Applying to procuring - everything you need to know about home loans
The real estate industry is seeing a slowdown and even then the prices of properties can’t see a marked decrease. The silver lining, however, is that financial organisations are more keen than ever to extend housing loans to capable individuals. Read on and understand the modus operandi of home loans.
The first thing that you need to consider when thinking of a home loan is whether you are eligible for one. Eligibility of a candidate for a home loan is directly dependent on their credit score.
A credit score is a rating allotted to an individual(s) basis their income, financial liabilities and ability to repay the credit. A person with a high credit score is more likely to secure a home loan from a financial organization.
Types of home loans
The three most commonly availed home loan types are:
- Adjustable or floating rate loans – This type of loan sees the interest rate being linked to the lender’s benchmark rate, causing it to change from time to time.
- Fixed rate loan – With a fixed rate loan, the interest rate is fixed at the time of the procurement itself and is not subject to change.
- Combination loan – The loan amount is split, where some of it needs to be repaid at a fixed interest rate, whereas the rest is subject to a fluctuating variant.
Even though the process has been simplified to a large extent, submission of some basic paperwork is mandatory to avail a housing loan.
- KYC documents – Voter ID card, Adhaar card, PAN card, Passport, Driver’s License, and other such valid documents that help establish your identity and act as your address proof need to be submitted.
- Property documents – The agreement to sell, title deeds and other necessary documents need to be produced for a completed application.
- Income documents – Documents that corroborate your income are required to apply for a home loan. A salaried person can submit their previous salary slips of 3 months. Similarly, self-employed individuals can submit their income tax returns
Terminology to know
- Down payment – The financial organization that you apply for a home loan, shall assign 70-80% of the property’s value as the loan amount. The balance amount is to be arranged by the applicant – this amount is known as the down payment.
- Credit appraisal – Your age, income, savings, employer, assets, liabilities, etc. will all be evaluated to ascertain a repayment capacity. The process of determining an applicant’s repayment capacity is known as credit appraisal.
- Pre-approved properties – Banks like to approve certain properties for a loan, even before an applicant applies for a loan for that property. The bank’s approval, however, does not guarantee its safety.
- Disbursement mode – there are three types of disbursement modes: advance, partial and full. In the advanced mode, the loan amount is disbursed prior to the complete construction. Whereas a partial sees some amount being released before construction and the rest is paid after construction. The full mode sees complete disbursement of loan upon the completion of construction.
- Tenure – Home loans can be granted for a maximum of 30 years. This too is subject to an applicant’s eligibility.
- Tax benefits – An applicant can avail tax benefits on the principal amount as well as the payment of timely interest.
It is possible that despite following all procedures, due to some unforeseen circumstances an applicant can be denied a home loan. Here are some corrective measures that you can take:
- Get a co-signee – It might be possible that an individual’s income was insufficient. Therefore, getting a co-signee or a second applicant will increase the income pool and the chance of better repayment. This can help secure a home loan.
- Improve credit score – Errors are possible, but avoiding them is best. An updated credit score can improve your chances of securing a home loan. Identify areas from your score that can be improved upon.
- Pay debts – some of the easiest ways to improve your chances of getting a home loan are by paying of some of your debts. Letting go of a credit card or two or at least clearing of all dues is a good start.
Most of all, each financial organisation has their own protocols and criteria to lend a home loan to an applicant. So a refusal doesn’t mean that you cannot apply with another bank.