JOIN USYou need to do your homework, keep all the relevant documents ready and be in the know about the various standard procedures. Bienu Vaghela briefs you on all the essential aspects of applying for a home loan, to make the process a little less cumbersome.
Are you contemplating buying your home sweet home sometime soon? I hope you have a good six months to go before applying for your home loan, because that’s how much time you need to ensure that everything will be smooth sailing.
Let me give you the analogy of board exams, where dedicated preparation of at least six months is required for the desired results. Home loan is all about homework and hard work.
It is not a cakewalk as many people might make it out to be. You need to prepare yourself well for the volley of questions and enquiries that will spring from your lending institution. Here are a few pointers, which will help you get ready for your home loan process.
A pre-requisite to seeking loans is to make sure that you have decided on the property you want to purchase. You also need to do thorough preparation with regard to selection of your property. You need to be entirely sure that this is what you want to buy. That it satisfies all these parameters - location, amenities, infrastructure, budget, quality, pricing. And then begins your search for funds.
Show me the money
As a first step, take a look at your credit report. If there are any discrepancies in it, take time to address them and also focus on improving your credit score. This is
because the higher your credit score, the better your chances of being viewed as a meritorious applicant.
In the meantime, take stock of your finances. Sit down with your significant other/family and think through a few pertinent questions: Would you be able to run your household smoothly or honour your financial commitments along with these EMIs? Do you have EMIs for any other loans? Are you close to your appraisal? Are you contemplating a job change in that period? Do you fear job loss owing to some macro or micro level scenario? Are you expecting some major flushing of funds due to some family occasion or new addition in your family? Do keep in mind that all this and much more is at play when you meet with your banker.
Take stock of the savings you have made and take projections of savings you would be able to generate in the coming months for making the down payment. Once you are done with that, use some effective and reliable search comparison engines to look for banks and Housing Finance Companies to know the most competitive home loan rates, product features, repayment model and tenure that would be ideal for your home loan.
Eligibility factor
Now come some more pertinent questions that stress out most home loan applicants: How much home loan would I be eligible for? Is my corpus enough for down payment? Will there be some hidden costs involved?
What you should know is that lenders normally finance up to 80 per cent (maximum) of the agreement value (excluding stamp duty and registration charges) of the property.
The final loan amount is dependent on a host of other factors like income and regular outgoings, repayment track record, valuation of the property by the lender and the like.
Normally, the lender will assume around 40-45 per cent of your net salary as available for payment of EMI to serve all the loans, though it varies with each lender and there is no standard norm or formula. Hence, your existing loans (if any) will also have an impact on your loan eligibility and the lender will calculate the eligibility based on the existing outstanding amount and the EMI being paid at the time of loan application. To increase the eligibility amount, you can add your earning parents/spouse/children and in some cases, brothers, as co-borrowers to the loan.
Know your ‘interest’
Be prepared for another round of questions from your lender, with regard to the interest rate: fixed, floating or even both at the same time. To clarify things here, know that very few lenders offer “fixed” interest rate that remains fixed for the entire duration of loan.
Some lenders do offer semi-fixed loans, also known as “dual” rate, where the
interest rate remains fixed for one to five years and then gets converted to a floating rate of interest. In “floating” rate, the rate of interest fluctuates with market
conditions.
The rate of interest is tied-up with the Base Rate (BR) of the bank or Prime Lending Rate (PLR) of the Housing Finance Companies and gets affected whenever there are changes in the repo rates announced by RBI or any changes in BR/ PLR of the lender.
Since the home loan is taken for a reasonably longer period, it is advisable to opt for floating rate of interest and not for fixed rate, unless you feel that the rates of interest are at the lowest in the interest cycle at the moment.
Overhead-ready
Prepare yourself well for non-refundable costs, which you may have to incur while procuring your home loan - think processing fee, administrative fee and legal fees payable to the lender/legal consultants of the lender and stamp duty on creation of mortgage, among other things.
Now comes the rigmarole of putting all the documents in place, which you would be required to be ready with before meeting your prospective lender. While they may differ from bank to bank, broadly every lender would ask you to furnish the following documents:
Proof of identity:
PAN Card/ Passport/Driver’s License/Voter ID Card/Aadhaar card
Proof of residence: Telephone bill/ Electricity bill/Credit card statement /Driver’s License/Ration Card/ Aadhaar card
Account statement:
l Statement of bank account for the last six months
l Loan account statement for last one year (If you have availed any previous loan)
Income documents for salaried individuals:
l Form 16 or IT returns – last two years
l Employer certificate, appointment letter, increment letter, etc.
l Copy of employee ID card.
These are just some of the many things you need to have at hand. There are still many more documents that will have to be produced and verified through the process. Be
prepared for a lot more queries, phone calls and verification in person by bank representatives.
Bear with the thorough procedures and have a little patience. All of this takes you a step closer to your dream home. And it’ll be worth the effort when you, finally, walk into your home sweet home.
(The author is a personal finance expert)