Home Loans
Building a house is a very important event in any person's life. The decision to build a house comes after a long analysis of the sources of funds to facilitate the process. The most accepted method of financing a home purchase is with a housing loan. This is a loan that is protected against the home. There are a number of different housing loan suppliers and you will have to shop around in order to get the best one. Housing loan rates can vary from bank to bank and a small change in rate can make a huge difference to the amount your repayments will amount to. Even a small difference in rates could save you thousands of rupees or allow you to have your loan paid off years faster.
There are a number of home loan providers in India to choose from. People sometimes have difficulty in distinguishing between the different home loans that are available. It is a difficult thing to decide which home loan is right for you. The first step towards doing that is making sure that you understand the different home loans that are available.
Features of Home loans
Following are the important features of home loans;
1. Home loans help to purchase (fresh / resale) or construct houses.
2. It help us to materialize our dream home plans better
3. The loan offers option of E banking
4. Any person with minimum 18 years of age with a steady source of income can apply for the loan and the maximum refund age is 70years.
5. The loan can be taken to purchase a plot from construction of house.
6. It offers the extra freedom of making a knowledgeable choice.
7. A housing loan life cover provides financial security to the family in the eventuality of an unexpected event.
8. Home loans can also be taken to obtain a residential property and even to refinance offered loans.
9. Reassessment and modification of applicant's loan eligibility in case of change of income and residence status
Types
You should know about each and every term related with Home Loans before applying for a Loan. It is always better to discuss with a home loan expert or consultant before applying for a home loan or purchasing a property. There are different types of home loans tailored to meet your needs. You choose from that according to your need. All these products are designed to meet different needs.
· Home Purchase Loans
· Home Improvement Loans
· Home Construction Loans
· Home Extension Loans
· Home Conversion Loans
· Land Purchase Loans
· Bridge Loans
· Stamp Duty Loans
· Balance-Transfer Loans
· Re-finance Loans
Home Purchase Loans
These are the basic forms of home loans used for purchasing of a new home.
Home Improvement Loans
These loans are given for implementing repair works, remedial and renovations in a home that has already been purchased.
Home Construction Loans
These loans are available for the building of a new home.
Home Extension Loans
These loans are given for increasing or extending an existing home. For example: addition of an extra room etc.
Home Conversion Loans
These loans are available for those who have financed the present home with a home loan and wish to purchase and move to another home for which some extra funds are necessary. Through home exchange loan, the existing loan is transferred to the new home including the extra amount required, eliminating the need of down payment of the previous loan.
Land Purchase Loans
These loans are available for purchasing land for both construction and venture purposes. Bridge Loans
Bridge loans are intended for people who wish to sell the existing home and purchase another one. The bridge loans help finance the new home, until a buyer is found for the home.
Stamp Duty Loans
This loan is sanctioned to pay the stamp duty amount that needs to be paid on the purchase of property.
Balance-Transfer Loans:
Balance Transfer is the transfer of the balance of an existing home loan that you availed at a higher rate of interest (ROI) to either the same HFC or another HFC at the current ROI a lower rate of interest.
Re-finance Loans:
Refinance loans are taken in case when a loan for your house from a HFI at a particular ROI you have taken drops over the years and you stand to lose. In such cases you may opt to swap your loan. This could be done from either the same HFI or another HFI at the current rates of interest, which is lower.
Eligibility Criteria for Taking Home Loan
Following are few eligibility criteria which a financial institution will be interested in. After considering all these factors bank will decide whether to sanction the loan or not.
· Current Profile
· Annual Income
· Previous Loans
· Owned Assets
· Academics
· Bank Statements
· Tax History
· Work Stability
Current Profile
Current profile of an applicant is very important criteria for granting a loan. This is specially for the people who are self employed or who have small business. Experience; number of years you have been working as salaried or self-employed in also taken into consideration
Annual Income
Total income of the applicant at the end of financial year will be considered. A history of around 3 years will be required. Earning spouse improves your ability to repay.
Previous Loans
If you already have a loan then your chances of getting bigger loans are less, however you can take a loan to repay a loan. If you have already repaid a loan then that adds to your creditworthiness.
Owned Assets
If you own assets (land or house) then it can be mortgaged against the loan, making you further eligible to acquire a loan.
Academics
Educational background is a measure to an individual’s career and financial institutions are generally interested to know the same. A master’s degree is a boost to your sound educational background.
Bank Statements
A bank statement to check your spending and saving habits
Tax History
The amount of tax you pay defines your actual earnings, this is especially for self-employed.
Work Stability
How stable is your work profile? Can you go on the same path for more than 10-15 years? These are few questions which a financial institution is interested in.
Common requirements for all applicants
Following are the common documents that most of the applicants has to provide while applying for a home loan;
1. Application form duly filled in.
2. Copy of sanctioned plan and sanction letter
3. Copy of NA permission/ULC clearance, wherever applicable
4. One guarantor form and his/her salary certificate in our. (If guarantor is in business or profession, a copy of his / her latest I.T.returns/assessment order)
5. Bank Pass-book or statements for the last two years
6. Power of Attorney, wherever applicable
Additional Requirements
Apart from the above given documents there are some other requirements. It differs from person to person.
For salaried persons
· Employer's salary certificate in specified format/and latest salary slip
· Identity card of applicant/s
· T.D.S certificate of applicant's
· PF / E.S.I.S slip of applicant's.
For Businessmen / Self-employed
· Computation of income for the last 2 years certified by a C.A. OR
· P&L and Balance sheet for the last 2 years certified by a C.A. AND
· Copies of acknowledged IT returns for the last 2 years AND
· Bank statements for the last 6 months
Present interest rates of Home Loans
Bank | Interest Type | Upto 5 lakh | 5-20 lakh | 20-30 lakh | 30-50 lakh | 50-75 lakh | Above 75 lakh |
Syndicate Bank | Floating | 8.75% | 8.75% | 9.5% | 10.0% | 10.0% | 10.0% |
Axis Bank | Floating | 9.00% | 9.00% | 9.00% | 9.5% | 9.5% | 9.5% |
ICICI Bank | Floating | 9.25% | 9.25% | 9.25% | 9.75% | 9.75% | 9.75% |
IDBI Bank | Floating | 9.25% | 9.25% | 9.75% | 9.75% | 9.75% | 9.75% |
Allahabad Bank | Floating | 8.5% | 9.25% | 10.25% | 10.25% | 10.75% | 10.75% |
Bank of Baroda | Floating | 8.5% | 9.25% | 9.0% | 9.25% | 10.5% | 10.5% |
Canara Bank | Floating | 8.5% | 9.25% | 9.25% | 10.0% | 10.0% | 10.0% |
Union Bank of India | Floating | 8.5% | 9.25% | 9.75% | 10.0% | 10.75% | 10.75% |
Bank of Maharashtra | Floating | 8.5% | 9.25% | 9.5% | 10.0% | 10.0% | 10.0% |
Terms used in Housing Finance
There are some terms that are used in home loans. Before taking a housing loan you should understand the meaning of all these terms. That will help you to understand all the terms and conditions of home loan very easily. Here we have given such terms with explanation.
· EMI: It means Equated Monthly Installment; till the loan is paid back you have to continue paying EMI. It consists of a portion of interest and the principal.
· Floating Rate of interest: It is the Rate of interest which varies with the market lending rate. This means that there is an element of risk of paying more than budgeted amount in case the lending rates goes up.
· Monthly Reducing balance: In this system interest reduces monthly with repayment of Principal amount
· Annual Reducing Balance: In this system principal is reduced annually at the end of the year so you end up paying interest even for the portion of principal you have actually paid back
· Fixed rate of interest: Rate of interest remains unchanged throughout the period of the loan
· Processing charge: It's a fee payable to the lender on applying for the loan
· Prepayment Penalties: When loan is paid back before the agreed term of the loan, then banks/ institutions charge penalty for the prepayment
· Commitment Fee: Some institution charge commitment fee in case the loan is not availed within a stipulated period, after it is processed and sanctioned
· Miscellaneous Cost: It is quite possible that some lenders may charge documentation or consultant charges.
Steps involved in sanctioning the Home Loan
Following are the steps involved in sanctioning a home loan
1. Submission of application with supporting documents
2. Inspection of the application
3. After inspection of application personal interview by a company official
4. If loan application is accepted the processing fees will be charged
5. The Bank will issue a Loan offer Letter.
6. On receiving Loan Offer Letter pay the administrative fees and submit requirements, if any.
7. Next process is title approval through their panel advocate
8. Payment will be made after the applicant has invested his/her share in the house.
9. Letter to Panel Valuer of inspection of property.
10. If the valuer’s report is O.K., they will collect documents for stamping
11. Submit stamped documents along with original Policy Bonds duly assigned and get date for payment
12. Execution of documents and disposal of loan amount.
Who can be the co-applicants of a housing loan?
The Co-owners of the property in respect of which financial assistance is required, must be co-applicants. Usually joint applications are from the following parties;
· Husband-wife
· Father-son
· Brother-brother
· Brother-sister
· Mother-son
Tips to remember while going for a Home loan
Below given tips will help you while going for a home loan
Tip 1: Figure out how much you can afford. What you can afford depends on your income, credit rating, current monthly expenses, down payment and the interest rate. The calculators can help, but it is best to visit a lender to find out for sure. A housing counselor can help you figure out how to manage and pay off your debt, and start saving for that down payment.
Tip 2: Know your rights.
Tip 3: Shop for a loan. Save money by doing your homework. Talk to several lenders, compare costs and interest rates, and negotiate to get a better deal. Consider getting pre-approved for a loan.
Tip 4: Learn about home buying programs.
Tip 5: Shop for a home. Choose a real estate agent, Wish list - what features do you want, Home-shopping checklist - take this list with you when comparing homes.
Tip 6: Make an offer. Discuss the process with your real estate agent. If the seller counters your offer, you may need to negotiate until you both agree to the terms of the sale.
Tip 7: Get a home inspection. Make your offer contingent on a home inspection. An inspection will tell you about the condition of the home, and can help you avoid buying a home that needs major repairs.
Tip 8: Shop for homeowners insurance Lenders require that you have homeowners insurance. Be sure to shop around.
Step 9: Sign papers. You're finally ready to go to "settlement" or "closing." Be sure to read everything before you sign.
Tip 10: The House is yours now.
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