Home Loan

Introduction

Susan Lynn Orman, American author and motivational speaker, once said, “Owning a home is a keystone of wealth – both financial affluence and emotional security.” A Home Loan is a great way to bridge the gap between your finances and the dream home that you always wanted to own. In India, the demand for home loans has increased tenfold in the last decade. Home Loans come coupled with added advantages like tax benefits which only makes it a sweeter deal.

May it be the Dream Home of a common middle class family or the Super Luxury Abode of a rich millionaire, an owned House is closest to ones heart & soul. So it becomes very important to carefully compare the Home Loan providers for the same. One you can trust to safeguard your Home the way you would. Before going for a home loan compare the home loan product of different banks. Select the home loan which best meets your requirement. The home loan relationships are long term relationships and at times last for 20 years. A wrong decision can be corrected in the interim but might have already impacted you significantly by then.

Lenders in the form of banks and non-banking financial companies (NBFCs) provide home loans not only for buying houses but for a variety of related purposes. NBFCs are companies which operate under the banking regulations defined by Reserve Bank of India but do not have a banking license.

The Housing Loan is a loan taken by a borrower from the bank issued against the property/security intended to be bought on the part by the borrower giving the banker a conditional ownership over the property i.e. if the borrower is failed to pay back the loan, the banker can retrieve the lent money by selling the property.

Buying your dream home is one of the most important decisions of your life and equally important is your choice of the finance company which can honestly guide and assist you throughout the home buying process. A company which can assure expertise, transparency, commitment, best-in-class services, full-fledged domain knowledge and simplified loan procedures till the complete repayment of the loan will simplify your home buying experience.

Home Loan Process

Owning a home isn’t just a keystone of wealth, it’s what gives us and our families, stability and emotional security. If you’re hesitant about buying a home because you feel that getting a home loan is a daunting task. Don’t worry! Applying for a home loan, is an incredibly simple process..

Below listed are the documents that is required to process the loan faster. Self Attested copies of Documents are required

Process & various steps involved

1

Finalize the Property:-

The first step involved in the process is to find your property. Once the property is finalized and the property papers are verified you can start searching the home loan lenders who can give you the best home loan deal. There are scenarios when you want to be sure of your home loan eligibility before finalizing the property. Use Care2Earn Home Loan eligibility calculator to assess your loan eligibility. This would help you take the informed decision.



 
 
2

Lenders reserve their best rates for immediate disbursement customers and hence customers who have finalised property get the best possible home loan offers. Also if they have any issues with your property it will get highlighted before you incur too much effort and costs. Some lenders may not be comfortable with you buying a plot and self constructing on it. Some lenders will not fund under construction property unless the developer is pre-approved with them. A lot of lenders can have issues if the property you are buying is more than 15-20 years old.



 
 
3

Know the Home Loan Financial Eligibility: -

The lender will offer the home loan on the basis the information provided by you to determine your financial eligibility. The financial eligibility is based on your income, age, existing loans and their repayment track. Our advanced algorithms and experienced team strives to give you adequate information about eligibility and different loan products available to you



 
 
4

Select the Best Home Loan after evaluation: -

Comparing home loan interest rates is the primary feature in the home loan selection, however other fees & charges like Application fees, processing fees, legal charges should not be neglected when comparing various loan offers. To check the interest rates & other charges incurred by various banks, Care2Earn provides a comprehensive comparison across different banks and assist you in choosing the best product suited for you.



 
 
5

Applying for the Loan: -

After you have selected your lender, you have to fill in the application form wherein the lender requires complete information about your financial assets & liabilities; other personal & professional details together with the property details & its costs.



 
 
6

Documentation & Verification Process: -

You are required to submit the necessary documents to the bank which will be verified together with the details in the application.



 
 
7

Credit & default check: -

Bank checks out the borrower's loan eligibility (through repayment capacity) & the amount of loan is confirmed. The borrower's repayment capacity is reached which is based on the income, salary, age, experience & nature of business etc. Bank also checks credit history through the CIBILScore which plays a critical role in deciding & approving your loan application. Low Credit Score implies that the bank upfront rejects your application on the basis of earlier credit defaults; on the other hand high credit score gives a green signal to your application.



 
 
8

Bank sanctions Loan & Offer letter to the borrower: -

After the credit appraisal of the borrower bank decides the final amount & sanctions the loan, the bank further sends an offer letter to the borrower which constitutes the details like rate of interest, loan tenure & repayment options etc.



 
 
9

Acceptance Copy to the Bank: -

The borrower needs to send an acceptance copy to the bank after the borrower agrees with the terms & conditions in the offer letter.



 
 
10

Legal and Technical Valuation: -

The bank further asks the legal documents of property from the borrower to check its authenticity so as to keep them as a security for the loan amount given. The lender would carry out Legal verification to ensure your property is clear from any legal encumbrances The next step involved is the technical valuation of the property by the bank which determines the total value of the property and loan amount which can be given to you on the basis of property value. The Loan to Value (LTV) is pre determined and is regulated.



 
 
11

Signing of agreement & the loan disbursal: -

You are now ready to sign the home loan agreement. All that’s left is for you to submit your original property documents, a few postdated cheques, and the loan agreement. That’s it! Lender will issue a cheque in the favor of seller/builder and your dream home is a reality now. Your EMI commences from the day of disbursement



 
 

Home Loan Documentation

Generally the documents required to processing your loan application are almost similar across all the banks; however they may differ with various banks depending upon specific requirement etc.

Below listed are the documents that is required to process the loan faster. Self Attested copies of Documents are required

 

Documentation Required

Personal Documents

The Signed application form duly filled with photograph ID/ Age Proof - PAN Card/ Passport/ Aadhar Card and Residence Proof – Passport/ Utility bills/ Bank Statements. Cheque of Processing Fee

Salaried Individuals

Last 2 years Form 16 or Income Tax Returns Last 3 months salary slips Last 6 months bank statement reflecting salary credits

Self employed Individual/ Proprietorship

Proof of Business- Shop and Establishment Certificate/Vat Registration Certificate/ Service Tax Certificate Last 3 years IT tax returns with profit and loss account and balance sheet duly audited by CA Latest 12 months bank statement- Savings Account and Current Account Existing Loans’ Sanction letters accompanied with repayment track Business profile on the letterhead of the company

Partnership Firm/ Partnership LLP

Age proof of all the partners in the form of PAN Card, Passport or Adar Card PAN Card of the company Residence proof of all the partners –Utility Bills/ Passport/Bank statement/ Registered rent agreement Proof of Business- Shop and Establishment Certificate/Vat Registration Certificate/ Service Tax Certificate Latest 3 years Income Tax returns with profit and loss and balance sheet duly audited by CA. Latest 12 months bank statement of the Company and of the Partners’ Savings Bank Account Partnership deed Existing Loans’ Sanction letters accompanied with repayment track Business profile on the letterhead of the company

Private Limited / Limited Company

Application form duly filled with photographs of directors. Age Proof of Directors- PAN Card, Aadhar Card, passport Residence Proof of Directors- Utility Bills/ Passport/Bank statement/ Registered rent agreement PAN Card of Company Education Qualification- A professional qualification certificate in case of Doctors/CA/Architects Proof of Business- Shop and Establishment Certificate/Vat Registration Certificate/ Service Tax Certificate MOA, AOA, List Of Directors, Share Holding Pattern of the Company Last 3 years IT returns with Profit and Loss account and balance sheet duly audited by CA. Latest 12 months bank statement of Company of all current accounts and the same for Director’s Savings Bank Account Existing Loans’ sanction letter with repayment track of company and Individual Directors Business Profile on the Letter Head of the Company

Property Documents

Occupancy Certificate Approved Plan of building Chain of deeds in case of resale property Nil Encumbrance Certificate- EC ( if applicable) Copy of Sale Agreement / Draft Sale Agreement Copy of Stamp Duty Receipt Copy of Registration Receipt Copy of Building Sanction Plans Copy of Chain of Agreements (if any) Copy of Share Certificate (if Society formed) Copy of Payments Receipts made towards the Property Copy of Allotment Letter from Builder (if allotted)

Home Loan Eligibility

Indians with a regular source of income, which includes salaried individuals, self-employed professionals, self-employed business people, NRI individuals and existing property owners who can pledge it as security for the loan, are all eligible for a home loan.

A lender needs to be sure that you are capable of making repayments on your loan. The lender before giving a home loan will take a thorough look at your income statements, your assets and liabilities, your credit history to see how you handle repayments on credit cards and other existing loans, your education and work experience to see how qualified you are to meet your professional and financial goals and whether you can really afford a large debt burden like a home loan. There are numerous factors that banks take into consideration when computing home loan eligibility. The important one’s are :

 

Eligibility Criteria

Age of the applicant - The age of the applicant matters as paying a home loan is a long term commitment. And banks have to ascertain how long you can pay off the EMI. A person in his 30’s can pay the loan for next 30 yrs, but a person who is 50 yrs old will retire at 60 and has just 10 yrs in hand and in that case, he can get a loan for lower amount compared to more younger person.

Credit History : Your past credit history and repayment record has direct impact on your loan eligibility. If someone has a bad repayment record, then he/she might not get the loan itself. But in some cases where bank considers the application it might happen that they only approve a certain percentage of the eligibility

Profession, and continuity of your employment. Some professions are categorized as negative or risky by the lenders. People in such professions may find it difficult to get a loan sanctioned. On the contrary, some jobs are considered more stable with lesser probability of default. They are on the preferred list of most lenders

Current obligations i.e. the other Instalments ( EMIs) one is currently paying, the number of credit cards and credit limits one have or use,

Property Being Purchased : The lending bank or institution will also consider which property one is buying. In the event it is a property under construction by a developer, the credibility of the developer and past performance on their projects will also determine how much the lender is willing to lend against such a property.

Current Income, Savings The standard method used to assess your home loan eligibility is the application of FOIR (fixed obligation to income ratio). This is an important calculation for the bank for this is the way to understand what your other obligations are as a borrower. To calculate the FOIR the lender takes into consideration all the other monthly instalments a borrower is paying including the home loan that he has applied for. However, the statutory deductions from your salary like provident fund, insurance premium payments are not taken into consideration in this calculation. There are some lenders who assess the eligibility of a borrower on the Gross salary where by the statutory deductions are taken into consideration.

As a thumb rule, banks will lend to applicants who can set aside 40% to 65% of their monthly income towards their home loan repayments. Based on this, an individual’s loan eligibility is calculated. It is assumed that a person who earns more can set aside more money towards his EMI repayments. In other words, it means that if one needs around 50% of his income to meet his personal expenses, the other half is committed towards fulfilling his fixed obligations including the home loan.

If one has additional income like Incentives, Overtime, LTA, Medical Reimbursements, Car Allowance etc. then it is averaged out to per month’s income & only 25% to 50% of the same is considered for eligibility. If you have any ongoing obligation then it is deducted from the appraised income, this amount is then divided by EMI per lacs for the considered term, and the arrived figure is the eligibility in lacs.

 

Example shown below

Net Salary pm after tax deduction = 80,000/- Averaged out incentive pm = 20,000/- Averaged out LTA pm = 2,000/- Current Personal Loan EMI = 5,500/- Loan Calculation based on the above information: 50% of Net salary = 40,000/- 25% of Incentive = 5,000/- 25% of LTA = 500/- Appraised Income = 45,500/- Appraised Income [-] less] ongoing EMI = Final Income to be considered. 45,500 [-] 5,500 = 40,000/- Suppose the loan is @ 10% for 20 years; then EMI per lac @ 10% for 20 years is Rs.965/- The eligibility would be Final Income / EMI per lac for the tenor. 40,000 / 965 = 41.45 lacs

Hence, the eligibility is Rs. 41.45 lacs @ 10% for 20 years Every banks has its own method for calculating eligibility. It is advisable to check the eligibility with the concerned person.

The simplest way to increase your loan eligibility is by increasing the loan tenure. But the loan tenure is directly dependent on the age of the applicant. As the age increases the borrowing capacity decreases. Applying jointly, with your parent or spouse, increases loan eligibility.

 

Types of Home Loan

 

Home Construction Loan

These loans can be availed by those individuals who want to construct a house according to their wishes instead of purchasing an already constructed one. The loan application and approval process for home construction loans are somewhat different from those of the commonly available housing loans. The plot of land on which the borrower wishes to construct the house should have been bought within a year for the cost of the land to be included as a component for calculating the total price of the house.  The borrower has to make a rough estimate of the cost that will be incurred for the construction of the house and then apply for the loan with the same amount.

 

Land Purchase Loan

Land Purchase Loan is provided to consumers buying a plot of land and   maybe to build a house later on. A loan for the purchase of land gives opportunity for individual customers to purchase a residential plot of land to do self-construction. The land purchase loans are normally provided for land purchase within municipal limits or if the land is allotted by development authority.

 

Home Conversion Loan

Home Conversion Loan is a loan wherein the borrower has already taken a home loan to finance his current home, but now wants to move to another home. The Conversion Home Loan helps the borrower to transfer the existing loan to the new home which requires extra funds, so the new loan pays the previous loan & fulfills the money required for new home

 

Bridge Loan

 Bridge loans are short term loans which are availed by people who already own a residential property but are planning to buy a new house. It helps borrowers to fund the purchase of the new house until a buyer is identified for the old house. These are loans that help the customer to bridge the gap between the new plot purchased and old one that has been sold. The difference of amount between the two is funded by bridge loans. It is extended for a period of less than two years and requires the mortgage of the new house with the lender.

 

Home Extension loan

Home expansion or extension loans are given out to cover expenses in relation to situations where people want to expand their existing house. Expansion includes alteration in the current structure of the residence to add extra space such as constructing a new room, a floor, a bigger bathroom or enclosing a balcony.

 

Home Purchase Loan

The home purchase loans are the most popular and the most commonly available home loan variants. These loans can be used to finance the purchase of a new residential property or an old house from its previous owners. In this type of loan also, lenders usually finance up to 85 percent of the market value of the house. These loans are provided either on fixed interest rates or floating interest rates or as hybrid loans.  Hybrid loans are home loans that have both floating and fixed components as is ideal for those who are uncertain about the changing interest rates. Based on your risk appetite, the major percentage of the loan can be under fixed interest rates or floating interest rates.

 

Balance transfer loan

Balance transfer loan is basically a home loan to pay off an existing home loan as this enables you to avail a loan with a lower interest rate. As per the RBI guideline, banks now do not charge any pre-payment penalty for foreclosure of the loan.

 

Home Improvement loan

These loans are funded for executing repair works and renovations for a home you have already occupied. The loan covers expenses incurred on all kinds of renovations and repair works including internal and external painting, external repair works, electrical work, waterproofing and construction of underground or overhead water tank and so on.

Home Construction Loan

These loans can be availed by those individuals who want to construct a house according to their wishes instead of purchasing an already constructed one. The loan application and approval process for home construction loans are somewhat different from those of the commonly available housing loans. The plot of land on which the borrower wishes to construct the house should have been bought within a year for the cost of the land to be included as a component for calculating the total price of the house.  The borrower has to make a rough estimate of the cost that will be incurred for the construction of the house and then apply for the loan with the same amount.

Land Purchase Loan

Land Purchase Loan is provided to consumers buying a plot of land and   maybe to build a house later on. A loan for the purchase of land gives opportunity for individual customers to purchase a residential plot of land to do self-construction. The land purchase loans are normally provided for land purchase within municipal limits or if the land is allotted by development authority.

Home Conversion Loan

Home Conversion Loan is a loan wherein the borrower has already taken a home loan to finance his current home, but now wants to move to another home. The Conversion Home Loan helps the borrower to transfer the existing loan to the new home which requires extra funds, so the new loan pays the previous loan & fulfills the money required for new home

Bridge Loan

 Bridge loans are short term loans which are availed by people who already own a residential property but are planning to buy a new house. It helps borrowers to fund the purchase of the new house until a buyer is identified for the old house. These are loans that help the customer to bridge the gap between the new plot purchased and old one that has been sold. The difference of amount between the two is funded by bridge loans. It is extended for a period of less than two years and requires the mortgage of the new house with the lender.

Home Extension loan

Home expansion or extension loans are given out to cover expenses in relation to situations where people want to expand their existing house. Expansion includes alteration in the current structure of the residence to add extra space such as constructing a new room, a floor, a bigger bathroom or enclosing a balcony.

Home Purchase Loan

The home purchase loans are the most popular and the most commonly available home loan variants. These loans can be used to finance the purchase of a new residential property or an old house from its previous owners. In this type of loan also, lenders usually finance up to 85 percent of the market value of the house. These loans are provided either on fixed interest rates or floating interest rates or as hybrid loans.  Hybrid loans are home loans that have both floating and fixed components as is ideal for those who are uncertain about the changing interest rates. Based on your risk appetite, the major percentage of the loan can be under fixed interest rates or floating interest rates.

Balance transfer loan

Balance transfer loan is basically a home loan to pay off an existing home loan as this enables you to avail a loan with a lower interest rate. As per the RBI guideline, banks now do not charge any pre-payment penalty for foreclosure of the loan.

Home Improvement loan

These loans are funded for executing repair works and renovations for a home you have already occupied. The loan covers expenses incurred on all kinds of renovations and repair works including internal and external painting, external repair works, electrical work, waterproofing and construction of underground or overhead water tank and so on.