Are you planning to purchase your dream property very soon? If you say yes, then there are many home loan options that you can opt for to satiate your desire. However, getting the best home loan in India is not as easy as it may seem. Again, many of us are not familiar with the home loan procedure, eligibility and documenttation etc. So at times, we end up getting entangled in a complex situation as a result of that. At the worst, a lot of home loan applications get rejected abruptly due to adhering to an incorrect process.
Also, since a number of borrowers fail to pay off their debts on time, they often have to face the brunt of what is called property foreclosing. To keep all these problems and worries at bay and to get a home loan in India smoothly and easily, here is a comprehensive guide for you to check out.
What is a home loan?
A home loan is a form of loan you take to purchase a house. Home loan can also be taken to construct a house, subject to you having a free hold plot. A home loan is different from other forms of loan as it has cheaper interest rates.
The housing loan is lent by Housing Finance Companies (HFCs) or private and govt Banks to people. The loan is granted against mortgage and can be repaid through an Equated Monthly Installment (EMI).
After the application, if the loan is sanctioned, the homebuyer can use the amount to purchase his or her dream property.
However, until the loan is totally paid off, the house or apartment bought remains collateral with the bank itself. In spite of it, the concerned financial institution conducts an in-depth verification of both the property and the borrower before approving and disbursing the loan amount.
Also, note that the banks or financial institutions usually approve upto 60 to 80% of the property value as loan. You have to pay the rest of the amount (down payments) from your own savings. So, one should start saving to buy a house and then take help from the bank as needed.
Besides, they also evaluate the borrowing eligibility of the individual before handing over the loan amount to that person. In case, they find any discrepancy or even the smallest of mistakes during the course of application and verification, they can deny the loan. In a word, the entire system of home loan is very intricate. So it must be handled with a good deal of care and attention.
How to get a home loan in India?
So, are you also wondering how to get the best home loan in India in a matter of minutes? To make things easier, here are some of the steps that you can adhere to.
Apply for a Home Loan
To begin with, one must complete a formal application for the home loan first. For this, you need to provide your Bank or Housing Finance Company your personal details. The authority will scrutinize and verify this information to evaluate your eligibility before approving your home loan.
Documentation may vary from bank to bank. But, some of the basic documents that you generally need to submit with your home loan application include.
- Property related details after it has been finalized
- Pan card and income tax returns of last 2-3 years
- Income proof for past many years
- Recent bank statements
- Employment details
- Proof of academic and professional qualifications
- Age proof
- Address proof and
- Identity proof etc.
After you have submitted all these details, the concerned financial institution will start processing your home loan application. Within a couple of weeks, you will get to know whether or not you are eligible to get the loan.
Pay the loan processing fees (Non-refundable)
Many banks have until recently waived the loan processing fees to increase their borrower-base. If your bank is also offering this facility, then speak to your Branch Manager and use it in your favor.
Conversely, you may not get this benefit as well, as it all depends on the bank from where you are taking the loan.
However, some bank or Housing Finance Company may charge a non-refundable home loan processing fee. In most cases, the home loan processing fee can range between 0.5% to 2% of the total loan amount. But again, it may vary and therefore you should check with your bank or the lender before applying.
Besides, a Goods and Service Tax may also be charged from you that comprise 18% of the loan amount. Generally, banks and Housing Finance Companies (HFCs) use this amount to begin and subsequently maintain the process of home loan.
Get ready for scrutiny and verification
Once you have submitted all the said documents along with the processing fees, the bank will start processing your application. Aer that, they will notify you of the loan amount that you are eligible for.
Remember that you need to meet the concerned authority of your bank within the next 2-3 days of submitting the application. This will further allow them to measure the capacity of your repayment.
In fact, after you meet them in person, they will start checking all the credentials and information that you have provided them. If need be, some of the representatives may also visit your house or office for validating these facts and figures.
Additionally, they will assess your credit history by verifying the records you have in the directory of your Credit Information Bureau (India) Limited (CBIL) organization.
Prep to undergo and assessment of your repayment capacity
The most crucial part of any home loan process is the evaluation done on the borrower based on his or her repayment capacity. Depending on whether they are satisfied with your ability to repay, the home loan you have applied for may or may not be approved.
Some banking organizations also issue a conditional sanction the principle guidelines which have to meet by the borrower at all costs. And it’s only after that when the loan will be disbursed.
Receive a Home Loan Offer Letter
In this phase, the bank issues a home loan offer letter to the borrower along with the below mentioned details.
- Terms and conditions of the home loan
- Exclusive Scheme (if applicable)
- Mode of Repayment
- Tenure of the Loan
- Floating or Fixed Rate of Interest
- Rate of Interest (if applicable) and
- The amount sanctioned
Subsequently, you will have to submit a signed acceptance of your Housing Finance Company or Bank only if you consider the terms and conditions of the offer letter acceptable enough. Basically, this acceptance copy is an imitation of the offer letter which your financial institution will keep for maintaining the records.
Also, Administrative fees will have to be paid to the bank as a part of this procedure only if it is inclusive of their transactional rules and regulations.
Verification of the property will be performed
Before the bank finally disburses the loan amount to you, the bank will conduct a through-and-through verification of your property. For this, you will have to submit the original copies of the no objection certificate (NOC), title deed along with other documents as asked by your house loan organization.
After that, the concerned authority will perform a legal examination on your property to ensure that the title is genuine, hence the property is totally dispute-free.
Furthermore, a technical assessment may also be conducted by your bank if the bank feels like doing so. If it is an under-construction property, the officials will scrutinize the progress and quality of the construction, the stage and location of the project for evaluating it while taking certain potential factors into consideration.
On the contrary, if the property has been resold or ready for a resale, the bank will assess the quality of construction, ownership, age, legal clearances in addition to its location etc.
Once this inspection is done, the Bank Employed Property Valuators will sanction you the amount of loan that you are eligible for.
Also, it’s good to know that all your documents will be returned to you after the home loan is repaid since property is the collateral itself. And needless to say a house loan is generally the most secure form of loan so far.
Factors that determine your loan borrowing capacity
There are certain factors based on which the Bank or House Finance Company (HFC) will evaluate your loan borrowing capacity. These generally include the following:
Expenses and Cash Flow
Most of the banks assume that 40% percent of the applicant’s monthly income will be invested to pay the EMI. Furthermore, the monthly expenses of the borrower are scrutinized to zero in on the final home loan amount.
While doing so, the banking authority not only takes the salary of the individual into consideration. But also his or her ability to make the EMI payment every month. Say for instance, your monthly income is Rs. 200000. In that case, the bank will suppose that you will be able to pay around Rs. 80000 as the monthly EMI.
It is only after that when the actual loan amount will be sanctioned based on the pertinent rate of interest and the total tenure of the repayment process.
The liabilities of the borrower (including the EMIs of other potential loans also) must not exceed 55%-60% of his or her monthly income.
In most cases, banks hardly consider the performance linked pay, bonuses, perks and allowances as part of your salary. More so, if these features comprise an imperative part of your remuneration, then chances are there that you may not qualify for the loan that you’ve applied for. Always remember, the authority will only consider the fixed pay for your loan repayment, so act accordingly.
A borrower’s age must not be more than 58 years to become eligible for a home loan as stated by most of the banks in India. This factor gets even more crucial while the individual is repaying his or her loan amount.
In fact, the tenure of your home loan will entirely depend on your age. Suppose, you are 35 years of age, in that case, your bank can easily extend your loan repayment tenure for up to 20 years.
On the contrary, if you are 50 years old, the tenure of your home loan on the whole will not be more than 6 to 8 years. Although, longer the tenure it is easier for the borrower to repay the loan, such facilities are again incurred by a number of terms and conditions as well as extra charges.
This aspect may again vary from one bank to another.
How is EMI calculated for home loan?
EMI or Equated Monthly Installment is usually calculated based on the EPrn formula. It works in the following way.
P-Principal Loan Amount
r-rate of interest calculated on a monthly basis. (r=rate of annual interest /12/100)
n-Loan tenure (number of months)
Say for example, you have borrowed an amount of Rs. 50,00,000 from the bank at an annual interest of 10% over a tenure of 20 years (240 months).
In that case, the Total Interest Payable would be Rs.6580260 while the EMI is going to be Rs.48,251. All in all, you will be liable to pay Rs. 1,15,80,260 to repay your loan within the stipulated time-frame of 20 years.
Having a clear understanding of the home loan process is of highest importance before you borrow a certain amount from the bank or House Finance Company (HFC). Also, it is equally important that you comprehend everything related to your loan repayment obligations really well before finalizing a deal.
To complete this task smoothly and effectively, it would be great if you can communicate with a few banks beforehand and tie up with the one that is offering the best home loan in India at the lowest interest rates possible.
Also, keep an eye on the waivers and exclusive schemes that the banks and other financial institutions are offering their customers. In case you see that your monthly EMI is exceeding your net income that you earn through thick and thin, then it’s better to shelve the decision to continue with that furthermore.
All in all, it’s up to you how well you do the market research and grab the ongoing offers and schemes to secure a home loan that is in the best of your interest. Wish you all the best for your future house loan endeavors ahead!
FAQ about home loans
Below is a checklist of some of the most frequently asked questions (FAQs) about home loans in India you may like to check.
What is loan disbursal?
Loan disbursal is the amount that the bank releases against the loan being availed. The lender can repay the entire amount in parts if the property is under construction. However, if the same disputed property is considered a movable asset, then the lender can disburse the home loan figure as a lump sum.
How much time does the home loan processing take?
Generally, it won’t take more than 2-4 weeks for the disbursal of the home loan amount, subject to your eligibility and documentation.
What should I do in the process of home loan approval?
First of all, meet the officer of your HFC or Bank and get a good understanding of the loan documentation processes and requirements, mode of credit evaluation, legal and technical assessment of the property along with the three-tier house loan procedure etc.
Plus, it is also important to know the nitty-gritty of the home loan disbursement and sanction both of which are subject to validation. In fact, all kinds of financial institutions cross-examine the CIBIL records these days before approving a loan, including home loans.
To the best of suggestions, get yourself insured through a viable policy and that effectively secures you and your family members in case of any unforeseeable risks.
What things are considered to get a home loan properly?
Before applying for a home loan, it is imperative that you study the market well and finalize on all those financial institutions and banks that best serve your tailored needs and requirements. Most importantly, you must select a home loan service or solution that caters to your unique house purchase expectations to perfection.
Aside from purchasing a house, you can also get a home loan to construct a house on your own and. Some of the banks also offer loans for home renovation and interior decorating needs. So if you are planning to purchase or build a house, and you are planning to avail home loan, then hope this post will help you understand the nitty-gritty of the home loan in India.