Home Loan Check List – What are the things you should keep in mind while taking a home loan?

What are the things you should keep in mind while taking a home loan?

In general, you take home to buy a flat/house, plot, or renovation/construction.

Many times home loans are also taken for the enhancement or repair of the house. Here we are giving you all the necessary information about the home loan.

How much loan can you take?

• Before finalizing the property or starting the process of home loan, evaluate how much loan you will get based on your & your family’s monthly net income & your ability to repay it. It is also depending on your net monthly expenses, assets, liabilities & income stability.
• Banks initially will check whether you will be able to repay your housing loan on time or not. The more money you have in your pocket each month, the higher your home loan amount will increase.
• Usually, a bank or lending company sees whether you will be able to give 50 percent of the monthly income as a home loan installment or not.
• The loan amount will be defined on the basis of your home loan tenure, the rate of interest, and the age of the borrowers.

What is the maximum home loan you can take?

• 10 -20 percent down payment has to be paid of the cost of a house/flat
• This would be your own contribution.
• According to margin money, you can avail 80-90% loan amount of the property value. It can include other charges like stamp duty, registration, GST, etc.
• The bank will sanction you the maximum loan amount, but according to your requirement, you can avail of the loan amount you desired.
• While buying a property, you should make a maximum down payment so that the loan burden is minimized. Keep in mind that the bank lending on the home loan charges you a lot of interest over a long period.

Is it necessary to apply for a home loan?

Yes, in most situations, a co-applicant is required. If the property is in the names of two people, then in that case both of them must be included in the home loan as well. Anyone from your family can be the applicant or co-applicant if you are the owner of the property.

What are the documents required for home loan approval?

The home loan application form includes a list of papers that must be attached.

Along with this, you have to put a photo. From legal documents for buying a house, the bank has to give you the salary slip (office attested and self-attested) along with identity and residence proof and the bank statement for the last six months along with Form 16 or Income Tax Return.

Some mortgage lenders may additionally need life insurance policies, share certificates, NSCs, mutual fund units, bank deposits, or other financial documents as pledge/collateral.

What is Home Loan Sanction and Disbursement?

• According to the documents, you will submit, the bank will define whether you are eligible for a loan or not.
• If your loan is sanctioned by the bank on the basis of the documents, you have submitted, then the bank will issue the sanction letter where all the information will be mentioned like terms & conditions, rate of interest, tenure, etc.
• When a loan amount will credit to your or seller’s accounts, it is called disbursement. This actually happens after the technical, legal, and valuation-related process is completed.
• You can decide to take a loan less than the amount in the sanction letter. You must present an allotment letter, a photocopy of the title document, a sale agreement, and an encumbrance certificate when applying or getting the loan.
• From the day the loan amount came in your hand, interest is charged on it.

How will you get the loan amount?

• A home loan is given to you in a lump sum or in installment.
• There can be a maximum of three installments in this.
• In case you are purchasing the property from the builder/developer & the property is under construction, then the loan amount will be disbursed to the builder/developer according to the progress/stage of construction.
• In the case of ready-to-move properties, the loan amount can be availed in a lump sum.

What are the interest rate options on a home loans?

The home loan rate of interest can be fixed or reducing basis, it will change from time to time.  the interest rates are fixed in advance and in Flexible it keeps on changing.

What is the Marginal Cost of Funds Based Lending Rate (MCLR)?

• This is a new method invented by banks to fix interest rates on home loans. Earlier banks used to fix interest rates based on the base rate. Now the loan is available only at the rate based on MCLR.
• In MCLR mode, banks fix the MCLR rate every month for one day, one month, three months or six months, one year, three years. After this, banks decide the interest rate by adding the spread component to it.
• For example, if the MCLR rate of a bank is 8 percent for one year and its spread is 0.5 percent, then in reality the interest rate on the loan will be 8.5 percent.
• In the case of MCLR based interest rates, banks can reset them in a year.
• In this era of decreasing interest rates, a quarterly, half-yearly reset option is better, on which your bank should be ready. If interest rates start rising, then in this case you may suffer a loss.

What is Base Rate and what to do if your Home Loan is linked to it?

All home loans taken after July 1, 2010 (but before April 1, 2016) are linked to the base rate. In this case, banks are free to calculate the cost of funds on the basis of average cost of funds or MCLR.

What is Base Rate and what to do if your Home Loan is linked to it?

All home loans are taken after July 1, 2010 (but before April 1, 2016) are linked to the base rate. In this case, banks are free to calculate the cost of funds on the basis of the average cost of funds or MCLR.

What are the costs involved in a home loan?

• When you take a home loan, you don’t just pay the loan installment.
• There may be a processing charge of up to 1% of the loan amount, which is sometimes waived by banks.
• Legal & technical charges are there. In the case of more costly properties, two appraisals are performed and the loan is approved based on the lesser assessment.
• Lending institutions use a third party to review the borrower’s paperwork. This fee may be included in the processing costs, or it may be charged separately.
• Franking/stamp duty government charges are 0.30%
• Stamp paper & Notary required on some of the papers.
• Notice of Intimation has to be done within 15 days after disbursement.

What is the home loan monthly installment?

The amount you pay to the bank every month consists of both interest and principal, this is called Equal Monthly Instalment or EMI

How the home loans can be repaid?

There are several ways to repay the home loan to the bank. Loan outstanding can be repaid to the bank through Electronic Clearance System (ECS), you can ask your employer to deduct this amount from salary and pay it directly to the bank or by giving a post-dated check from the salary account.

How does the home loan amount change?

The instalment you pay every month consists of the principal amount along with the interest.

This principle is taken from your total principal amount. In reality, your interest rate drops while your principal amount grows each month. Most banks use a monthly decreasing balance method.

Can you close the home loan prematurely?

You can also pay off your house loan before the end of the term. If you are in floating interest rate, then no charge is taken for it, whereas in fixed rate banks can levy charges.

What is a part prepayment of a home loan?

Apart from the regular installment, when you deposit any amount in the home loan account, it is a partial payment. This decreases your principle, lowering the interest component of each monthly payment.

This might shorten the term of your home loan and save you money on interest payments.

Do banks issue documents for every installment paid every year?

This sort of paper is sent to you by banks every year. This statement helps you to know about the home loan. Many banks also allow you to download it online.

Should I get insurance for a home loan?

It is always better to cover the risk of this home loan. It can be a big relief for your family in case of your absence due to some reason.

For this, you can choose between a pure term plan and a mortgage insurance plan. This sort of plan offers both single and regular premium choices.