Home is where the heart is. Although owning a home means different things to different individuals, but one thing is common – we all want to own a home someday.
However, buying property is not an easy task. Given the huge costs involved, most people need a home loan to finance this dream. Taking a home loan is often a confusing, bewildering process that you must need to understand. But you need not worry – here are some helpful tips for those looking to take a home loan for the first time:
Are you eligible for a loan?
Every home loan has a list of eligibility criteria and you can avail the loan if you fulfill them. These many involve:
Your age – usually, the minimum loan application age is 21 years and above.
Your occupation – to avail the loan, you should either be a salaried employee or a self-employed individual/professional
Your income – there is also a minimum income level criterion for home loan applicants.
How much can you borrow?
The amount you can borrow is subject to terms and conditions. “Banks and non-banking financial corporations (NBFCs) allow loans up to 70% to 90% of the cost of the property you want to buy with the loan. The rest you would have to pay from your own pocket. Additionally, this 70-90% is also subject to terms and conditions, namely your CIBIL score, your financial position, age, your repayment capacity, etc,” says Adhil Shetty, CEO, BankBazaar.com.
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What’s your CIBIL score?
Home loans are allowed to individuals with a good credit score. Most lenders go by your CIBIL score. CIBIL is a credit rating agency which collects data from various regulated lending institutions and builds your credit profile. It provides your credit history report to lenders you approach for a loan. This report is a snapshot of your creditworthiness and captures details of every credit card or loan account you’ve ever operated. “Your credit score ranges from 300 to 900 — 900 being the highest possible score. Most leading lenders insist on a score around 750 if you want a loan from them. You can use free credit report generators online to assess where you stand,” says Shetty.
Do you have these documents?
After you apply for the home loan, you are also required to submit some important documents. These documents include:
Your ID proof
Income proof – salary slips and Form 16 for salaried employees and proof of business and IT returns of business of the last 2/3 years for self-employed individuals/professionals
Last 6 months’ bank statements
Important documents pertaining to the property, such as title deed.
Other documents might be required depending on the lender’s requirement. You have to submit these documents to avail the loan.
Know the loan interest rate
When you take a loan, you have to pay interest on the same. Home loans have two types of interest rates. One is the fixed interest rate which remains unchanged through part of whole tenure of the loan. The other is the floating interest rate which changes as per the macroeconomic scenario. Currently, both fixed and floating interest rates charged by most lenders range from 8.50% to 12%.
Know your EMIs
Your loan is repayable through EMIs which consist of both the principal amount of the loan and the interest thereof. EMIs are payable after the total loan has been disbursed by the bank. The value of your EMI would depend on the loan amount taken, the repayment tenure chosen and the rate of interest. There is also a concept of pre-EMIs. Lenders might disburse your loan in tranches if you are buying an under-construction property. Before the complete disbursal is made, interest is charged on the disbursed part on a simple interest basis. These interest payments which you make before receiving the total loan are called pre-EMIs.
Know your loan charges
Your home loan has certain charges. The processing fee is the first fee which you pay at the time of loan application. This fee is non-refundable even if your loan application is rejected. “Other types of charges applicable in a home loan are late payment penalty, pre-payment or part pre-payment charges, conversion charges for changing from fixed to floating interest rate and vice-versa, issue of duplicate NOC charges, etc,” says Shetty.
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Know the foreclosure or part-prepayment procedure
It might sometimes happen that you have access to lump sum funds and you might want to pay off your outstanding loan. If you pay off the entire outstanding loan, it is called prepayment or foreclosure of the home loan. If you, on the other hand, make only a partial payment, it is called partial pre-payment. Lenders might charge you a fee for such full or partial prepayment of your home loan.
These are the major concepts you need to keep in mind while approaching any lender for buying your dream property. There are various lenders in the financial marketplace offering you competitive interest rates. “Finding the best lender for your loan has been made convenient by online loan aggregators. These online aggregators help you check your home loan eligibility and the amount of home loan you can avail as per your eligibility. They also show you the various home loan offers matching your eligibility. You can compare the different loan products and choose the best as per your needs,” informs Shetty.