You may have heard of the saying “Home Sweet Home”! A home is a happy place where you and your loved ones can relax, feel safe and be yourself. Everyone wants to own a place called home; to achieve this; you may have to approach a financial institute for assistance. The financial institutes will provide a home loan to you to accomplish this goal. However, after looking at your financial status and other considerations, they will do this at a cost. Therefore, like the financial institutes, you should also do your due diligence and increase your knowledge before taking up such a loan.
What is a Home Loan?
A home loan is a secured loan acquired from a bank or financial institution to buy real estate using the property as collateral. Depending on the form of the loan, the borrower must repay the loan amount with interest in Easy Monthly Installments (EMIs) over a period ranging from 10 to 30 years.
Different Types of Home Loans
The many kinds of house loans offered include:
- Loans with a Variable or Floating Interest Rate:
Floating interest rates, also known as variable interest rates, are subject to the current lending rates and may alter over the loan term. Therefore, your EMIs will fluctuate with this type of interest rate.
- Loans with a Fixed Interest Rate:
The interest rate on a fixed-rate loan is determined when the loan gets obtained. This interest rate is fixed for the entire duration of the loan.
- Hybrid or Combination Loans:
Hybrid or Combination interest rate loans combine variable and fixed rates. Mostly, many lenders provide a fixed interest rate for a specific term that may change to a variable rate in the future.
List of Things to Know Before Applying for a Home Loan
Before you apply for home loan, you should examine the following typical factors:
1) Credit Rating:
A customer’s credit score is one of the most significant and critical elements that banks assess before extending credit. A solid credit score is a prerequisite for applying for any loan within the banking industry, including a mortgage loan. Therefore, it is essential to have a CIBIL score of at least 750 to be eligible for a more considerable loan amount and to get the loan with reduced interest rates.
2) Conduct Thorough Research:
A mortgage is a long-term obligation, and you will likely pay EMIs for at least 20 to 30 years. Therefore, you must find the correct lender that provides the most significant housing loan packages. Your research should include a loan’s down payment, the interest rates, the monthly payments, and the payback time.
3) Loan Tenure:
Depending on your qualifications, these types of loans are often available for a loan term of up to 30 years. The extended loan term reduces monthly payments but eventually raises the total amount of interest paid. Choosing a shorter loan term might result in enormous monthly payments. Therefore, choosing an appropriate loan term is recommended to make your monthly payments more manageable and avoid paying excessive interest.
4) Interest Rate:
Everyone should compare bank and financial institution interest rates. Anyone wanting the best home loan should get the lowest rates possible. Before that, know the types of interest rates available and when to use them. Choose a fixed-rate loan if the interest rate is modest but expected to climb. With lowering lending rates expected in the future, pick a variable rate. When you receive a loan with a low-interest rate that may rise after a specified period, a combination interest rate may be a wise decision.
5) Initial Down Payment:
The portion of the loan that you pay on your own is known as the down payment. It would be best to make as much of a down payment as possible without straining your finances since this will reduce the instant home loan amount. In addition, the smaller the borrowing amount, the less interest you will have to pay. Several banks provide loans for the home’s total value depending on your loan qualifications. To prevent paying exorbitant interest and ensure a manageable monthly payment, you should make a 10% to 20% down payment.
6) Documentation:
The documentation you will have to submit to the bank or financial institutes has been segregated into KYC, income, and property documents.
- a) KYC Documents:
These are your proofs of identification, age and address.
- Copy of PAN Card
- Passport Photocopy
- Copy of Aadhaar Card
- Copy of Voter ID card
- Copy of Driving License
- Birth Certificate Photocopy
- Tenth Grade Marks Sheet Copy
- Bank Passbook Copy
- Copy of Ration Card
- Utility bills Photocopy
- b) Income Documents Required to Apply for Housing Loan:
For Salaried:
- Form 16
- Letter of Employment
- Payslips for the last two months
- Letter of Increment or Promotion
- Three-year IT returns
For Self-Employed:
- ITR of the past three years
- Balance Sheet and Profit and Loss Account Statement fully certified by a C.A.
- Business License Details
- The Professional Practice License
- Certificate of Incorporation of Establishment
- Proof of Business Location
- c) Property Documents:
- Payment Receipts from the developer
- Allotment Letter / Buyer Agreement
- Deeds of Title containing the chain of preceding property papers
- A copy of the sales contract
- Title deeds of the land in case a house is built
- A thorough building estimate by an architect or civil engineer
- A copy of the authorized plans by the local authorities
- Non-Encumbrance Certificate
Conclusion
The purchase of a home is a significant milestone and one of the most rewarding experiences anybody can have in their lifetime. If you want to purchase the house of your dreams with a home loan, you must research before making that decision. If you carefully consider each of the aspects discussed above, you will be able to narrow down the available options and zero in on the one that is the most suitable for your requirements. Getting a loan is an excellent method to go one step closer to becoming a homeowner.
