Buying a home has become more accessible, with various banks and non-banking financial entities providing an array of home loans. With a home loan, one can buy their dream house and pay back the loan amount in the form of EMIs.There is no need to save money for years to get the home of one’sone’s dream. One can live in their dream home and pay for it in installments. With so many lenders, getting a home loan is indeed easy. To understand the story behind home loans, here is a detailed overview.
Home loan eligibility
Knowing if you are eligible to avail of a home loan is the beginning of its processing. It is a waste of time and effort when you see that you aren’t aren’t eligible halfway through or towards the end. One crude way to understand eligibility is your income and ability to repay the loans. Other considerations like your age, spouse’s spouse’s income, number of dependants, job stability, and financial position also help lenders know your home loan eligibility before granting a home loan.
Know the loan types
You need to be aware of the fact that home loans come available in different types. They are:
Fixed-Rate Loan – if the lenders fix the interest rate at the time of granting, it is a fixed-rate loan. Here, the interest is the same throughout the Loan’sLoan’s tenure.
Floating Rate/Adjustable Loan – here, the lenders link the interests to their benchmarks—the interest changes in proportion with these benchmark rates.
Combination Loan – they are a combination of the above two. A part of the Loan goes by fixed interest, and the other binds to floating rates.
Each of these has a set of benefits and vulnerabilities. Choose the appropriate one based on your requirement and financial position.
The loan amount and LTV
LTV (Loan to Value) is the ratio of the loan amount and the asset’sasset’s value. Lenders usually limit the LTV between 60-75% based on their policies and other aspects. The remaining share must come from you. For example, if the property values at Rs. 50 Lakhs, and your lender gives you Rs. 40 Lakhs, you need to pay the remaining Rs. 10 Lakhs. If you wish to increase this percentage, you can add a co-applicant, who can either be your spouse, adult child, or your parent.
Home and Loan
People often get confused between choosing a home first or applying for a home loan at first. The latter would be better. In that case, you can have a budget fixed in mind so that you’ll proceed accordingly. You can also have a chance to negotiate with the lenders during pre-approvals.
Equated Monthly Instalments (EMIs) are the monthly payments to the lenders. It is a combination of principal and the interest on the outstanding sum. Choose the EMIs carefully as they decide the course of your loan repayment. Lenders allow up to 60% of your income towards EMIs. If you want to increase the value and clear the Loan soon, add a co-applicant. Once the lenders are sure that both of you can pay the installments, you can increase the EMI deduction. Pre-EMIs apply to under-construction homes. Here, your Loan is released in parts, and you generally pay the interests as EMIs.
Lenders will need three different types of documents in general. They include income/credit documents, KYC, and property documents. Credit/income documents are your salary slips; IT returns, etc. Address and ID proofs fall under KYC documents. Property documents include sale deeds, title deeds, etc. You need to furnish all the documents when applying and whenever your lender asks for them.
There is a common misconception that longer tenures are beneficial. However, you are likely to pay far more than necessary. Lenders sanction home loans for up to 30 years based on your eligibility. You can reduce the EMIs with long durations, but the interests add to the principal and increase the outstanding amount. The longer you take to clear the Loan, the more you pay for it. So, calculate everything carefully and then decide your Loan’sLoan’s tenure.
There are different costs involved with a home loan: the processing fee, prepayment or late payment penalties, administrative charges, or others. They all add up to your Loan. Check if there are any hidden charges and if there are, try finding a different lender. There should be equal transparency between you and the lender.
Understand these aspects clearly and select the ideal lender as per your requirements. Moreover, keep in mind that the lenders will gain the right to sell your property off if you fail to pay the EMIs for more than three months in a row.