Home loan is one of the leading products offered by banks and NBFCs to customers. Home loan is also the largest selling banking product and the one that ensures the longest banking relationship with the lender. Own home is generally an obvious as well as a major decision in a person’s life. However, the cost of construction or purchase of property is quite high and this is where home loans play a major, almost indispensable role for the majority of home buyers. Home or housing loans are advances made to borrowers who require funds to purchase flat/land. They can also be availed of for construction, extension, and renovation of houses. Lenders can be banking or nonbanking financial institutions.
Home loan is a loan with a very long time frame. Generally, people opt for a home loan for 20 to 30 years. Mostly customers avail loan on floating interest rates. Rates keep on changing and long-term loans are such as loans tenure for 20 years cannot be predictable. Home loan rates will change in 20 years, so making a decision to take a home loan just based of the interest rates is not a smart idea. So thinking to start a loan at a lower rate has low relevance in the long run.
Therefore the right time to take a Home loan is when:
Let's discuss the steps involved in applying for a home loan.
The primary step involved in the process is to find the property that you are looking, Then you should verify the documents of that property. Simultaneously, you can start searching for the lender or financial institution who can offer the best home loans after checking your eligibility criteria.
Banks and other NBFC's offer the loan amount based on your monthly income and the property value. The maximum amount that you get is 50-60% of your income.
Comparing home loan interest rates of various banks is the most important feature in the home loan selection process. However, you should not forget to compare other charges like application charges, processing charges, and legal charges of various loan offers. To check the interest rates & other charges ordered by various banks, mymoneykarma.com has brought in a Home Loan Comparison Chart across various government and private banks. Banks offer fixed and floating rates in home loans.Most customers choose Floating rates.
How to Applying for the Loan: After you have selected your lender, you have to fill in the home loan application form, where the lender requires complete details about your financial assets and other personal & professional details together with the property details& its costs.
Home Loan Verification Process: You need to submit the necessary documents to the bank, which will be compared and verified together with the details that you have written during filing an application
Bank checks out the borrower’s loan eligibility through repayment capacity & the amount of loan approved. Once the borrower’s repayment capacity exceeds based on the Net income, age, experience & type of business etc. Bank also checks credit history through the Cibil Score, which plays a critical role in deciding your eligibility for loan. If in-case you have a low credit score then banks upfront rejects your application on the basis of earlier credit defaults; on the other hand high credit score gives a green signal to your application
Bank sanctions loan & sends the same to the borrower: After the credit appraisal of the borrower bank decides the final amount & sanctions the loan, with further details like the rate of interest, tenure and repayment period etc.
Copy of Acceptance to the Bank: The borrower has to send an acceptance letter to the bank that he agrees with the terms and conditions of bank.
Legal check of all the documents: Bank further asks the legal documents of property that borrower willing to get loan and checks its authenticity, The next step is the valuation of the property, Where an official of the concerned bank visits to the location where the property is located and he fulfils are the verification process and send it to bank then only your loan get approved.
The borrower signs the loan agreement & the bank disburses the loan amount.
Documents required in Home Loan
In general all the documents that are required to process your loan application are similar, Variations of any documents may depend on the bank if they have any specific requirement.
In the last few years, real estate has been one of the best investment options for investors. No matter how profitable it sounds, the rising growth of real estate as an investment option has led to high-reaching prices of property in the country. Both land and buildings have become quite expensive for customers to buy. This has led to an upsurge in the number of home loans applied each day.
Even though rising prices of real estate is one reason for borrowers availing home loans, another one major reason behind this is that property transactions are generally hefty as compared to other day to day financial transactions. As such, it is not at all necessary that the buyer will have the entire property cost available with him or her, at the time of acquiring property. This is where home loans step in and bridge the gap between property seller and buyer.
Banks pay on behalf of property buyer in return for a particular rate of interest. The general rule of 80-20 applies here, which means that banks offer only 80% of the value of a home to customers and the rest 20% is to be borne by the property buyer. This serves as a win-win position for both banks & capital buyers, since, banks are able to make profits by loaning out money while buyers are able to assimilate the entire cost of property and pay it back on fixed period of time.
Home loans are eligible for certain income tax exemptions which can be used to save up on the amount of income tax that an individual pays every financial year. According to income tax act under section 24, tax benefit can be claimed on up to Rs.1.5 lakh out of the interest component of your home loan. In case you reside in the house bought for loan, then you can claim a maximum exemption of Rs.1 lakh on the principal amount of the home loan too.
Depending upon the type of property being purchased and the amount of the loan being availed, home loans can be classified into the following different types. In India, banks and NBFCs generally offer home loans under any one of the following listed variants of housing loans.
Some of the most outstanding features of home loans are outlined below.
Home Loans are ensured advances.
This means home loans are offered in turn for a security deposited by the loan borrower.
Interest rates are flexible being either Fixed, The Indian government has come up with a new marginal cost of funds based lending rate or MCLR which is to be used by banks to decide the rate of interest at which they can lend money to a home loan applicant. The earlier base rate used to be the rate based on which banks used to decide their lending rate. MCLR is a more flexible rate which takes a lot of factors into account like funding composition and strategies. MCLR will be reset by banks after every specific interval of time. For example, if a bank decides to reset their MCLR annually then your home loan rate will reset after every one year.
Home loan interest rates are lower when compared to unsecured personal advances. Unsecured personal loans have a higher risk ratio associated with them since the bank does not have any security deposit to fall back on in case of a loan default.
The advance can be used to fund property for residential or investment purposes.
Whether you need a house to stay in or for investment purposes, the home loan can be availed from a bank of your choice.
Amounts offered are higher on other types of loans; up to certain percent of the property value.
Considering the cost of buying property as compared to any other commodity, the loan amount offered and sanctioned is substantial as compared to other loan types. Hence, the loan tenures offered for home loans are also longer than those for other loans.
Repayments are made in EMIs (Equated Monthly Installments).
Since the amounts approved towards home loans are usually huge and the tenure also is long, the repayment of home loans is done in equal monthly installments.
Prepayments are allowed, to cut down liabilities.
Prepayment of home loan is allowed by all banks, private and public. Earlier, some banks used to charge pre-payment fees for earlier than stipulated repayment of home loan amount. However, these days most public & private banks let borrowers pay off their home loan as and when convenient. Most banks have stopped charging any prepayment charges for the same.
They are long-term in nature usually vary between 5 - 30 financial years
Since the loan quantum for home loans is generally greater than all other types of loans, the repayment period is quite longer than that for any other loan type.
Non-interest charges include processing fees, pre-payment charges, inspection fees, documentation fees etc. Apart from the interest charged on the home loan amount, there also are various charges that are levied while the loan sanction process is underway. These charges are communicated to loan applicants at the time of application.
Home loans allow for joint loan applications. Since the loan quantum is high and the tax benefit also is good, banks allow for co-application or joint application of home loans.
They certify for tax benefits as per provisions of the IT Act, 1961 and hence, make for a good investment option.
The interest rate charged on any home loan scheme is one of the primary features. The rate of interest is what generally helps a customer decide in favor of or against a home loan scheme. Fixed and floating rate of interest are the two types of interest rates that banks normally ask customers to choose from at the time of home loan application.
To avail home loans at faster phase there are certain eligibility criteria, please refer below details for home loan eligibility: