Congratulations! You have finally taken the plunge into buying a property. You must be feeling epic; especially if it is your first home. Owning a property is the first step towards investment and that feeling excitement and intimidation is normal. It might be exhilarating for you to imagine all the lovely colours and the decor that will make the house your home. We understand! But before that, first things first! You must apply for a home loan (for those who are taking financial assistance from banks). There are many more legal and financial procedures that will follow but applying for a home loan will be your first step after choosing a house/apartment.
With so many financial procedures and legal documentation, it might seem a little daunting for first-timers, but we are here to help you through and make the home loan procedure comprehensible and easy-to-understand for you.
Why do we take a home loan?
Given the high real estate rates, it is barely possible to buy a property in cash. So most of us take financial assistance from the bank in the form of loans for a certain portion (maximum limit is 80%) of the property rate.
We take a home loan not just for buying a property but for various other purposes related to the house. We can avail of a home loan for buying a plot of land, constructing a house, renovating, repairing and extending the existing property.
Applying for a home loan
So when you’ll be applying for a home loan, it doesn’t begin with you visiting the bank and filling out all the loan documents and getting it approved in a jiffy. The first step after applying for a loan would be getting your credit score (CIBIL) checked. Your CIBIL score is of utmost importance for loan approval. A score that is 700 or above is considered a great CIBIL score and the applicant is eligible for a loan.
However, here are a few points to keep in mind:
1. What is the loan amount I am eligible for?
Well, before you apply for a loan, make sure that all your finances are in place and calculate your total disposable income. The monthly disposable income will determine your repaying capacity. This, in turn, depends on factors like your total monthly income, your spouse’s income, your assets and liabilities and the stability of your income.
The bank you have applied the loan for will go through a stringent check on all such details before it approves of your loan amount. Depending on all the factors, the bank considers 50% of your disposable income as available for repayment. Your age is another factor that determines your loan eligibility.
2. How much is the maximum loan amount that I can borrow?
You cannot apply for the entire property amount as home loan. As per the norms, a buyer is required to pay 10-20% of the total property value as down payment, while the rest 80-90% will be lent by the bank. Other charges like registration, stamp duty and transfer charges are also excluded in this amount. However, it is always advisable that you try to arrange the maximum amount for the down payment so that a lesser amount is borrowed and the interest rate can be kept at a minimum.
3. Documents needed for home loan approval
Once your CIBIL score meets the home loan approval standards, the bank demands further documents to be submitted for verification before finally approving the home loan.
- Legal documents related to the house purchase
- Identity proof
- Residential address proof
- Passport size photo
- Latest salary slip (authenticated by the employer and self-attested)
- Form-16 (for salaried employees)/Income Tax return (for businessman and self-employed)
- Last 6 months Bank statement
- Existing loan details (if any)
While these are the mandatory documents to be submitted in the bank, some banks also ask for documents like mutual fund units, life insurance policies, a pledge of shares, national savings certificate and other investments.
This procedure takes around a week’s time.
4. Sanctioning and disbursement of loan
Now that the documents have been submitted, it remains at the bank’s disposal whether or not to approve of the loan. The bank will then hand you a sanction letter mentioning the loan amount you are eligible for, the tenure, interest rate along with other terms and conditions of the home loan. All of these terms will be valid until the date mentioned in the letter.
The disbursement of loan happens after the loan approval. You may accept the disbursal amount as mentioned in the sanctioned letter or opt for a lower amount as per the requirement. At the disbursal stage, however, you must submit a few documents like allotment letter, photocopies of title deed, encumbrance certificate and the agreement to sell papers. The interest rate applies on the date of disbursement and not as per mentioned in the sanction letter. In this case, a new sanction letter needs to be issued.
5. How disbursement takes place
Disbursements from the bank can happen either in full or in instalments. Your bank will do a stringent check by experts on the property it is investing in, so as a buyer you can be assured of the fact that the asset you are buying is legally cleared. In the case of under-construction property, the disbursements happen in instalments based on the construction progress. Make sure you enter into an agreement with the builder to link the disbursement amount with progress in the construction work rather than on the predefined set of payment schedule based on time. But if it is a fully constructed or a ready to move-in property, then the disbursement amount must be made in full.
Home Loan Interest Rate
The interest rate to be paid depends on the home loan amount that you are taking off the bank. In simple terms, if you take a considerably large amount as a home loan, you need to pay a high rate of interest that will increase the value of your property.
However, you can also take a home loan with a fixed or a variable interest rate. And with these tips, you can also lower the home loan interest rate.
Negotiate: Yes, you can actually negotiate your interest rate provided you have a good credit score. With a good CIBIL score, the buyer is considered a prized customer who will pay back the loan fulfilling all the terms and conditions. So, if considering to buy a house, make sure to have a good credit score as it will fetch you good deals on interest rates and favourable terms on loan. Don’t just settle for one bank, talk to different private and government banks. Choose the one that gives you the best deals.
Pre-pay home loan: This is a great option that banks offer you. If you have a good amount of cash in hand (maybe the bonus or a one-time gain), you can pre-pay a certain large portion against the outstanding loan amount and save the excess interest rate.
Increase EMI: This is simple. If you have earned a job with a better hike or received an increment in your salary, it is better that you increase the EMI amount, even if it is by a mere 5% or 10%. This will decrease your overall interest rate.
It usually involves lakhs of rupees for a loan with a long tenure. So, if your finances allow you, it is better that you pay off the loan earlier and save some cash.
If you are looking to apply for a home loan to buy your dream home, make sure that you choose the right builder. Honer Homes is among one of the top five reputed real estate builder brands in Hyderabad with residential gated community projects in Gopanpally near Gachibowli. These are 2 & 3 BHK luxurious gated community apartments for sale in Gachibowli, Hyderabad boasting of reliable construction quality, 24/7 security, green space and advanced amenities. Honer Vivantis is their luxurious apartments for sale with an integrated gated community living.
Honer Homes has a dedicated and knowledgeable in-house home loan team that will assist you in getting a hassle-free home loan approval and make your house-buying experience a breeze.