Buying a home in today's time is a decision that is most crucial. People sometimes tend to overlook certain aspects when it comes to financing their home. We want you to start clearing your doubts right from the beginning. Through these answers, we try and clear some of your doubts, at your pace.
Home loan is a loan disbursed by a bank or financial institution (lender) to an individual specifically for buying a residential property. Here, the lender holds the title of property until the loan is paid back in full along with interest.
Home loans are long term borrowing instruments with a minimum tenure of 5 years and a maximum tenure of 30 years. The tenure offered to you for your personal loan depends on the loan amount that is sanctioned to you by the lender along with other factors.
Anyone — whether self employed or salaried individuals/professionals — with a regular source of income can apply for home loans. One must be at least 21 years old when the loan period begins and should not exceed an age of 65 years when the loan ends or at the time of superannuation. This is the generic eligibility criteria and specifics such as the minimum and maximum age limits, minimum income level, etc. may differ from one lender to another.
Once repayment capacity determines your eligibility to apply for home loan, lenders consider the following factors:
No. A lender would only allow you to apply for a joint home loan if the application is co-signed by one or more members of your immediate family. Thus, your friend does not qualify.
Immediate family members such as your parents, spouse and children are allowed to be joint borrowers in case of a home loan.
The maximum number of joint borrowers in case of a home loan is fixed at 6. However, only family members such as parents, siblings and spouse can be co-borrowers for a home loan in India. Additionally, having a co-borrower who has a robust credit history and good credit score is preferable as compared to one with a low credit score.
If the interest rate on the loan varies periodically over the loan tenure, then it is called a floating rate home loan. Lenders have their own base rate which determines the rate of interest charged on a home loan. The base rates of banks are revised from time to time based on RBI directives as well as other factors, which leads to an increase or decrease in the EMI amount payable.
Fixed rate home loans are offered at a predetermined interest rate during the loan period and these remain unchanged during the loan period irrespective of market conditions. This can be a huge benefit when market volatility starts affecting interest rates. For instance, if the RBI increases interest rates on loans, then people with fixed rate home loan will not be affected by any increase or decrease in the market interest rates and the EMI amount will remain unchanged. This type of home loan is less popular these days.
As per recently updated RBI rules, banks are required to use the MCLR (Marginal cost of lending rate) method to determine the interest rate on home loans. In case of a floating rate home loan, the banks are now required to change the interest rate either yearly or every six months. In case you have a fixed rate home loan, you can get in touch with your bank to get information regarding conversion of your fixed rate home loan to the new MCLR-based floating interest rate. At present, introduction of the new MCLR regime has led to a reduction in applicable home loan interest rates.
Yes. A few lenders do offer you the option of switching from a floating rate to a fixed rate home loan and the other way around. However, this is not applicable to all home loans and there are a few charges involved in implementing this conversion. Get in touch with your lender to get details regarding the procedure and requirements.
There are different ways to pay off your loan such as issuing post-dated cheques for the tenure of the home loan, getting the amount deducted automatically from your salary or by issuing standard instructions to the lender for ECS (Electronic Clearing System) wherein the EMI is automatically deducted from your bank every month.
Before zeroing in on a home loan, it is best to compare the various interest rates that would be applicable to you. When you apply for a home loan through Paisabazaar, you get the opportunity to apply for a home loan through both private and public-sector banks. Also take into account, the fact that banks charge various processing and other related fees when you apply for a home loan and you should also consider these, when applying for a home loan.
Yes, one can repay the loan amount before completion of the scheduled loan tenure by making a lump sum payment towards paying off the loan. In such cases, the bank may decide to apply some penalties in the range 2-3% of the principal amount outstanding. Some banks and NMFC (non-banking financial companies) do not charge any penalty on making prepayment of a home loan.
The documents that need to be submitted may vary from one lender to the other. Some of the necessary documents to be submitted include the following-
Tax benefit for Joint Borrowers: In case of joint home loans, each of the co-borrowers is eligible to receive a total of Rs. 3.5 lakhs (1.5 lakhs under section 80C + 2 lakhs under section 24) as tax exemption. Hence, if a married couple co-signs for a home loan, they can claim a total tax exemption of Rs. 7 lakhs on their home loan.
If you have an existing home loan and have made timely repayments towards the existing home loan, you may get the option of borrowing an additional loan equal to the amount you have paid off on your current home loan. This is termed as a top up loan. The interest rates on a top up loan are less than a personal loan and it requires little or no paperwork to process this loan and the money can be used for a range of expenses.
Yes. You can have a family member like your spouse or your parents co-sign with your when you apply for a home loan. Having a co-signor for your home loan improves your chances of being approved for a larger home loan amount. A co-signor is specially recommended if the primary applicant has a low credit score or has had problems when applying/paying off a loan in the past.
A home loan is a long term loan (5 to 30 years tenure), hence lenders want to ensure that they will get their money back in the long term. Therefore, the loan sanctioning authority will definitely check your credit history before sanctioning a home loan to you. By having a good credit record/history you would be classified as a low risk borrower and you may be able to get preferred (low) interest rates and waivers on various bank fees on the basis of your credit history.
In case you have a poor credit score, you will find it difficult to get a home loan. However, you can improve your chances by getting a co-borrower. The co-borrower needs to be a family member like your spouse or parents. Ideally, you should choose a co-borrower who has a regular source of income and good credit history to bolter your chances of a successful application
When banks sanction you a home loan, the EMI payments may not start immediately. In such a situation, the bank is liable to charge a pre-EMI interest on your loan. This interest is payable monthly from the time the loan is disbursed till the time the EMI payments start off. The pre-EMI interest amount is lower than the home loan EMI as the principal payment portion is excluded for pre-EMI interest payments.
The margin on a home loan refers to the percentage of the cost of the home that is not covered by the lender providing you with the home loan. On an average, lenders implement a 20% margin on home loans i.e. the home loan amount sanctioned to you will be 80% of the actual cost of the property. The remaining 20% of the home loan cost will have to be borne by you. Though the 20% margin is the industry average, lenders may increase or decrease their home loan margins on a case by case basis.
Apart from the margin, some other costs will have to borne by you. Some of the key expenses in this regard include the initial down payment, stamp duty costs, registration costs and transfer charges among others.
Amortization is a table with details of interest payment and periodic principal of a loan along with the amount outstanding after each payment and the decrease of loan balance till zero.
There are various types of home loans depending upon your specific requirement. Some of the key ones are as follows:
Your best option is to apply for a home conversion loan. Using this type of loan, you can add to your existing home loan and purchase the new one without having to opt for a second home loan.
Home loan pre-approval is a facility provided by banks and NBFCs to their customers, which allow those interested in purchasing a house with the particulars regarding their eligibility even before they have decided on a property to purchase.
The pre-approved home loan offer is valid for only a limited period, which varies from one bank to another as per the lender's internal rules and regulations. However, these pre-approvals are usually valid for no more than 6 months.
When you take a home loan for an apartment, you technically apply for a home purchase loan. This type of loan is the most common one that is provided to individuals and is eligible for tax benefits under section 24 and section 80C. In case you want to purchase a plot of land for building your house at a later date, you have to apply for a land purchase loan and there is currently no tax exemption benefit for this type of loan.
Due to the huge demand of home loans, banks and NBFCs across India provide home loans to their customers. Some of the leading banks who provide home loans to individuals include HDFC Bank, Axis Bank, ICICI Bank, State Bank of India and associates, Bank of Baroda, RBL Bank and many others. Leading NBFCs in India that provide home loans in India include India Bulls, Bajaj Finance, Financiers, LIC Housing Finance and may others.
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