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A complete guide to home loans in India

19 May
admin May 19, 2017 0

Nowadays, buying a home is much easier than it was few years back. There are various affordable housing options available these days especially for the mid-segment homebuyers. The government is taking initiative continuously so that the people can buy their dream home easily.

Since majority of people buy a home by taking a home loan to fund their purchase, hence the government reduced interest rate on home loans in the past few years. Also, they introduced new income slab for home loan interest subsidy that will make buying a home 2.40 lakhs cheaper.

We, at Indya Estates believe, that it is the perfect time to buy a home and as a smart buyer you should be very well-versed with the home loans procure in advance:

Who can take a home loan?

A home loan be availed by any salaried, professional, and self-employed individual. Even the NRIs can invest in property in India and also eligible to take loan from certain designated banks notified by the RBI.

What is your maximum loan eligibility?

Your total eligibility for the home loan depends upon your repayment capacity. The repayment capacity further depends upon your monthly surplus income over the expenses and other factors like spouse income, your assetsand liabilities etc.

Hence, to make sure that you repay the loan, bank will advance you a loan depending upon your disposable income. Generally, fifty percent of your disposable income is considered available for repaying the loan even, the tenure and interest rates also affect the amount of loan that can be taken.

What is the maximum amount that can be borrowed?

It is generally preferred that 10 to 20% of the price of the home is given as down payment and the remaining amount can be advanced as loan by the lender. The total purchase price also includes the registration charges, transfer and stamp duty charges.

It is not necessary that you need to borrow the whole amount you are eligible for. You can even borrow the lesser amount based on your needs. You should try to pay maximum of down payment and take minimum amount of home loan so that interest cost can be minimized.

What documents are required for home loan approval?

Usually, the loan application form provides a checklist of documents that are needed for applying for a home loan.  You require a photograph and all legal documents related to the purchase of the property. You may also need to submit identity proof, residence proof, copes of the last salary slips (needs to be attested by the employer and you as well), Form 16 (in case of businessman or self-employed people) and the copies of the last income statements and balance sheets (if applicable).

Generally, in case of home loan, the property that you are purchasing is kept as a collateral or security by the lends. But, in some cases the lender may require additional securities like fixed deposits, life insurance policies, other investments etc.

The sanctioning and dispersal of loans:

You need to submit the application form along with all the required documents for starting the review process. After going through your application and documentation, banks decide whether to approve your loan application or not. Also, at this stage, the banks determine the quantum of loan that can be advanced. Hence, the banks issue a sanction letter stating clearly the loan amount, tenure of the loan, the interest rates, and other terms of the home loan applicable. The mentioned terms are valid till the date mentioned in the letter.

The dispersal ofhome loan happens when the actual amount is handed over to you. It happens once the bank has gone through all the formalities related to the loan. You can opt for a loan of lesser amount at the time of dispersal than the amount mentioned in the sanction letter.

At the dispersal stage, you need to submit some documentation again that includes the allotment letter, copies of the title deed, encumbrance certificate ad the agreement to sell paper. You become liable to pay interest from the date of dispersal of loan and not from the sanction date.

How does the dispersal of loan takes place?

The loan can be dispersed in one time or in installments which cannot be more than three. If the property you bought is under-construction, the amount of loan is dispersed based on the progress of the construction which is assessed by the bank or lender and not just by relying on the developer’s agreement. Hence, you need to necessarily enter into an agreement with the developer to make sure that the payments will depend upon the progress of construction work and not on the pre-defined time schedule provided by developer. Whereas, in case of the fully-constructed property, whole amount of loan is dispersed in one go.

How is the interest calculated?

Interest can be calculated on fixed rate or flexible rates. In case of fixed rates, the interest is charged on the same rate of interest for complete tenure of loan but in case of flexible interest, the interest rates can vary and does not remain same for the whole tenure.

What is marginal cost of funds based lending rate (MCLR)?

This is the new method of bank lending that was put in place after April 1st, 2016. It is applicable on all loan including the home loans unlike earlier, when the loans were linked to the base rates, now the borrower can take loan only on the MCLR rates.

Under this method, the banks review and declare overnight, the one, three, six, twelve, twenty-four, thirty-six months MCLR rates every month. So, the actual lending rates are determined by adding the components of spread into the MCLR rates. Hence, for the one year MCLR rate of 8% may keep a spread of 0.5%, which makes the actual lending rate to 8.50%.

What are the other cost other than interest in case of home loans?

There can be several other charges other than just interest on the home loan. You may need to pay the processing fee i.e. 0.5 to 1% of the loan amount. in some cases, this can be waived off by the lender. There is also a technical evaluation fee wherein the valuation of property is done in two ways to know the amount of loan that can be sanctioned. Banks usually hire outside firms to scrutinize the application form and documentation and there are some charges pertaining to them also.

What is an EMI?

EMI stands for equated monthly installments. You repay the home loan in the form of EMI on monthly basis which includes the principal and interest as well. So, as you start paying the EMI, the principal amount reduces the loan amount and the interest is then charged on the total amount outstanding each month. You need to start paying the EMI following the month in which you took the full disbarment.

What are the various modes of paying the EMI?

You can give standing instructions to the bank to directly debt the EMI amount from your bank account, or pay through Electronic Clearing System (ECS) or issue post-dated cheques from your bank account.

What are the tax benefits available on home loan?

You get a tax deduction for the principalcomponent of the EMI paid during a year under section 80 C of the Income Tax Act. This deduction is also available on partial or full pre-payment of the loan amount. But, the maximum deduction of Rs.1.50 lakhs only can be claimed under section 80 C. Also, the interest component of self-occupied house i.e. paid during the year is available as deduction.

What are the documents that should be provided by bank to you on yearly basis?

The bank needs to issue an income tax certificate each year that will serve as a relevant proof for claiming tax breaks available under the Income Tax Act in respect of home loans. It contains the amount of interest and principal repaid during the year. This document is mandatorily required to claim the deduction for taxation purposes.

What other things should be kept in mind while taking a home loan?

While choosing a lender that offers the lowest EMIs,  i.e. that allows you to pay lesser amount in repayments in comparison to others.

Also, it is not a wise decision to go for a lender who is offering the longest tenure. Rather, go with the one who allows foreclosure of loan without any charges.

There are many lenders that also include the cost of furnishing the house in the purchase price of the house. This will give you additional funds to improve your home.

Make sure that your lender adopts reducing balance method on daily basis or monthly basis rather than annual reducing balance method.

Indya Estates is one of the most trusted real estate developer in Bangalore, that is continuously working towards delivering world-class quality of living to all their customers. They have the best real estate projects in Bangalore, which are being managed by highly professional and experts in the field of construction and architecture. Indya Estates firmly believe in customer’s right protection and transparency in all their deals. Hence, we have adopted all the regulation framed by the RERA Act.

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