Who can apply for a home loan?
Any Indian Resident, Non-resident Indian or Person of Indian Origin can apply for a home loan if they are 21 years of age at the origin of the loan and 65 years or below at loan maturity. Housing Finance Companies (HFCs) usually give home loans for properties located in India to people who are employed or self-employed, with a regular source of income.
When can a home loan be applied for?
An individual can apply for a home loan even before the property has been selected. The loan amount is sanctioned based on the ability to repay. This helps in planning a budget while purchasing the house.
How does the lender calculate eligibility?
Loan eligibility is calculated based on the ability to repay. Factors such as income, age, qualifications, number of dependants, spouse's income, assets, liabilities, stability and continuity of occupation and savings history are taken into consideration.
How do I repay the loan?
You can repay the loan in Equated Monthly Installments (EMIs) comprising principal and interest. Repayment by EMIs commences from the month following the month in which you take full disbursement. Till then, you only need to pay the interest on the amount disbursed.
What is pre-EMI interest?
Before final disbursement, you may have to pay interest on the portion of the loan disbursed. This is called pre-EMI interest. Pre-EMI interest is payable every month from the date of each disbursement up to the date of EMI commencement.
Is there a fixed interest rate for the duration of the loan?
Most HFCs offer the fixed rate as well as the variable rate options to customers.
What is a fixed rate loan?
A rate of interest that is constant throughout the duration of the loan is known as a fixed rate loan.
What is a floating rate loan?
A floating rate is when the interest rate on the loan changes according to the rates in the market during the period of the loan.
It is better to opt for a fixed or a floating interest rate?
If interest rates are falling, a floating rate loan is a better option. But when interest rates are rising, opt for a fixed rate loan, because you will then know in advance what your EMIs will be.
Is there a difference between monthly rest & annual rest?
On the basis of the principal at the start of every month, the interest is calculated in monthly rest. For annual rest, this is done at the beginning of every year.
How is the interest calculated on my loan?
Most HFCs follow the yearly reducing balance method, which accounts for your principal repayments only at the end of their financial year. Thus you pay interest on the principal that you have already returned to the HFC during the year. The effective interest rate is thus higher than the quoted interest rate by around 0.7 per cent. Banks and some HFCs, in contrast, follow the daily or monthly reducing balance method, which results in a lower interest burden.
What are the other areas of expenditure before I get a home loan?
A] Processing and administrative fees, pre-payment charges and delayed payment charges, legal fees, technical fees, stamp duty and registration of mortgage deed are all likely areas of expenditure.
How do I select my HFC?
A] Various considerations would help you zero down on the HFC most suitable for your loan requirements. Analyse the following points before taking your decision:
Loan amount: The minimum and maximum loan amounts vary between HFCs. Find out if the amount you require falls within this limit.
Duration: There is no lower and upper limit to the tenure of the loan. Find out if the time limit you want it for can be accommodated. This varies between HFCs. Normally HFCs offer loans ranging from 5-20 years, with some going up to 30 years. For NRIs the maximum tenure could be 10 years in some cases. Depending on your requirements, this would have a bearing on the loan you opt for.
Interest rate: This varies between HFCs. Fix a duration that you want the loan for and find out the EMI from them. Compare and identify the lowest EMI.
Pre-payment: Check if the HFC charges for repaying the loan before its due date.
Flexibility: Find out whether you can change your interest scheme from fixed to variable if so desired or if there are restrictions.
Guarantor: Some HFCs require this, while others don't.
Documents required: These may vary between HFCs although there are a few standard documents like proof of income, proof of age and residence and a salary slip.
Co-owner: If there is to be a co-owner or co-applicant for the loan, the HFC has to accept the relationship between the two.
Other fees: Each HFC has different fees for administration and processing among others.
Can a loan be switched over if I have obtained it at a high rate of interest, but another HFC is offering a better interest rate?
You could do this. After discussing the reasons with the current HFC, they may even reconsider the interest rate.
What is the maximum amount of housing loan available?
The maximum amount is 85% of the cost of the property, including the cost of land, subject to a maximum amount of Rs 1 crore.
What is the amount I can borrow and what are the criteria?
Generally, the amount is up to 2.5 times your gross annual income. But your equated monthly installments usually should not exceed 35 per cent of your gross monthly income. Besides this, HFCs will assess your eligibility based on your ability to repay.
What is the period in which I will have to repay the loan?
A] Usually in a period of between 5 to 15 years, but definitely before you retire. A few HFCs also offer a 20-year repayment period, usually at a higher interest rate.
How do I apply for a loan?
Approach an HFC with the latest salary slip and TDS Form 16 of the last two financial years for yourself and your co-applicant. The loan officer will informally tell you the amount of loan you are eligible for and the terms, in areas in which they finance homes.
Collect a loan application form and confirm the needed documents.
Visit more than one company since you are likely to get better terms / larger loan amount if you shop for the best deal.
At your chosen HFC, submit the duly filled loan application along with the required documents and an application fee (around 1 per cent). They will then interview you on the same. After conducting an appraisal of your application, the HFC will give an in-principle sanction of your loan.
You now have to submit your property documents, which should show a clear title. The HFC will check these and levy an administrative fee (around 1 per cent). It will then disburse the loan, either fully or in installments, directly to the builder / seller of the property.
Who can be co-applicants for the housing loan?
Usually a spouse can be a co-applicant. Other immediate family members are also acceptable to some companies, depending on merits. If both partners are working, it is better to have your spouse as a co-applicant since this will entitle you to a much larger loan.
Is a guarantor required?
A guarantor is insisted on by the HFC so as to ensure that the loan is paid back in full and in time. The guarantor is responsible for the repayment of the loan if the borrower is unable to do so.
Can I repay the loan before the set date of repayment?
You could do this, but some HFCs require a pre-payment fee to be paid. Check with your HFC.
What security do I have to provide?
A first mortgage of the property to be financed. The title should be clear marketable. Some HFCs may also require collateral security like the assignment of life insurance policies, pledge of shares, NSCs, units or mutual funds, bank deposits or other investments.
Does the Agreement for Sale have to be registered?
Yes. In many Indian states, the agreement between the builder and purchaser has to be registered. This can be done at the office of the sub-registrar appointed by the State government.
Does the property have to be insured?
The property should be insured against fire and other hazards and the HFC will have to be the beneficiary of the policy.
How long does it take to get my application processed and my loan sanctioned?
A] It will take around 15 days for the processing of your application if your documents are in order. Make an application only if you are eligible for the loan since the HFC will not return the application-processing fee. It will take another week for the company to check out your property papers and make the disbursement.
When do I have to make my share of the contribution to the purchase price of the property? You will have to make your payments towards the property price up-front before the HFC disburses any installment of the loan.
What do I have to do when my housing loan is sanctioned?
You must submit the property papers and pay an administrative fee (approximately 1 percent). When the HFC clears these papers, you must take the first disbursement of the loan within a stipulated period (usually three months) and avail of the entire loan within about a year's time.
In how many installments can the loan be disbursed?
The loan can be either disbursed in full for outright-purchase / ready properties or in a few installments for under construction properties. The disbursement will be made taking into account the requirement of funds and the progress of construction.
Do I get tax benefits on the loan?
A] Yes. You are eligible for certain exemptions on both the principal and interest components of the loan as per the Income Tax Act, 1961. The principal repayment of the loan up to Rs 10,000 is eligible for a rebate @ 20 per cent U/s 88 of the IT Act. The income tax exemption limit for interest paid on housing loans is Rs 75,000 per annum on self-occupied houses. Therefore an interest payment of up to Rs 6,250 per month can be deducted from taxable income in arriving at the total income tax payment of an individual.
Can I get a loan for extension / upgradation / renovation of my house?
Yes, these loans are available from some HFCs. However the loan terms may be different from the usual housing loans.
Can I sell the property on which I have taken the loan?
Yes. But the loan will have to be repaid before the sale is effected. Some HFCs allow the transfer of loan to the buyer of the property, depending on his eligibility for loan.
Can I rent the property on which I have taken the loan?
Yes, this is allowed by HFCs.
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