Housing has always been one of the essential needs of a human being. The pandemic has made it all the more crucial for people to own a house; it has become our world as we are confined to our home sweet home.
Gone are the days when our parents saved throughout their lifetimes to buy a house. Even now, the majority of the population does not have the required money related help to possess a house. But, presently, if you want to buy a house, then you can easily avail a home loan. Does that sound all theory? No, it’s true, taking a home loan these days is relatively easy.
So, when you plan to avail a Home loan, then two aspects are essential
1) Your ability to pay
2) Asset value, i.e. property in this case
Ability to Pay:
While deciding on the loan amount to be sanctioned, Banks take into account your monthly cash inflows and outflows. So, from the total disposable income of the month, a certain amount is deducted for household expenses. This deduction varies from 30-50% depending on the income amount.
Any ongoing EMI’s are also reduced from this monthly income, and then the balance amount is considered as the repayment capacity towards EMIs on the home loan. On this repayment capacity only, Loan eligibility is calculated. So, the higher the amount left as repayment capacity, then more elevated is the home loan eligibility.
For example, if an individual has a monthly income of Rs. 60,000/- then Rs. 24,000/- will be deducted as monthly expenses. If he is running an EMI on a Personal loan or Car loan of Rs. 10,000/- then it will also be deducted. Now, his repayment capacity comes out to be Rs.26,000/- (60,000-24,000-10,000). That means he can pay an EMI of Rs.26,000/- per month on the home loan and accordingly loan amount is calculated.
Again shorter the loan tenure, the higher the EMI, and the longer the tenure lower the EMI. So for a fixed amount of EMI to be paid, more loans can be availed for longer tenure Home loans.
How much loan can be availed on a property depends upon the cost of the property. Generally, 90% Loan can be availed on properties worth less than 30 lacs. 80% on property value 30 lacs to 75 lacs and 75% on properties valued at more than 75 lacs.
If you are buying a plot, then 75% or less loan can be availed.
So, depending upon the above two factors loan amount is calculated, and it is considered lower of the two. So, if you are buying a property worth 50 lacs but the repaying capacity comes out to be 25 lacs then only 25 lacs can be funded and not 40 lacs.
A lot of Home Loan eligibility calculators are available online, from where rough loan eligibility can be calculated.
Once you shortlist the property, then you can apply for the HL or a pre-approval can be taken before finalizing the property as well.
Now you are ready to proceed with the process:
The steps to complete the home loan application process are as follows:
1) Fill the Loan Application form
2) Payment of application fee
3) Verification of documents:
4) Personal Discussion/ Background check/ Telephonic discussion
5) Property check
6) Underwriting by FI
7) Loan disbursement documentation
1) Fill the Loan Application form:
The very first step in the home loan journey is to identify a loan providing financial institution as per the comfort and filling up the application form. The application form requires a lot of details, both basic and specific like name of the applicant and co-applicant, address, phone no, family composition etc. and also the occupation, bank details, details of other ongoing loans if any and so on. It is advisable to fill up the application form thoroughly.
Along with the application form, the applicant also needs to submit the requisite documents. These include applicants and co-applicants:
- ID proof: Passport/ Aadhar Card/ Voter Card/Driving License/PAN card etc
- Address proof: Any valid document with current address/ Latest utility bill etc
- Income Documents: Salary slips and ITR in case of salaried individuals and financial statements and ITR in case of self-employed, also GST returns if applicable.
- Bank statements showing the salary inputs/cash flows also need to be submitted
- Property documents
2) Payment of application fee:
Most of the Banks charge an application fee for the processing of loan applications. This is also submitted along with the application form
3) Verification of documents:
Banks then get the verification of the documents done. It is done by both the processes, i.e. through online channels as well as through field investigation. Visit at the customer's residence, and an official address is made. Bank statements and ITR’s are verified in this process. Bank also checks the CIBIL score and credit history of the customer. Based on these reports only, they proceed with the next step.
4) Personal Discussion/ Background check/ Telephonic discussion:
Once the file reaches the Credit person, then the customer is either met by the credit person or contacted telephonically. It depends upon the policy of different financial institutions. The credit person asks various questions based on the analysis of the loan file.
5) Property check:
Simultaneously, the valuation and legal check of the property is done. For valuation, the valuer visits the property and recommends a fair market value of the property. This is done based on different factors like location, the price trend of neighboring properties, any recent sale of property in the vicinity, etc. The ownership chain of property documents is assessed by a lawyer who provides the report if the property has a clear, marketable title.
For builder projects, mostly Banks do one time Legal and technical check of the project and approve the project for funding. Then visits are done at regular intervals to assess the stage of construction.
6) Underwriting by FI:
On the basis of all the above factors, underwriting is done by the credit person, and the sanction letter mentioning all the conditions is provided to the borrower. The sanction letter includes the home loan amount, rate of interest, processing fee, tenure of the loan, etc. It also includes other conditions if any, like the closure of any pre-existing loan, etc. The sanction letter has a validity date also.
7) Loan disbursement documentation:
Once the loan is approved, then the Bank asks for the signing of a loan agreement and also asks for the proof of their own contribution done towards the purchase of the property. It includes payment receipts, bank statements showing the debit towards the payment made to the builder/seller.
Once everything is done, then the loan is disbursed by the Bank, and payment is made either at the time of registration of property or to the developer as the case may be. The loan can be disbursed in full (in case of ready to move in properties) or in installments (in case of under-construction properties where the loan is disbursed as per the stage of construction of the property).
There are a few points that need to be noted while applying for a home loan.
- The owner of the property is necessarily required to be the borrower. For example, if the property is being bought in the name of the mother, but the son’s income is considered for paying the EMI’s, then both of them have to be the borrowers.
- A co-applicant is necessarily required while applying for a home loan. In case an individual is buying a property in his own name, and only his income is considered for the purpose of paying the EMI even then a co-applicant is required who can be a family member.
- Home loan rates offered by Banks are Fixed or Floating. For fixed-rate loans, the rate does not change with rate fluctuations. However, in the case of floating rate loans, it changes with change in the Bank's MCLR.
- Insurance cover on home loans are also available, and it's always advisable to avail the insurance cover on home loan liability. A single premium can be paid on this as well as it can be paid in regular premiums.
Home Loan interests are also moving southwards presently, as a consumer, we have never experienced a better time than this to buy a home and avail a home loan.