Planning to Buy a House?
Everyone knows, Buying a House requires a Huge investment and depends on your personal goals.
Most people can’t afford it because the rising cost of housing can impact on their income.
But that’s not all…
As real estate prices in India continue to soar, buying a home seems a distant pipe dream for millions of people.
The good news is:
Your dream can be fulfilled easily nowadays!
“India is home to thousands of banks and Non-Banking Finance Companies that offer Home loan on fairly soft terms to people from salaried and business class”.
Banks and NBFCs are vying among one-another to grab more customers. Hence, you can get home finance at rather attractive interest rates and repayment plans nowadays.
Step-by-step Guide to Get a Home Loan in India:
Step-1: Do Your Homework
Before venturing to get a home loan, it is advisable you do some excellent homework.
- Find out which banks and NBFCs are offering the lowest interest rates.
- How much Home Loan you can get.
- Home Loan Eligibility based on salary
Home loans interest rates in India are offered in two interest schemes: Fixed Interest, where you pay a pre-decided interest on the borrowed amount while the part is on Floating Interest basis.
The second is Floating Interest, where you pay variable rates of interest during the loan duration.
If the Reserve Bank of India increases or decreases lending rate for loans, your EMI goes high or low.
The second most important homework is to ensure that a property you wish to buy is eligible for housing finance.
This means the property has to comply with all laws stipulated by the Indian government as well as the bank or NBFC to qualify for funding.
Read more: 13 Key Difference Between NBFC and Bank
Step-2: Single Home Loan
This is a dilemma that most first-time home loan applicants will face. You can apply for a home loan from any bank or NBFC either singly or jointly with your spouse or parents.
When you apply singly, only your income, assets and liabilities will be considered by the lender.
Based on your salary slip, bank statements and other calculations wrap to Home loan calculator, the lender will inform how much money you can get a home loan.
Equated Monthly Installments (EMIs) Calculator will be calculated on basis of your income and liabilities only. You are solely liable for repaying the entire home loan.
Step-3: Joint Home Loan
Taking a joint home loan means the combined income and liabilities of spouse or parents and you will be considered by the lending bank or NBFC.
Based upon these parameters, a larger home loan can be granted. Though you get a larger amount of money to finance your home, every joint applicant will be equally liable for repaying the loan.
This means, if one of the applicants loses income for many reasons such as voluntary or forced unemployment, disability or death, the other partner continues to bear the responsibility of repaying the full EMI.
Of course, you can request the lender to review repayment schedules based on your new financial scenario.
However, rescheduled, lower EMIs may encumber the sole income of a household and land you in financial doldrums.
Step-4: Home Loan for Existing Property
This can be a tough call on first time home buyers seeking housing finance. Banks and NBFCs offer housing loans under two broad categories.
One is for existing properties. Existing properties include those beings sold by builders and previous owners. They can be in a new building or an old one.
The existing properties category also includes dwellings that are currently under construction. If you have already finalized a property for buying, you can apply for a home loan based on its price and the one-time down payment you can afford.
Also, calculate taxes and other incidental charges that are levied by various authorities and civic bodies while buying a new home or transferring deeds.
When you take a home loan for existing property or one under development, the lender will transfer the money to the seller’s account upon submitting the required legal documents and sale/ transfer deeds.
Step-5: Pre Approved Home Loan
The other category is Pre Approved or Pre Sanctioned Home Loan. In this category, you can seek a home loan from a bank or NBFC, without the need to identify a property.
This means you will be sanctioned a particular amount of home loan. This amount is calculated on basis of your income.
Armed with a Pre Approved/ Pre Sanctioned home loan, you can approach any builder or reseller and negotiate the purchase of the property.
Once you have signed the purchase deed, the required documents have to be submitted to the bank or NBFC. The Pre Approved home loan amount will be credited by the bank or NBFC to the account of the seller.
You can have a home loan pre-approved and begin paying Equated Monthly Installments (EMIs) before buying the house, in some instances.
This allows you to lessen your financial burden once you actually own a home.
Step-6: Home Loan Protection Plan
Home Loan Protection Plan or HLPP is the subject of fierce debate among finance experts. HLPP is an insurance policy that you buy by paying a single income.
However, some lenders deftly weave in the premium into your home loan EMI. HLPP is generally valid for a period of five years from the day your home loan is disbursed.
It is an insurance plan that covers the home loan repayment, in case of the borrower’s death. Thus the family members of a home loan taker do not have to worry about repaying EMIs.
The HLPP pays the remainder of the loan and the house gets transferred to the borrower’s legal heirs. According to some financial experts, Term Insurance Plans are better than HLPP.
They aver a term insurance that covers equal to more amount than the home loan helps borrowers better.
In case of their death, a Term Plan will pay the entire amount covered to survivors. They can utilize part of the insurance money to pay off the home loan while the balance can be saved for meeting personal needs.
You can opt for a home loan that includes HLPP or Term Insurance or takes one that does not make ensuring the borrower compulsory.
Step-7: Direct Debit Instructions
The best way to service a home loan is by giving Direct Debit Instructions to your bank where you receive your salary.
This can also be done in case of joint home loans. By direct debit, the bank will pay the fixed amount to the housing finance bank or NBFC on the specified date.
This means you do not have to visit the lender’s offices or branches to deposit cash or cheques every month and nor do you need net-banking facilities.
Step-8: Look for PMAY Schemes
Before taking a home loan, we suggest you look for housing projects that are approved under the Pradhan Mantri Awas Yojana scheme.
By availing a home loan under PMAY, you can get some attractive subsidies on the interest you will pay. Home loans under PMAY are available to people under
- Light Income Group (household income up to Rs. 600,000 per annum)
- Middle Income Group-1 (household income between Rs.600,000 to Rs. 1.2 million per annum)
- Middle Income Group-2( household income between Rs. 1.2 million and Rs.1.8 million per annum)
PMAY-based home loans are available from participating banks and NBFCs.
Documents for Home Loans
You will require several documents while applying for a home loan.
- Aadhar Card
- Permanent Account Number (PAN)
- Bank statement indicating salary or business returns of the last six months.
- Employment Certificate or Copy of Appointment Letter/ Job Contract
These documents are required for both- single as well as joint home loan applicants.
Additionally, you will require documents from a builder including
- Copies of land ownership deed on which the dwelling is based.
- Building Certificate issued by a municipal body or village administration.
- No Objection Certificate from various concerned authorities issued for construction f residential dwelling.
- Fire Safety Certificate to ensure the home you are buying complies with all requirements of the local fire brigade.
- Environment Clearance Certificate, which declares that the construction is compliant with environmental safety norms of the country.
- Occupation Certificate, a document that permits you to occupy the dwelling unit.
The list of documents you require from a builder to avail a home loan differs according to the location.
Further, banks and NBFCs have their own rules regarding documents that a builder has to provide for the dwelling to qualify for a home loan.
Read More :
- Top 15 List of Private Banks in India
- List of Top 15 Nationalized Banks in India
- Top 10 Cooperative banks of India 2018
Vital Advice for Home Loan
Before taking a home loan, ensure it is transferable. This means, if you have taken a home loan from Lender-A for a specific interest, it should be transferable to Lender-B if it offers a lower interest.
This can help you save considerable money due to floating interest rates caused by Marginal Cost of Lending Rate (MCLR) issued by Reserve Bank of India every three months.
In some instances, you can also extend the tenure of your home loan by transferring it to another lender.
However, you need to do some astute calculations before rushing to transfer a home loan.
Stepping up repayments on home loans is also advisable. Since income tends to increase, you can step up EMI repayment.
Through this method, you can pay much lesser interest to the lender.
Banks and NBFCs provide home loans very quickly, provided you have good credit ratings. The amount of loan is directly linked to your earnings and repayment capacity.
It varies with every bank and NBFC. Generally, housing finance lenders do not seek guarantors for giving a home loan: the property they finance for you remains their collateral.
This means, unless you repay the entire loan amount, the bank or NBFC has a legal claim to the house.
As mentioned earlier, getting a home loan in India is very easy, provided you know the steps.