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Everything you Need to know About Home Loans

IndianMoney.com Research Team | Posted On Wednesday, May 29,2019, 06:11 PM

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Everything you Need to know About Home Loans

 

 

Home loans are availed to renovate or purchase a house. Buying a house is a major financial decision and requires a lot of money. Many people cannot afford to make the full payment immediately, to buy a house or property. So, availing home loans is a great option.

The home loans are backed by collateral, which is the house. If a borrower defaults, the lender retains the right to auction the property to recover the outstanding dues. Home Loans offer tax benefits, though this should not be the main reason to avail it.

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Everything you Need to know About Home Loans​

How Much Home Loan Can I borrow?

Understand eligibility criteria before applying for a home loan. The eligibility criteria depends on your age, credit score, net earnings, employment stability, retirement age, other EMIs being paid, income stability, assets, liabilities and so on. Banks ensure borrowers are capable of repaying home loan EMIs in time. The lower the monthly income, the lower is the home loan amount you are eligible for and vice versa.

Let’s say you have a monthly salary of Rs 80,000. Around 50% of Rs 80,000, which is Rs 40,000, is presumed available for home loan repayments. The home loan amount is also influenced by the tenure and interest.

See Also: Home Loan Interest Rates Rising

How Much is the Maximum Loan Amount I Can Get?

Banks expect you to make a down payment, which can be 10-20% of the market price of the property. If the property price is Rs 30 Lakhs, the down payment will be Rs 3 Lakhs at 10% and Rs 6 Lakh at 20%. The remaining 80%-90% would be financed by the bank as a home loan.

Banks don’t finance stamp duty charges, transfer fees, and registration fees on the property. Never borrow more than you can repay. A lower home loan amount may be availed for comfortable repayments. Make a high down payment so that repaying home loan EMIs gets easy. The maximum home loan amount you get is 60 times monthly take home pay.

See Also: Tips For Home Loan EMI Repayment

Whether or Not Adding a Co-Applicant is Mandatory for a Loan Seeker?

A co-applicant is an additional applicant where the payment obligation is split between the co-applicant and the main applicant. A younger applicant may not need a co-applicant, whereas an older applicant might need a co-applicant, to improve the chances of home loan approval and enjoy lower interest rates and tax benefits. The co-applicant has to the blood relative or family member of the primary loan seeker. They should have consistent income and be financially capable.

Documents Required for Availing Home Loans:

Identity proof

Age proof

Address proof

Income certificate for salaried

Income proof for businessmen

Driving license

10th Marksheet

Voter’s ID

IT returns for the last 3 years

Balance sheet and profit and loss account for the last 2 years

Bank passbook

Driving license

Passport

Form 16

Income tax returns for the last three years

Passport

Passport

Utility bills

Salary slip for the last three months

 

PAN card

Bank passbook

LIC policy

Promotion letter

 

Voter’s ID

Birth certificate

Passbook

Certified letter from the employer

 

Employee ID

PAN card

 

 

 

Property Documents to Be Submitted:

  • Sale agreement or sale deed
  • Letter from the builder or the housing board
  • The building plan’s approved copy
  • No objection certificate to be obtained from the builder
  • The letter of allotment provided by the builder

What Do You Mean by Sanctioning and Disbursement of Loans?

Banks decide whether or not to sanction home loans on the basis of the documents you submit and the maximum loan amount sanctioned also depends on this. Banks issue a sanction letter that contains the home loan amount, the interest rate, the loan tenure and so on. The letter has a date and all the terms of the home loan are valid until the given date. The process reaches the disbursement stage, when the home loan is actually disbursed to a customer. At the disbursement stage, you can choose a lower interest rate than the one mentioned in the sanction letter.

How Does Disbursement Take Place?

The home loan may be fully disbursed or in a maximum of three installments. For under construction property, it’s disbursed in installments. In case of ready-to-move properties, the entire amount is disbursed. Loan seekers have to enter into an agreement with the builder and such agreements must state that payments are completely linked to the construction.

See Also: What Is My Home Loan Eligibility?

Types of Home Loan

Home loans can be fixed rate home loans or floating rate home loans. A fixed rate home loan is good if the interest rates are expected to increase and a floating rate home loan is good when the interest rates are expected to fall. If you avail a home loan of Rs 10 Lakh at an interest rate of 8% for a tenure of 10 years, then your EMI works out to be Rs 12,133. The total interest comes to Rs 4,55,931 and the total payment to Rs 14,55,931.

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