child.
Cost of the particular home loan
Another important factor that is to be taken into consideration is the cost of the housing loan. The cost includes the processing charges, interest payments, prepayment penalties, administrative charges, etc. In an ideal situation for adjustable/ floating rate loans, the home loan you applied for will have no payment charges. Also, the individual can be able to convert to a lower rate of interest by paying a nominal charge.
Tenure
Home loans can be availed for a maximum period of 30 years, based on the customer’s eligibility. The longer the tenure the less is the EMI burden.
EMI/ Pre-EMI
The full form of EMI is Equated Monthly Installment. This is the amount that a customer pays the lender each month. EMI comprises repayment of the principal amount and payment of the interest on the remaining amount of the loan. Pre-EMI is a concept applicable for properties that are under construction. In this case, the home loan gets disbursed in stages based on the instalment amount you need to pay to the developer.
Insurance cover
It is advisable to buy a loan cover term assurance plan that will cover the loan amount. A borrower must do comprehensive research to find out the best home loan insurance available. Insurance cover relieves families from the liabilities of the outstanding loan as the loan is repaid by the insurance company in case an unfortunate thing happens to the borrower. In fact, several lenders might suggest you take insurance cover at the time of availing home loan.
Owning a home is the most satisfying experience that one can have in his/her lifetime. Since huge money is involved in house buying, it is better to take a home loan from a bank that offers an affordable interest rate for a long tenure.
