Understanding Home Loans
Buying a home is all about making the right decisions,
after sieving through a host of options. This is not just
relevant when choosing the right home, but is equally
important in finalising the best home loan. Considering
a home loan is probably the longest financial
commitment for most of us, a systematic approach in
making this important.
Getting a home loan
Who can get a home loan !ome loans can be availed of by
individuals "salaried and self#employed$, co#operative
societies, corporate bodies and associations of persons. Typically, the home loan
seeker can avail a loan amount that does not e%ceed &' per cent of the cost of the
The three pillars
!igher eligibility, competitive interest rates on repayment and ta% benefits are the
three pillars of home loans providing a fillip to the buying of new homes. (f we are
seeing families buying a home in an area considered )more e%pensive* than what
their budget would originally have allowed them to, this trend is attributed to these
three pillars. (t has empowered families to move into bigger homes, in locations that
they earlier would only have dreamt of staying in + home loans have changed things
in the residential real estate market and empowered families to move into better
The actual loan amount
!ow is the actual loan amount determined This is done after taking into account
factors like repayment capacity, age, educational qualifications, stability and
continuity of income, number of dependents, assets, liabilities, saving habits etc. (f
the individual is married and is an earning member of the family, that individual can
become the co#applicant. This will substantially improve both the chances of
getting a loan as well as increase the total amount of loan taken.
The tenure of the loan ranges from , to -' years. (n some cases, loans up to a -.
year tenure can be availed of. The term however, does not e%tend beyond the
retirement age or /' years whichever is earlier "/. years for self employed
0ne should also consider plans for retirement and amount required whilst deciding
on the tenure of repayment.
The following are the basic documents required to apply for a home loan. !owever,
the documentation requirements may vary basis customer profile, location of home,
loan requirement and several factors.
,. (ncome and identity proof related documents for the salaried include 1alary 1lip,
2orm#,/ and (3.
-. Balance 1heet, 456 78c and Bank statements for Businessmen.
9. 4hotocopy of property documents if the property has been identified.
(t is not just those who do not have adequate funding to buy homes who find a
home loan attractive. Ta% benefits on home loans can be availed under 1ection &'C
on complete and self#occupied properties. Thus, many a person who doesn*t quite
need a home loan still finds it advantageous to take a loan and avail of ta% benefits.
(n most fast#growth residential areas, this has been the norm rather than the
e%ception. (f one looks back at the past couple of years, growth of the home loan
segment and the residential realty market*s growth seem to be in sync with this
trend. !owever, it is worthwhile to note that ta% benefits on home loans cannot be
availed on under construction properties or for properties being acquired only for
Types of home loans
1ome of the more popular home loan products are the regular home loans, home
e%tension loans, home improvement loans, home mortgage loans, home loans for
women, non residential property loans, lease rental finance, step up :;( product
The days of the regular )take it or leave it* home loans are long since gone. !ome
loan seekers find on offer several tailor made products aimed at specific locations,
with add#ons that are obvious sweeteners for the loan applicant. This can be an
add#on insurance policy for the property or the loan taker, for e%ample. Today, given
that the average customer*s financial awareness has improved significantly, he 8
she lists out the desired add#ons for the home loan provider to evaluate.
The si<e of the :;( depends on the quantum of loan, interest rate applicable and
tenure of loan. 1ome !ousing 2inance Companies have a regressive payment
scheme meant for home loan seekers who are due for retirement within the term of
the loan and have applied jointly with an eligible younger co#applicant.
0ne should judge one*s repayment capacity considering all the above elements and
then seek an appropriate loan amount. (f you are married and have a family to
support you must not aim to shell out more than >' per cent of your net income as
the :;( ":quated ;onthly (nstallment$.
1hould you be single and planning to settle down with family after the first five
years of loan disbursement, you could easily budget /' per cent of your net income
for the :;(, depending on your lifestyle and spending habits. While these are
general thumb rules, it may help for you to consider your other financial
commitment + both short and long term + before deciding on the loan amount.
Adantage of !hifting current home loan lender
Banks generally do not pass on the advantage of decreasing loan rates to the
e%isting 6oan borrowers who are repaying a loan for the past two or three. !owever,
on the basis of good repayment track record, individuals can also discuss and re +
negotiate with the new lender for better interest rates. ?ot just the reduction in
interest rates, there are several more reasons due to which one would want to
change his current lender. The new lender may be more fle%ible. (n case, you need
to renegotiate on some terms and conditions with e%isting bank such as increasing
the tenure of your loan and decrease the amount of your :;( but your bank has not
agreed to that whereas the new bank may agree on these terms.
2urther the value of property has climbed much higher in comparison to its original
value. Based on this, you might want to top + up your loan to meet further
requirements like renovation of home. But the lender might not be open to these.
The new lender may be open for loan top#up. 1ometimes, you are just not happy
with the services and accessibilities of the bank and the new bank may offer better
Ho" H#$s %Housing #inance $ompanies& loo' at loan applicants
!2Cs look at minimising risk at the time of processing any loan application. There
are two distinct processes in a home loan. The first process entails working out your
loan eligibility, based on your fiscal status that is rated on the strength of the
documents that you submit. 0nce the eligibility part is through, it means the !2C
considers you a )good* credit risk for that amount, and will sanction a home loan of
that value, so long as the property stands true on the touch stone of documentation
+ which is part [email protected]
now, the property*s title has to be verified. 0nly after this is
completed can the loan be considered as sanctioned and ready for disbursal.
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