- What is a home loan and what are the different types of home loan?
When you want to buy a home, you cannot fund the whole property value. So, you go to certain lenders for borrowing the amount at a certain rate of interest, for a particular period to repay in installments. This is termed as home loan. In general, loan taken to buy a home.
There are five types of home loans popular in India.
- Land Purchase Loan– There are many people who are interested in buying a plot of land and then constructing a house, land purchase loan helps you buy land. Most banks provide 80%-85% of amount but this loan does not shield you from tax.
- Home Improvement Loan- If you want to renovate the house like painting, plumbing, electrical work etc. you can opt for this loan.
- Home Conversion loan – If you have a home but are interested in buying a new house this is your best bet. With this loan, you can transfer the current loan to the new home but this loan is a bit expensive when it comes to interest rate.
- Home Construction loan – People who are willing to construct their own house can avail this loan. The customer has to submit the entire cost of construction along with application for the bank to review and approve it.
- Home Purchase Loan – This loan is for those who are willing to buy a new home or flat. Apart from simplifying your home buying dream, this loan also gives you tax benefit under section 80C and Section 24(d) of Income Tax regulations. Banks sanction loan for 80%of the total worth of the property, the remaining 20% which is the down payment has to be paid by the borrower.
2. What is the criteria to be fulfilled to get a home loan?
You need to fulfill the following parameters of the bank in order to get your loan successfully sanctioned:
- Salary and ITR– Salaried individuals have better prospects of getting their loan approved especially the ones who have higher salary. Also you need to submit ITR to prove your credibility.
- Age: The minimum age limit prescribed by the banks is 21 years for loan application
- Credit history or CIBIL rating – Credit rating plays a key role in getting your loan approved by the bank. A strong credit history means better prospect of loan sanctioning.
- Professional stability – Individuals with a good professional background work experience is considered good and hence has better chances of getting loan. Higher the salary of an individual, the more are the chances for greater eligibility of a loan amount.
- Property check– Banks and HFCs carry out the property verification to see if the prospective property is ideal as per their defined technical and legal specifications.
3. Who is a home loan nominee?
Nominee is a person who is entitled to become the owner of the property when you are no more. This concept comes into picture when you insure your home loan in case you pass away. The outstanding amount is paid by the insurance provider and your nominee becomes the new owner of the property.
4. Who can be a home loan co-applicant?
A co-applicant is a person who applies for loan along with the borrower. This is done to show as a supplement to the borrower’s income so as to increase the eligibility. Banks and HFCs allow only certain relations to be co-applicants and it includes the following:
- Father and Son
- Unmarried daughter and father
- Unmarried daughter and mother
- Brother and brother
- Husband and wife.
5. What are the benefits of having a co-applicant?
The benefits of having a co-applicant include the following:
- Increases the probability of loan approval
- Helps you to get bigger loan amount sanctioned
- Tax benefits to both applicant and co-applicant
6. Who Is A Home Loan Guarantor?
A guarantor is a person who vouches your credibility before bank or HFCs. A guarantor is someone who agrees to pay the debt in case the borrower is not able to do so. Also, banks ask the guarantor to be someone from the family or a good friend. A guarantor has to submit the fowling documents:
- Income proof in the form of salary slip
- Property documents
- PF details
This is done to see the capability of the guarantor whether he/she will be able to repay the home loan in case of default of the principal borrower.
7. Is home loan guarantor and co-applicant same?
Do not confuse home loan guarantor and co-applicant the same. A guarantor’s role is assuring the credibility of the borrower before the home loan provider and to repay the loan in case the borrower goes rouge.
On the other hand, the co-applicant applies for loans along with borrower and reaps the benefit of tax. Presence of co-applicant helps in increasing the home loan eligibility amount whereas this is niot the case iwth a guarantor.
8. What Is Home Loan Collateral?
Home Loan Collateral is the security against which the banks or HFC will sanction the home loan. It is also known as asset-based lending or secured lending. It protects the home loan provider against home loan defaulters. The property you are willing to buy can also serve as home loan collateral , in case the borrower fail to repay home loan the home loan lender will take the possession of the property.
9. How much amount is usually sanctioned on the amount of the property as a home loan?
Banks and HFCs usually sanction the loan of 80%-85% of the total cost of the property.
10. On what salary is the home loan eligibility calculated? Gross or net?
Some lenders take the Gross salary into consideration whereas some take net salary. If gross salary is considered, the loan eligibility amount will be comparatively more as the gross salary figure is higher than the net salary’s.
11. What are the different documents required for a home loan?
The following table shows the different documents required by the banks and HFCs from salaried, self-employed and non-professional individuals:
|Salaried Customers||Self Employed Professionals||Self Employed (Non Professional)|
|Duly signed application form by all applicants with recent photograph.||Duly signed application form by all applicants with recent photograph||Duly signed application form by all applicants with recent photograph|
|Age proof, ID proof and residence proof .||Age proof, ID proof and residence proof .||Age proof, ID proof and residence proof .|
|PAN card details of all the applicants||PAN card details of all the applicants||PAN card details of all the applicants|
|Salary slip of last 3 months||Proof of educational qualification and business existence proof||Business existence proof|
|Form 16 / Income Tax Returns||Income tax return of last 3 years and computation of income||Business profile|
|Bank statement of last 6 months||Balance sheet of last 2years which is certified by CA along with profit and loss account.||Income Tax Return of last 3 years along with computation of Income|
|Balance sheet of last 2yeras which is certified by CA along with profit and loss account.|
|Processing fee cheque||Bank statement of last 6 months||Last 6 months bank statements (self and business)|
|Processing fee cheque||Processing fee cheque|
12. What are the additional charges for a home loan?
The home loan applicant has to pay the following fees apart from down payment:
- Processing fee– This is usually a non-refundable amount charged by the banks to process the loan applications. Some banks and HFCs charge a percentage of loan amount while others have flat processing fee.
- MODT charges or Memorandum of Deposit of Title Deed- This is an acceptance from the borrower that he/she has submitted title documents of property with the bank. Government levies stamp duty on this and the amount varies from .1%-.2% of the loan amount.
- Legal verification charge- Once the documents are submitted for loan approval, the banks and HFCs gets the legal verification of the documents done. A team of legal and technical expertise is deployed by the banks. Some financial institution includes this fee in processing fee while other charges it separately.
- Loan conversion charge– This charge is levied by the bank in cases where you are converting floating interest rate into fixed or vice versa. The conversion rate charged by banks and HFCs usually varies from 0.5% to 1% of outstanding loan amount.
- Late Payment charges – In case the borrower is not able to repay the home loan EMI on time, the banks may charge a penalty in the form of late payment charges
- Miscellaneous charges– Banks- service charge, cancellation charges, cheque bounce charges etc. are a few charges levied by bank.
13. Costs Not Approved By Banks as Part of A Home Loan?
Stamp duty charges, registration charges and other documentation charges are not included in the home loan amount.
13. What is the average time taken for the disbursal of the loan amount?
It takes approximately 20-25 days for completion of formalities and loan disbursement.
14. Who are the different types of home loan provider?
There two major home loan providers:
- Bank (nationalised and private)
- HFCs (Housing Finance Companies) / NBFCs (Non-Banking Fianance Companies)
15. When can you go for a nationalized bank?
Nationalized banks are more reliable when compared to any other lender. Also the interest rates are lower and the customers can expect an immediate interest rate change when the RBI executes the rate cut. One can opt for national banks only with an understanding that it takes time to get the things done faster.
16. When can you go for an NBFC or a private bank?
Private banks and NBFCs work faster and accessible. Also some NBFCs provide loan for 90% of the property value. If you are in a hurry and need more funding to buy a home, opt for an NNFC or a private bank. But one should be careful while choosing the bank with respect to the interest rate.
17. What is part payment?
Apart from the EMI, if you wish to pay huge amount to the lender to reduce the principal amount, then it is termed as part payment. Usually, the lenders don’t charge on the part payment. Scheduled part payments, quarterly, half-yearly aor annually, can infact, reduce the principal amount and help you in closing the home loan faster.
18. What is prepayment?
Housing Loan prepayment is the full payment of the outstanding loan amount in one single payment so as to close the loan before the scheduled tenure. There are no prepayment charges levied by any of the lenders as per RBI’s rule.
19. Is prepayment and part payment same?
No. Prepayment refers to paying the whole outstanding amount in order to close the loan earlier than the estimated tenure. Whereas, partpayment refers to apart from paying the EMIs, paying a particular amount to the lender to reduce the outstanding principal amount.
20. What is balance transfer?
It is the transfer of the unpaid principal loan amount to another lender fro different reasons. Usually you transfer your outstanding loan amount to another lender if you are not satisfied with the existing lender with respect to the rules or interest rate. If you have been regularly paying your EMIs banks easily let you avail this facility.
21. Do you know the relation between EMI and tenure of a home loan?
EMI and home loan tenure are inversely related. The longer your home loan tenure, lesser is the EMI and vice versa.
Here is an example to illustrate the same:
For example you have taken a home loan of Rs. 50 lac for a period of 30 years then the EMI paid by you is 43,694 at the interest rate of 9.95% but if this tenure is reduced to 25 years then the EMI shoots to 45,259.
22. What are the different home loan penalties?
Loan Prepayment: In case you are prepaying your home loan, banks might charge up to 2%of total outstanding loan amount. This is only in certain cases say, prepayment after immediate six months of loan disbursal.
Missing EMIs: Missing your EMIs might put you in the list of defaulters and in such cases when you skip 2 or 3 EMIs banks will intimate you about paying the EMIs which if ignored will make you face the legal notice and make you a defaulter. This can make bank initiate possession of your property or might out your property for sale , it can also adversely affect your credit score.
23. What Is Home Loan Foreclosure and what are the factors to be considered?
Home loan foreclosure or prepayment means closing your home loan before the completion of tenure for which you had taken it. In order to foreclose the home loan, you need to consider the total EMIs paid by you , it helps you in estimating the foreclosure amount. You can now check your foreclosure amount by using foreclosure calculator , to do so you need the following information handy with you :
- Total loan amount
- Home loan tenure
- Rate of interest
- EMIS already paid
- Foreclosing month- it’s the month in which you want to foreclose your home loan.
24. What is an amortization schedule?
It is a table which contains all the details of home loan. The table shows the amount borrowed and the period for scheduled payment. It gives you information about the principal amount, outstanding amount, interest rate, tenure, EMI and how the EMI is divided into interest component and principal component. It also includes the tax payments or insurance payments that the borrower makes.
25. What are probable reasons for home loan application rejection?
There are various reasons for home loan rejection, some of them include:
- Poor CIBIL rating
- Insufficient salary or monthly income
- Low work experienced
- Too many dependents
- Unsatisfactory educational qualification
- Previously rejected home loan
- Error while filling the application form and unsatisfactory verification
- Old property
- Processing fee cheque bounce