Home loan or housing loan is a certain amount of money borrowed by an individual to purchase a house or any piece of residential property for a specific time period. The amount is lent with some interest amount that has to be paid along with the principal amount.
Eligibility to get a home loan
Decided to get a home loan, check your eligibility! Different banks have different eligibility criteria to provide a loan. The major variation comes in terms of interest offered, the amount ratio and the duration of the loan. Here are some of the common factors that decide your eligibility to get a home loan sanctioned.
- Age: You should be above 18 years and employed in order to pay the installments.
- Employment: You should be salaried or self-employed for at least 3 years that accounts for the current employment minimum for 1 year.
- Salary: More salary can get you big amount of loan, minimum salary should be able to afford the minimum possible installments against the loan amount taken excluding all other expenses or debts.
- Residence: You should have spent some time at the address of residence stated. The time span varies for different banks. Since home loan amounts are usually big, therefore you should have been a resident at the given address for at least one year.
- Credit history: To get a loan approved, you must have a good CIBIL score (750 and above is good).
- Other expenses: Before providing a loan, a bank also looks at your monthly expenses, savings and other financial engagements in order to estimate your capacity to pay the monthly installments against the loan.
Types of home loan
Once you clear your eligibility criteria, decide the type of home loan catering to your requirements. Here are some of the loans you can avail.
- Loan for home purchase: It is the most common type of loan taken by the borrowers from the banks or non-banking financial organisations to purchase a home. This type of loan has further variations that are fixed-rate, flexible or hybrid.
- Loan for land purchase: It is a loan taken to purchase a piece of land. It can be for commercial or residential use.
- Loan for home construction: As the name suggests, this loan is taken by the borrower if he/she plans to construct a new home over an empty piece of land. It has a shorter tenure as compared to loan for home purchase.
- Loan for home improvement, renovation or extension: It is a loan that is taken if someone plans to redecorate or extend their home.
- Joint Home loan: It is a loan shared by two or more people, they can be business partners, spouses, etc.
- Loan for stamp duty: Stamp duty refers to the tax charges applicable to the legal documents of any property that is to be paid by the seller and buyer to the government while exchanging the property.
- Home loan for Balance transfer: It is an option to change your lender in case you get better offers and lower interest rates from other banks.
- Bridged loan: This loan is for those who possess a home but want to buy a new home. The loan is taken till the time their old home is not sold. They can repay the loan amount once their old home is sold.
Different banks have different document requirements. Here is the list of some of the documents that you must have to apply for a loan without hassles.
- Loan application
- Proof of address and identity
- Proof of employment
- Passport size photo
- Salary slips (last 3 months) in case of salaried
- Bank statement (last 6 months) of salaried account
- In case of self-employed, bank statement of last 6 months
- Business or income proof
- TDS and certified income
Since the home loan is usually a huge amount taken from banks or other corporations, some person has to take the guarantee for the borrower that he/she is a genuine person and will repay the bank. The guarantor serves as the alternate contact person in case the borrower is out of reach for some reason, therefore, the guarantor also has to submit certain documents that ensure security to the bank.
Extra charges on Home loan apart from Interest charges
- Processing fee: No service comes for free. Every bank charges a processing fee for working towards your loan application process. It takes a lot to bring a loan process to completion without hurdles, therefore the bank charges some amount to provide assistance and easy loan processing. However, this fee is negotiable or at times can be waived off under certain terms and conditions.
- Legal fee: To ensure that the property you plan to take is not a disputed property, the bank undergoes legal verification by a professional lawyer. In order to pay the lawyers, the bank charges a legal fee.
- Administrative fee: To make a loan application process successfully a lot of back-end administrative processes are performed. The fee charged from you compensates the cost of administration.
- Account statement: To provide a copy of loan statement, the bank
- Late payment charges: It is the penalty charged by the bank in case the borrower delays the loan installment.
- Pre-payment charges: Some banks even charge you if you finish your loan repayments before the decided tenure. However, most of the banks have stopped this practice.
- Conversion charges: Amidst your loan tenure, if you decide to convert your loan from fixed-rate to floating or vice versa, the bank charges you for this conversion.
Make the right choice of your home loan
Understand your financial capacity
Did you choose an affordable property? It is important to take a wise decision while choosing a property that is affordable for your pocket. Choose a property that serves your purpose and is not too expensive that you are unable to even take out installments against the loan taken. Think of present, do not spoil your present thinking of a better tomorrow. It is a lifelong process and valuable decision that will have a strong impact on your life.
Research for the best available offers
Carry out a detailed research before starting your application process and compare the offers and schemes available. Look for the lowest interest rates, the minimum duration of a loan and other benefits. Choose that suits the best for you.
Learn about the extra charges applicable
Know about the extra charges applicable apart from the monthly installments. You can save some of the charges or some banks might not be charging as others.
Understand the pre-closure terms
As some banks charge hefty if the loan is pre-closed from the decided tenure, therefore clear all your doubts. Understand the pre-closure terms because sometimes there is a possibility that you are able to repay the loans before time.
Get the best interest rates
Study the market for the best interest rates available. Interest rates depend on various factors like prime lending rate, benchmark prime lending rate (minimum amount below which a bank cannot lend money), cash reserve ratio (higher cash reserve means customer has to pay higher interest), statutory liquidity rate (minimum balance the banks need to maintain in order to offer credit) and reverse repo rate (the rate at which RBI offers profits and benefits in return to the rate at which the banks lend to RBI)
Read the application into the lines
It is important that you read loan application document carefully before signing the final application to ensure there must not be some hidden clauses that may be of a major concern later.
Make sure your application is a success because loan rejection can spoil your credit history and might pose difficulty for future. Certain factors that can reject your loan application can be a loss in business, unstable employment, poor CIBIL score, disputed property, non-declaration of expenses, false bank statements, unavailability of an important document, etc.
Home loan is years long engagement, therefore it is important that you make a calculated move and do not get imprisoned with an irrevocable decision because, in some situations, there is no turning back so you need to tread the path you have paved for yourself.