Buying a home is the quintessential dream for most people. A lot of people aspire to buy their own homes, where they have the freedom to design and decorate it as per their own tastes and preferences. Investing in a home requires money, and oftentimes, it can be too much money for someone to have saved up. This is where home loans come into the picture. A home loan or housing finance helps you buy your dream home even if you don’t have the entire amount upfront. In this article, we will take you through the primary aspects of understanding home loans.
1. Understanding Home Loans:
A home loan is a long-term loan that helps you purchase your dream home by borrowing money from a bank or a housing finance company. The repayment process is divided into EMIs (Equated Monthly Installments), which includes a portion of the principal amount along with the interest rate. Interest rates for home loans vary according to the market rates, size of the loan, and the financial credentials of the borrower.
2. Housing Loan Interest:
The interest rate plays a major role in home loans. Higher interest rates would necessitate larger monthly payments whereas lower interest rates would allow you to pay less on the loan. Therefore, it’s important to check with multiple lenders for their prevailing home loan interest rate before finalizing a home loan. Currently, home loan interest rates are quite low as compared to the rates from a few years back. This is a good time to apply for a home loan.
3. Eligibility Criteria:
Before applying for a home loan, it’s important to check if you meet the eligibility criteria set by the lender. The eligibility criteria primarily depends on your age, the nature of employment, credit score, and existing financial obligations. A good credit score, stable income, and minimal outstanding debt will increase your chances of loan approval.
4. Home Loan Process:
The process for availing a home loan can be divided into three stages:
- a) Pre-approval stage: This stage involves the application phase, where the lender will assess your credit score, income, age, and other factors to determine the maximum loan amount that can be sanctioned. Pre-approval is necessary to avoid the process of searching for a property beyond your budget.
- b) Sanction stage: Once the pre-approval stage is completed, the lender will verify the documents submitted by you and issue a sanction letter detailing the loan amount, interest rate, and repayment terms.
- c) Disbursement stage: The final stage involves disbursement of the loan amount to the seller of the property. The lender will initiate the process after validating the sale agreement, NOC from the builder/society, property documents, and construction completion certificate from a chartered engineer/surveyor (if applicable).
5. Loan Tenure:
The tenure of a home loan can be up to 30 years, depending on the loan amount and income of the borrower. Longer tenure translates to lower monthly payments which reduces the financial burden on the borrower. However, longer tenure also means repaying a higher interest amount over the loan duration. Therefore, you should choose a tenure that suits your lifestyle and repayment capacity.
6. Down Payment:
The down payment is the initial partial payment made by the borrower while purchasing the home, and it’s usually about 20% of the total amount. Therefore, a larger down payment translates to a smaller loan amount, lower EMIs, and lower overall interest costs. Saving up for the down payment may take time and lots of hard work, but it can make a big difference in the home buying process.
7. Additional Costs:
The cost of the home loan consists of more than the principal amount and interest rate. Additional costs include processing fees, legal fees, applicable taxes, and charges for property insurance. Make sure you have a clear understanding of all the costs involved in the home loan, to ensure there are no unwelcome surprises.
8. Home Loan Transfer:
Balance Transfer in Home Loan means transferring an outstanding loan amount to a new lender for several reasons. Generally, people opt for home loan transfers when they get better deals from another bank or lending institution or reduced interest rates or any other factors such as improved customer service, convenience or repayment flexibility. Before transferring a home loan, make sure to read and to obtain all the necessary documentation from your existing lender.
9. Planning for EMI:
Before applying for a home loan, you should carefully consider how much EMI you can afford. Calculate your monthly income and expenses and ensure that paying the EMI does not disrupt your everyday needs. If you are in any debt, then plan to pay it off before scheduling the EMI payments. Additionally, you can opt for an EMI that is less than your monthly income to manage any sudden expenses that may occur.
10. Choosing a Lender:
Ultimately, the decision of which lender to choose dependents on a lot of factors, including interest rates, eligibility criteria, customer service, and borrower convenience. The lender should offer a fair and transparent home loan process, where you are not taken for a ride but feel comfortable while dealing with the lender.
Conclusion
In conclusion, home loans are a popular and convenient way to bring your dream home to life. But as with any financial decision, it’s important to be aware and informed about the process, to avoid any future financial distress. We hope this article helps you gain a deeper understanding of home loans. And if you are considering going for a home loan, remember that it’s always better to shop around, do your homework, and make a wise decision.