Wow….What a beautiful house it is? Can you buy it for me? What will be your answer, if your sweet better- half asks this question to you? Well, in the present scenario, the real estate sector is at boom, and it’s very difficult to purchase your dream house. But, you need not to worry! Just apply for a home loan.
Those days are gone, when procuring a home loan was considered a tedious task. Now-a-days, due to rising competition in the market, drastic changes occur in the process of availing loans. Here is a complete guide that would help you a lot in obtaining a housing loan.
Home Loan in India: At Glance
- You can consider taking a home loan for purchasing a new house, buying a plot, constructing a house on the plot.
- In India, housing companies and banks (like SBI, ICICI, HDFC, etc.) offer the home loans. National Housing Bank and RBI issue the guidelines, which govern housing loans, from time to time.
- You can repay your housing loans through EMI (equated monthly instalments). The maximum tenure of loan depends on the borrower’s age at the end of tenure, and on the bank you are availing the loan from.
- On the basis of interest rate, home loans can be classified into 2 categories- floating rate and fixed rate of interest. In fixed rate home loan, rate of interest remains stable for the whole tenure. In floating house loan, rate of interest keeps on changing, whenever there is any change in the base rate of the bank or repo rate.
- Some lenders provide house loan at dual rate of interest, where the interest rate remains constant for first 1-5 years. After that, it moves to a floating interest rate. Dual rate loans, which begin as a fixed type of interest rate in the initial stages, are considered as fixed rate house loan for the reason of ‘levy of penalty’ for prepayment of loans.
Are You Eligible to Get a House Loan?
Your eligibility to get a home loan depends on the following factors:
1. Income- Your income is the deciding factor about the sum of the loan amount that you are eligible for. Generally, the banks assume the income to EMI ratio at 45.0 to 50.0.
2. Tenure of the home loan- Your eligibility to get a home loan, increases if you opt for longer tenure.
3. Interest rate- The loan eligibility will be higher if your interest rates are on a lower side and vice versa.
4. Existing Loans- If you have already taken a loan, the eligibility amount of the loan will come down, to keep the income to EMI ratio around 50.0.
Home Loan EMI Calculator
The equated monthly instalments of your loan depend on the tenure, amount, and interest rate of your loan. EMI includes the principal and the interest component. Initially, the interest component is considerably higher than the principal component.
The prospective borrower’s ability to pay the EMI affects the loan eligibility. Normally, the bank will assume approximately 40%- 45% of the borrowers’ net salary is available for payment of EMI, in order to serve all the loans. However, it differs from bank to the bank, and there is no standard formula or norm. If you belong to the higher income group, this percentage for servicing of EMI can be higher for you.
The borrower can’t decide the interest rate, but he can decrease / increase the tenure of EMI. If you increase the tenure, the interest component will get higher on similar loan amount.
If your property is under-construction, you have to pay Pre – EMI, which is only the simple interest on the sum of the amount disbursed. It doesn’t have any principal component. Some lenders may also allow you to pay EMI for every fraction of loan disbursed. In this case, the actual consolidated EMI begins after total disbursement of home loan.
The Process of Getting a Home Loan
1. Application Form
The first step to avail a home loan is to fill up an application form that differs from bank to bank. In this form, you will have to furnish your professional and personal information, along with the details of the property (if finalised), means of financing the same, and your financial liabilities and assets.
You have to provide the bank with the copy of following documents:
- Identity proof
- Address proof
- Age proof
- Income proof
- Proof of educational qualifications
- Employment details
- Details about the property if finalized
- Bank statements
Along with the application forms and relevant documents, you will also have to submit the processing fees, which is approximately 0.25% to 0.50% of the total loan amount. Most of the banks have flexible fee structures, and you can negotiate hard to minimize the fees. Some banks have zero upfront fee loans but their other charges, such as “stamp duty” and “legal charges” are normally higher.
2. Personal Discussion: Face to Face
After you fill and submit the application form, the bank evaluates the documents and calls you for the personal discussion. This meeting is scheduled to gather more detailed information that may not be mentioned in the form, and to reassure your repayment capacity. You should carry all those original documents, whose copy you have submitted along with the application.
3. Field Investigation
In order to establish trust with the applicants and to validate or confirm your details, the bank send representatives to check your place of employment, residential address, employer credentials (in case if you are working for a small establishment), and phone numbers of work-office and residence. The representative of the bank also checks the references that you have mentioned in the application form.
4. Credit Appraisal and Loan Sanction
It is the break-or-make stage. If the bank is not swayed about your credentials and finds any discrepancy, it may reject your loan application. If it is satisfied, your loan will get sanctioned. The bank determines your repayment capacity and maximum loan eligibility, on the basis of your age, qualification, experience, nature of business (if self employed), employer, etc. Finally, a sanction letter is issued to you. The bank might require you to fulfil certain terms and conditions, before the disbursement of the loan.
5. Offer Letter
Once your loan gets sanctioned, the bank sends you an offer letter mentioning the following details:
- Amount of loan
- Interest rate
- Whether variable or fixed interest rate is linked to a reference rate
- Mode of repayment
- Tenure of the loan
- The details of the scheme if your loan is under some specific scheme
- Terms and conditions of the loan
- Any other special condition, if any
If you concur with what is stated in the offer letter, you will have to sign a duplicate copy of the same letter and submit it to the bank.
6. Submission of Legal Documents and Legal Check
Now, you will have to submit all the legal documents (such as NOCs from the legal owners, the title documents of your seller) of the property, you want to buy. The bank keeps these documents as security for the loan amount and returns them back to you on complete repayment of the loan.
In order to confirm the legitimacy of your documents, bank sends these documents to a lawyer to scrutinize them legally. The loan disbursement decision of bank depends on the lawyer’s report. If everything goes fine, bank will disburse you the home loan.
7. Technical/Valuation Check
Bank sends an expert to visit the property or premises that you wish to buy. This expert determines the value of the property, according to the existing rules and regulations.
In case of under- construction property, the expert checks the following:
- Valuation of the property.
- Area of the property layout (of the flats) is required to be within the permissions, granted by the regulating authority.
- Place of construction is similar to the specified details in the payment notice that you received from the builder.
- Construction quality.
- Progress of the work.
- The builder possesses all the required certificates to begin construction at the site.
In case of resale/ready construction, the expert checks the following:
- Internal/external maintenance of the property.
- The age of the property/building.
- Will the building/property last the loan tenure?
- The near-by area.
- Construction quality.
- Whether the builder possess all the essential certificates for giving out the possession of the flat.
- There is no mortgage or existing lien on the building.
- Valuation of the property.
After the technical / valuation check, the draft documents are required to be cleared by the lawyer; the stamping and registration of the documents is needed to be done. In case, any NOCs are pending, then these have to be received in the format, agreed by the bank’s lawyer.
9. Signing of the agreement
You are required to sign the housing loan agreement. You need to provide post-dated cheques for the first thirty-six months (in case, it is the agreed mode of repayment). At this stage, you ought to submit the original papers of the property to the bank.
Some banks create a document also, known as the memorandum of entry, to record the hand- over of the property documents as a security, for the due reimbursement of the house loan. The bank recovers the stamp duty, which is payable on this memorandum, from you. However, this document is not prepared by all the banks.
The loan is disbursed to you after the bank get assured about- the property is technically and legally acceptable; all the submitted original documents are legally valid; all the required loan agreements have been signed.
Keep one thing in mind that instead of the date on which, the cheque is entrusted to you, the bank begins to charge interest on the amount of loan from the date on which cheque has been made. So, in order to avoid paying extra interest, take delivery of the cheque either the similar day, or the very subsequent day.
Hope, this information will help you a lot to acquire your dream house easily, and will make you smile!