Purchasing a home is an important decision in life. With an affordable home loan on the scene, purchasing a home has become easier for many. As buying a home requires a huge investment, availing of a home loan to fund part of your requirement is common across the world.
Before home loans, individuals used to save a lot and depend on unrecognized lenders for availing of loans when required. However, with changing customer landscape and tighter regulations and oversight, a lot has changed in the industry for the better. Now, you can avail of home loans easily at affordable interest rates in the industry with reliability and transparency. However, to make the correct choice when it is about availing of a home loan, it is necessary to understand how home function in India loans.
Here in this home loan guide, all is mentioned – what they are and what are Home Construction Loans, how they function, what must be kept in mind while availing of a home loan, and how to repay a home loan by the due date. Read on to know:
What is a home loan?
A home loan is a credit option that is borrowed by individuals from different banks like HDFC Home Loan or NBFCs (non-banking financial companies) for buying a property. A home loan construction loan is a variant of a home loan, where the proceeds can be used for the construction of your home.
How does a home loan function in India?
Home loan proceeds borrowed by individuals are paid to the builder or owner directly by NBFCs or banks. The borrower is expected to repay the loan proceeds in the form of EMI over chosen repayment tenure along with the interest component over principal. For example, a loan equaling Rs 25 lakh availed for a repayment tenure of ten years at a rate of interest of 9.55 percent per annum will levy Rs 32,418 EMI. Computation also displays that loan will levy an interest component of around Rs 14 lakh above the principal component of Rs 25 lakh, which takes the overall outgo to Rs 29 lakh over ten-year repayment tenure.
Listed here are a few crucial aspects you must note for home loans:
∙ Property on which a loan is given is considered as security by lending institutions.
∙ Property may be residential or commercial
∙ In this case, the borrower is unable to pay dues, and the lender holds all legal rights to cover the rest of the amount just by auctioning the property in question.
Stepwise guide to placing a home loan application –
Here’s a stepwise guide to a home loan application that can assist you in getting your journey started –
It is an initial step in a home loan application. As per this step, you may place the loan application with basic info. Information that is needed at this step are:
∙ Personal details such as contact details, name, residential address etc.
∙ Income details such as annual income.
∙ Education details
∙ Property details like commercial or residential address
∙ Employment or business details
∙ Estimated property cost
∙ Current means of funding the property
Info required at this juncture might differ from one lender to another. Additionally, as per the information submitted as a part of the application procedure, you require attaching documents to verify the details put up as part of the application. Home loan documents that are required at this phase include the listed:
∙ Income proof
∙ Identity proof
∙ Age proof
∙ Employment proof
∙ Address proof
∙ Property details
Pay processing charges
Once the application is placed, it is crucial to pay the processing charge for the home loan. Again, the processing charge might differ from one lender to another. Typically, the processing charge for home loans differs between 0.25 percent and 1 percent of loan proceeds.
The processing charge is the proceeds collected by lenders to maintain the customer’s loan account. The amount might involve a commission that must be paid in full to the agent. You can negotiate with the bank lender to avail the best deal on the processing charge. While NBFCs and banks have defined a structure for computing processing charges, there is zero harm in trying out your luck with a request to lower the processing charge. In the case the lender is providing no processing charge, do compare the interest rate, duties, and other fees that are included, which make your loan cost you a lot more.
Discuss with lender
Here is a stage where documents put up are verified by the bank, and a formal discussion happens between the lender and the customer. It generally takes around 1 to 2 working days or even less if the submitted documents are in the right order. There are a few lenders who need you to pay a visit to the branch and discuss the loan, its term, and various other details. Few lenders are much more comfortable discussing such details in person and collecting additional details linked with the loan applicant. However, there are many digital lenders who do not require you to visit the branch.
The online procedure followed by doorstep service permits for a hassle-free and comfortable experience for customers.
Wait for authentication of documents.
It is necessary to understand that various customers place an application for a home loan regularly. To make the loan application process faster, it is crucial to submit the paperwork in the right order. At this phase, the lender verifies the details submitted by the applicant.
Basically, the listed documents are authenticated by the lender:
∙ Employment details
∙ Residential contact number
∙ Employer credential
∙ Residential address
∙ Workplace contact number
Such details are authenticated to make sure that all contact numbers & details placed by the applicant are in the correct order.
It is the most crucial part of the home loan procedure. This is a phase at which the lender approves or rejects your home loan application. It is known as sanction or approval of loan application. To approve a home loan, the lender performs an end-to-end check of the application on the listed parameters:
∙ Qualification and age of the applicant
∙ Employment details of applicant’s business details
∙ Applicant’s income details
∙ Potential to repay the loan with a set interest
Based on application analysis on the parameters mentioned above, the lender confirms the highest amount. There are a few cases in which the lender puts a few conditions which are to be met by the applicant before the home loan is disbursed.