We list the 5 points you must know about your home loan, and how they influence the loan’s suitability for you.
Buying a home in today’s times of expensive real estate is an impossibility for most people – but some take the plunge and forge ahead with a home loan. Here’s what you need to know about the process:
1 Your loan eligibility. The first step is to find out your housing loan eligibility. First time buyers may not be aware of what their eligibility is, and they may assume that they can get as much money as they seek by way of a home loan. The truth is that lenders cap the maximum monies they can give to you. This cap is put in place basis the applicant’s income, age, number of working years left, city of residence, place of work, etc. The lending institution has a housing loan eligibility calculator that you can use to find out your loan eligibility.
Points to note: When stating your income in the housing loan eligibility calculator, mention your income minus the LTA, Medical Allowance and annual performance incentive. These three heads are not considered towards the final calculation for eligibility.
2 The interest rate being offered. Every bank and financial institution in India offers home loans, but it is the interest rate that you should be looking at. Post-demonetisation in November 2016, banks and financial institutions reduced their lending rates on home loans. Thus, home loan interest rates are now at their lowest in years, at 8.5% and going to a maximum of 10% in some cases. The home loan interest rate is an important factor to consider, because it influences:
- Your overall repayment amount: The higher the rate of interest, the more money you repay the bank or financial institution. The opposite is true for lower rate of interest.
- Your EMI: A lower rate of interest fetches you a lower EMI, which means that you pay lesser money to the lender every month. The lower the EMI, the more money you have at your disposal for your monthly expenses.
Points to note: Keep a close watch on changes in interest rates. If you opt for a floating rate of interest, you can ask for the home loan interest rate to be reduced when it drops. Similarly, you can transfer your home loan to another lender for a lower rate of interest, thus saving money (as explained in the point above).
3 The application process. The best banks today give customers the chance to apply for the home loan online. This is a great boon for those who are still looking for a suitable property, and who are close to finalising a house soon. Meanwhile, they can initiate the loan process by taking a pre-approved loan. You can apply for the pre-approved loan online, for these benefits:
- You don’t need to invest time separately to pursue the loan process. It can take place while you are still looking for a house, or in the process of finalising one.
- A pre-approved loan helps those who are buying a house on resale, where the seller may want the money in a hurry. The loan application is processed and the monies are kept ready by the time negotiations finally end.
Points to note: The lender follows the same evaluation process for the application, whether a pre-approved loan or not. The pre-approved loan is valid for at least three months, depending on the lender. If you don’t take the loan money within this time, you must apply again.
4 The evaluation turnaround. Once you apply for the loan, the lending institution starts verifying the information provided, as well as the property you wish to purchase. This entails checking the applicant’s personal information (age, place of residence, place of employment, permanent address), income and credit profile (gross annual income, credit history, other loans not yet repaid) and property credentials (location, price, market rate of the locality, whether property documents are in order). This takes some time and cannot be rushed. So you must budget in at least two weeks for the evaluation to be completed, after which the application moves forward. The quicker the turnaround time, the faster the loan will be approved and disbursed.
Points to note: You might consider having the property documents vetted by a lawyer before submitting them to the lender. If there is a broken chain of agreements, you might have to complete a few legal formalities to make the sale agreement fit for submission. Also, the application might be rejected if the lender has blacklisted the location or building, or if the seller has defaulted on the loan taken on that house. However, the application will go through smoothly if you are purchasing an under-construction house in a pre-approved project.
5 Processing fees, stamp duty on loan agreement, etc. Apart from the price of the house, you must also pay the following monies:
Stamp duty and registration costs – After you pay at least 10% of the house’s price so that you can register the document. The lender accepts a registered sale agreement only.
Processing fees – These are applicable while applying for the loan, and also for legal evaluation, and processing the paperwork. You must also pay stamp duty and registration fees on the loan agreement between yourself and the lender.
Post-sale registration fees to the Government – Some States like Maharashtra have now introduced an additional registration fee to be paid within one month of accepting the disbursal amount. The fee is accepted at the local registrar or collector office.
Points to note: You can ask for the processing fees to be waived or reduced if you share a long relationship with the lender. Also remember that some lenders take at least one pre-EMI cheque before the EMIs are deducted directly from your bank account.