ELIGIBILITY CRITERIA

The first step you need to take is to make sure that you qualify for a housing loan. At the beginning, lenders will assess your eligibility for home loan on the basis of your income and repayment capacity. The other important considerations include age, qualification, financial position, number of dependants, spouse’s income and job stability.

TYPES OF HOME LOANS

The different types of home loans that are available are:

In this type of loan, the interest rate is linked to the lender’s benchmark rate. If there is a change in the benchmark rate, the interest rate also changes proportionately.

In a fixed rate loan, the interest rate is fixed at the time of taking the loan. This rate of interest is applicable throughout the tenure of the loan.

These loans offer a part of the loan at a fixed rate of interest and part at an adjustable or floating rate of interest.

HOME FIRST OR LOAN FIRST

It is advisable to get your home loan pre-approved before you select your home. Pre-approval helps you fix your exact budget and makes your home search focused. Pre-approvals even help negotiate better and close deals faster. You can also check with the lender about the availability of good properties in your preferred location. In fact, there are some projects that are approved by the lender, which not only relaxes the number of property documents needed by the lender, but also assures you of the quality of the projects.

LOAN AMOUNT

As defined by the regulator, most lenders provide a housing loan ranging from 75 to 90 percent of the cost of the property depending on your loan value. Therefore, if the property is valued at Rs 50 lakh by the lender, you can avail a maximum loan of Rs 40 lakh (80% of the property cost for loan amount up to Rs. 75 lakh), depending on your home loan eligibility. If you include a co-applicant, his/her income can be considered by the lender to increase the loan amount. The co-applicant may be your adult child, parent or spouse. The balance payment towards purchase of the property is expected to be contributed by you. For instance, if the property is valued at Rs 50 lakh and you have been sanctioned a home loan of Rs 35 lakh, your contribution will be the balance Rs 15 lakh. You can use a housing loan eligibility calculator to check your eligibility for home loan.

COST OF YOUR HOME LOAN

The cost of your housing loan is also a factor to take into consideration while assessing its suitability. The cost will include the interest payments, processing fees, administrative charges, prepayment penalties, etc. Ideally your home loan should have zero prepayment charges for adjustable/floating rate loans. You should also be able to convert your loan to a lower rate by just paying a nominal fee. When considering a home loan, ensure that there are no hidden charges. As per the regulator, lenders need to transparently disclose information about fees and charges on their website.

EMI/PRE-EMI

EMI stands for Equated Monthly Instalment. This is the amount you need to pay to the lender each month. It includes repayment of the principal amount and payment of the interest on the outstanding amount of loan.

Pre-EMI is a concept that is used for properties that are under construction. In this case, you get your loan disbursed in stages based on the instalment amount you need to pay the developer. You are generally required to start paying only the interest on the loan amount disbursed (called the pre-EMI interest). In case you wish to start principal repayment immediately, you may opt to tranche the loan and start paying EMIs on the cumulative amounts disbursed.

TENURE

Home loans can be sanctioned for a maximum period of 30 years, subject to the customer’s eligibility. A longer tenure helps reduce the EMI burden. For example, for a 20-year home loan of Rs 10 lakh at an interest rate of 10.40 percent, the EMI works out to be Rs. 9,917. Now if we increase the tenure to 30 years, the EMI falls to Rs. 9,073.*

DOCUMENTATION

Documents needed for a home loan can be categorized as:

These include your identity and address proofs. Some documents that you can submit for this requirement include a valid passport, voter ID card, Aadhaar card, etc.

These documents help the lender assess your loan eligibility. If you are employed, you can submit your salary slips of the last 3 months; if you are self-employed, you can submit income tax returns along with computation of income of the last 3 years.

These documents include the agreement to sell, the title deeds, etc. The lender does a due diligence on the property based on these documents.

While you need to submit your KYC documents and credit/income documents along with the home loan application to avail the home loan approval, you need to submit the property documents in original to get your home loan disbursement.

To see the complete list of documents needed for your home loan, visit www.hdfc.com

Your property papers are important. Since your original property documents such as title deed, agreement to sell, own contribution receipts, etc are mortgaged with the lender as security interest on the property being financed, it is important that the lender offers you safe storage. Another important aspect to consider is easy retrieval of the documents. Check whether the lender has decentralized the storage facilities so that retrieval of documents is quick and easy when the customer requires them.

Insurance cover

You must purchase a loan cover term assurance plan that will cover the loan amount. It’s important to do your research to find out the best home loan insurance available. This will relieve your family from the liability of an outstanding loan as the loan is repaid by the insurance company in case something unfortunate happens to you. In fact, several lenders will insist that you purchase insurance at the time of availing the home loan.