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Things You Need To Know On Home Loans Research Team | Posted On Wednesday, July 25,2018, 07:40 PM

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Things You Need To Know On Home Loans




The first step before availing a home loan is to get an idea on how much of a loan you want to avail. Banks may be eager to lend, but getting a loan sanctioned can be a tedious task. Go through the terms and conditions and consult advisors on home loans, before locking on the best home loan deal. Learn about home loans, the terms and conditions and the costs involved and only then avail the home loan.

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Things You Need To Know On Home Loans?


These are some important things you should know before signing on those dotted lines, and availing Home Loans.


1. Study the basic requirements on procuring a home loan


Various banks, HFCs and other financial institutions have different rules regarding home loans. Some of the very basic requirements can be:


  • You should have a fixed, dependable source of income (either employed or self-employed).
  • Financial records which extend to at least 6 months of active banking.
  • You should be of 21-60 years of age (employed) or 21-65 years of age (self-employed)


You need to fix your budget before availing the home loan. Usually, standard home loans cover up to 80-90% of your requirement (which is the overall cost of the property), so you have to raise a minimum of 10-20% for the down payment, and also take into account stamp duty, registration charges, brokerage and so on.


SEE ALSO: Understanding home loan


2. Eligibility for a home loan


This step decides the loan amount for which you are eligible, and is a crucial step in determining the loan amount sanctioned. Eligibility criteria are calculated based on your total income and overall liabilities (which includes other financial commitments such as car loan, education loan, and so on).

If your spouse earns well, he/she can be included as a co-applicant in a joint home loan, which increases your eligibility and helps avail a higher loan amount. Home Loan EMIs should be around 40% of your monthly income.


3. Interest Rates and other Fees


Interest rates vary from financial institution to institution. As a thoughtful customer, you should consult various banks/financial institutions; do an in-depth research through media like newspapers television and the internet, before short listing the bank/lender that offers competitive home loan interest rates.

Be aware of the banking terminology like fixed rate, floating rate and the reducing balance before taking that home loan. Banks have separate charges like a processing fee, commitment fee and administrative charges. These factors should also be taken into consideration, when deciding upon a bank/lender and availing the loan.


2. Steps to Reduce Interest Rates on Home Loan


Set your EMI Targets:


Make sure to pay more than the regular EMI amounts each year. This will help you clear the loan faster.


Boost EMI payments:


Use excess money got from a salary hike or a bonus to pay off EMIs.


Refinance the home loan:


Switch to a new lender if you find a lender who offers lower rates of interest compared to the current lender. However, do check for any legal fees and prepayment penalties before making the switch.

See Also: Home Loan Interest Rates Rising 

3. Documents to be furnished:

You must submit documents like:


  • Photo Identity Proof
  • Passport Size Photograph
  • Copy of PAN Card
  • Address Proof
  • Age Proof
  • Last 6 months bank statements
  • Copy of the Property Title Deed
  • Form 16 for the last 3 years (for salaried persons)
  • Last 6 months salary slips (for salaried persons)
  • Copy of IT Returns of last 3 years (for business people/self employed people)
  • Copy of audited Balance Sheet and P&L statements of last 3 years (for businesspeople / self employed people).


4. What is the pre-payment option?


Pre-payment is an option where after a specific number of EMI payments., you have the option to clear the entire pending amount, and this means an early closure of the loan. By using this method you can save a lot of money on interest payments. Always keep this option as an important prerequisite, while choosing a bank for your home loan.


5. How much home loan amount is considered safe?


Keep some money aside to pay back home loan EMIs in an emergency. The safest option will be an amount equal to your monthly salary or that of a couple of months. You are in deep danger if you have availed a personal loan to make the down payment on the home and don’t have much in savings. If home loan EMIs are more than 50% of monthly salary, you will have to do something about this.


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