Housing Loan 101: 5 step guide on availing a Home loan

Owning a home is probably your biggest dream and achieving it is now possible with a housing loan. Such loans are available for constructing a home or buying a ready or under-construction property. You may also opt for a loan to renovate your existing home.

Most banks and non-banking financial companies (NBFCs) offer such loans. Here are five steps to avail of a housing loan in India.

1. Check loan eligibility

The eligibility criteria differ from one lender to another. Generally, lenders consider your age, income, savings, employment status and consistency, as well as assets and liabilities to determine your eligibility for a home loan. You may check your eligibility on the lenders’ website or visit the nearest branch before submitting the application.

2. Submit application form and documents

The next step is to submit a duly filled application form. If you are unable to complete the form, you may seek help from the lender’s representatives. You will also need to submit your documents along with the application form. These documents include income, age, residential, and photo identity proof, latest photographs, and property-related documents.

3. Complete assessment and legal verification

The lender will assess your various documents and application form to determine your repayment capability before approving the loan amount. Most lenders sanction up to 75% of the property cost excluding the land cost (in the case of self-construction). The financial institutions also undertake a legal verification of the property to ensure there are no encumbrances on it. An independent property valuation is also undertaken before approving your loan application.

4. Approval of the loan

After checking the property title and your documents, the lender will issue a sanction letter. The letter provides details on the loan amount, tenure, and interest rate. Once you accept the sanction letter, you will sign the home loan agreement. This agreement includes all the terms and conditions governing the loan. You will have to submit the original documents to the lender.

5. Disbursement of the loan amount

After you sign the agreement, you must pay the stamp duty and register the sale agreement. The lender will disburse the entire amount for ready possession property. However, if your home is under construction, the disbursement will be according to a pre-determined schedule.

Now that you know the procedure, here are three factors related to housing loans you must know.

1. Loan tenure

Such loans are available for a maximum period of 20 years. You may opt for a shorter duration if required.

2. Repayment procedure

You may repay the borrowed amount either in monthly, quarterly, or half-yearly installments. The equated monthly, quarterly, and half-yearly installments comprise both the principal as well as the interest amount.

3. Interest payment

Interest may either be fixed or variable. With a fixed interest, the rate is constant during the entire loan tenure. However, the rate may be revised at the end of three years in the case of changes in the overall market interest rates. Variable interest changes according to the fluctuations in the money market rates.

Buying a home with a loan is not difficult; however, you must borrow according to your income. Opting for a loan is beneficial as you do not need to provide additional security while availing of a housing loan. The lender will create a mortgage on the property and retain all original documents until the end of the loan tenure. Moreover, you may prepay the borrowed amount earlier without incurring any penalties.