FindItMore | Before you plan to purchase a house and apply for a home loan, there are several things that you must know about Housing Loans.
What is Home Loan?
Home loan is the amount provided by banks or financial institutions to purchase a new home. You can repay off the home loan amount in Equated Monthly Instalments (EMIs) to the bank during the entire tenor of the loan.
Features of Home Loan
- Purpose – You can avail a home loan for purchase, construction, extension or renovation of a new house.
- Loan tenor – It can be availed for a period of 20 years. Some banks also sanction loans for 30 years.
- Interest rate – Interest rate can be fixed or floating. Fixed rate remains fixed throughout the entire period of the loan. Floating rate changes with the change in market conditions.
- Loan amount – Banks usually sanction 80% of the total loan amount. You need to input the remaining 20% as the down-payment amount.
- Applicants – You can apply for a loan either alone or jointly with your family members.
- Additional charges – Apart from EMI and interest, you also need to pay additional charges like processing fee, legal verification fee, etc.
Things that You Need to Know about Home Loan
- Loan Type
There are generally three types of home loans:
- Floating Rate Home Loan – Under this loan, the floating rate is subject to the Marginal Cost of Lending Rate (MCLR). It changes with the changing market conditions.
- Fixed Rate Home Loan – In this type of loan, the rate of interest is fixed during the entire tenor of the loan.
- Hybrid Rate Home Loan – It is a combination of fixed and floating interest rates. In this type of loan, the interest rate is fixed at the start of the loan period and then eventually the floating rate comes into action.
- Eligibility Criteria
The first step in applying for a home loan is to check the eligibility criteria. Banks assess your eligibility on the basis of your annual income repayment capability. Other important factors checked by the loan provider are your age, qualification, number of dependents, credit score, etc.
- Loan Amount
Most loan providers sanction 80% of the value of the house property depending on your home loan eligibility. This is called the loan to value ratio. The remaining amount is called the margin money or down-payment that you need to invest in for the loan. You can calculate your loan eligibility with the help of aneligibility calculator.
EMI is the equated monthly instalments that you need to pay to the bank to repay off your home loan. It has two parts – principal repayment and interest payment. Your monthly EMI must not exceed 40% of your total monthly income. With the help of housing loan EMI calculator, you can calculate the amount you need to pay as your EMIs.
- Loan Tenor
You can avail a loan for a maximum period of 30 years. Banks will assess your eligibility and repayment capacity before confirming on the loan tenor. Loner the loan tenor, shorter will be the EMI and vice-versa.
The cost of a home loan includes the interest payment, processing fee, administrative costs, prepayment penalty charges, etc. A floating rate has zero prepayment charge. You should be aware of all the costs and expenses while applying for a loan.
The basic documents required to apply for a housing loan are the KYC documents like identity proof and the address proof. Banks will also require your last 3 months salary slips and income tax returns for validation before sanctioning a loan.
The Bottom Line
To fulfill your dream of buying a house, it is important that you are familiar with the home loan procedure to avoid any delay and trouble in the future.