Monthly Archives: January 2015

How to apply for home loan?

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Now that you are well aware of the types of loans and EMI options and have decided on the one that’s best suited for you, let us take a look at the procedure to apply for a loan. It is fairly simple and quick:

Step 1: Submission of loan application form with relevant documents.

Step 2: Verification of the respective property and its supporting documents. This step takes 5 to 7 working days.

Step 3: Around the 7th day, the loan is sanctioned, if all criteria are met and documents are in place.

Step 4: Original property documents to be submitted, followed by which the loan agreement is signed.

Step 5: The loan cheque is disbursed in 10 to 15 working days.

The important documents to be submitted for approving the home loan are:

•Identity proof

•Residential proof

•Properly filled loan application form

•Photograph

•Sale agreement

•Last 6 months bank statement

•For business applicants documents describing the type of business, and IT returns.

•For salaried applicants last 3 month’s salary slips and From 16A.

Costs incurred while applying:

For a Home Loan, the basic registration charges, transfer charges and stamp duty costs are added to the cost of the home.

Some other charges include:

•Processing charge or booking fee – paid to the lender when you apply for the loan. It could be fixed or a percentage of the loan amount.

•Pre-payment penalty – if the loan is repaid before the agreed duration, some lenders may charge a penalty, up to 2% of the amount pre-paid.

•Miscellaneous costs – there could be a documentation or legal fee, also known as “application fee”.

What is Pre-EMI interest? What mode should I choose to pay my home loan?

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home-loan_3Pre-EMI is the interest portion on the disbursed loan amount that you pay until the full disbursal is done. i.e., your home loan behaves like an interest-only loan on the disbursed amount until the completion of construction. Your EMI payments start after the pre-EMI phase. Until then, your money does not reduce even a paisa of the outstanding loan amount.

Now you may wonder which is a better course to take while making loan repayments – EMI or Pre-EMIs?

The selection of full EMI repayment mode is deemed as beneficial in the longer run as borrower of the loan starts paying the principal amount from day one itself. So, in this case the total outstanding principal amount by the time the property is taken possession of, is reduced manifolds. However, in case project completion gets delayed, loan borrower may end up paying more than the principal loan amount even before getting possession of the property.

So, in all EMI mode can result in hefty payouts on the part of the borrower as he pays the interest amount during the loan tenure in addition to the term before the final disbursement of the loan. However, Pre-EMI may turn out to be a better loan repayment mode in case the homebuyer wishes to sell the property soon after getting the possession.

Things you should know about Pre-EMI home loan repayment mode:

Though pre-EMIs seem to be less burdensome at first as only the interest component on the loan amount disbursed is required to be paid until the final loan amount disbursement, it results in more number of payouts. In contrast, opting of full EMI mode results in lower tenure with the decrease in principal amount.

Pre-EMI interest amount paid when the property was under-construction does not qualifies for tax deduction with respect to the principal amount repaid. However, loan repayment either in pre-EMI mode or EMI in taxation terms is treated without much difference and in fact tax deductions are only allowed on the interest paid post the completion of the project. The interest amount paid is divided into five equal proportions and allowed for tax deduction once the project is completed.

Thus, before choosing the mode of home loan repayment, you must consider your purpose of buying the property, expected time for project completion and taxation factors.

What are the types of Home Loans available?

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Land Purchase Loans: Land purchase loans are taken to buy a plot of land on which a borrower wishes to construct his house. Most banks offer up to 85 percent of the price of the land. These loans can be availed for residential as well as for investment purposes. Almost all leading banks offer this loan.

Home Purchase Loans: The home purchase loans are the most popular and the most commonly available home loan variants. These loans can be used to finance the purchase of a new residential property or an old house from its previous owners. In this type of loan also, lenders usually finance up to 85 percent of the market value of the house. These loans are provided either on fixed interest rates or floating interest rates or as hybrid loans. All banking institutions and housing finance companies provide this type of loan.

Home Construction Loans: These loans can be availed by those individuals who want to construct a house according to their wishes rather than purchasing an already constructed one. The loan application and approval process for home construction loans are somewhat different from those of the commonly available housing loans. The plot of land on which the borrower wishes to construct the house should have been bought within a year for the cost of the land to be included as a component for calculating the total price of the house. If the plot has been purchased more than a year ago, then the above clause is not applicable. The borrower has to make a rough estimate of the cost that will be incurred for the construction of the house and then apply for the loan with the same amount. The lender then takes over from there and analyses the application to decide whether or not to sanction the loan. The approval or disapproval of the same is intimated by the lender to the applicant. The loan amount may be disbursed at one go or in several installments according to the progress in the construction of the house.

Home Expansion/Extension Loans: Home expansion or extension loans are useful in situations when people want to expand their existing house. Expansion includes alteration in the current structure of the residence to add extra space such as constructing a new room, a floor, a bigger bathroom or enclosing a balcony. Though many banks provide loans for these purposes as part of home expansion loans, some banks lend for the same purposes as part of their home improvement loans. It depends on how a bank has categorizes its loans.

Home Improvement loans: Home improvement loans are availed by individuals who already own a house but lack the funds to renovate it. All kinds of renovations and repair works can be financed using this variant of home loans such as internal and external painting, external repair works, electrical work, waterproofing and construction of underground or overhead water tank etc.

Home Conversion Loans: Those borrowers who have already purchased a house by taking a home loan but now want to buy and move to another house opt for the home conversion loans. Through these loans, they can fund the purchase of the new house by transferring the current loan to the new house. There is no need to repay the loan on the previous home. Though useful, this segment of home loans is accused of being quite expensive.

NRI Home Loans: NRI home loans is a specialized home loan variant which has been developed to assist non-residents in acquiring housing finance to buy residential property in India. These loans are meant exclusively for the non-resident Indians. The formalities of availing this segment of home loans is similar to the regular home loans, which are offered to residents, only the paperwork is a bit elaborate. Almost all public and private sector banks provide NRI home loans.

Balance Transfer Loans: Balance transfer option can be availed when an individual wants to transfer his home loan from one bank to another bank. This is usually done to repay the remaining amount of loan at lower interest rates or when a customer is unhappy with the services provided by his existing lender and wants to switch to another lender.

Stamp Duty Loans: Stamp duty loans are provided to pay off the stamp duty charges on the purchase of a property. The amount from this loan can be used solely for this purpose. This segment of home loans has yet not gained much popularity.

Bridged Loans: Bridge loans are short-term loans, which are meant for people who already own a residential property but are planning to buy a new house. It helps borrowers to fund the purchase of the new house until a buyer is identified for the old house. It is extended for a period of less than two years and requires the mortgage of the new house with the lender.

What is a Home Loan? Can I apply for it?

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homeloanHome Loan is a secured loan taken by a borrower from the bank issued against the property/security intended to be bought on the part by the borrower giving the banker a conditional ownership over the property i.e. if the borrower fails to pay back the loan, the banker can retrieve the lent money by selling the property.

If you are planning to buy your own house, it may be a good idea to apply for a home loan, rather than trying to arrange the entire purchase amount at once. It is also a good way of tax planning. And if you’re wondering whether or not you’re eligible for a home loan, please go through the following guides. Please note that the guide is only for assistance and may not be absolutely exhaustive, as criteria may differ slightly from one financial organisation to another.

Any adult individual with a source of income can apply for a Home Loan, if he/she meets the criteria of the Banking Financial Corporation / Non Banking Financial Corporation norms and eligibility criteria of the same.

You may NOT meet the criteria for getting a Home Loan if any of the following is true:

  • Suite filed or written off cases reported in the Credit Information Report [CIR]. This is indicated in the ‘Account Status’ section of your CIR.
  • Payment history trend – if there has been any default or amount overdue. This is indicated in the ‘Days Past Due’ [DPD] field of your CIR.
  • Company profile where you work – the banks generally have an approved list to whom they extend loan / credit card.
  • EMI to Income ratio: if your current total EMI exceeds your monthly salary by more than 50% then chances of getting a loan are reduced.