A 'home' brings to your mind the essence of comfort, pride, luxury, and family time. Buying a home is a fun and exciting experience whereby many opinions are taken into consideration.
You will tend to think about a few of the activities that are involved in the home-buying process. You will also have a rough idea of the home loan approval process.
However, have you ever given a thought about how the process of home loans actually works?
We will give you a short description of home loans, the process of availing a home loan, and the types of home loans.
Home loans are a great form of financial saviour when you are short of cash, and when you are not in favour of liquidating your savings. It is part of a monetary transaction or asset that an individual borrows from a bank or a money lending company at a specific rate of interest. Every month, the homeowner needs to pay the money borrowed through EMI every month.
Let us now talk about the process of home loans (home loan procedure).
The initial stage of the process of home loans is to finalize the property that you would like to invest in. Under construction and ready-to-move are the two types of property that you can purchase. In both these cases, the loan disbursal and loan agreement stage vary moderately. In the first stage, while purchasing a property, you will require the assistance of a home loan. So, first, finalize the property and then go for loan shopping.
After finalizing a property, home-buyers are required to fill a loan application form. The loan application form is an important document whereby you will provide essential details like name, phone number, address, occupation, annual income and education details.
Details of the property you want to buy, the property's cost and down payment details need to be entered in the loan application form. You need to attach your address proof, ID proof, income certificates, bank statements, etc., along with your application form.
It would be better if you initiate a loan enquiry. To start the process of loan enquiry, you should compare home loan interest rates online. According to the home loan interest rates online, you can generate an inquiry with the bank by visiting the nearest bank personally, or you can scroll through the bank's website.
During the inquiry, you can negotiate the best available interest rates. The majority of the home-buyers do not know that home interest rates are entirely negotiable. Banks can also give a good credit score that helps you to get reasonable home loan interest rates.
During the loan application stage, you need to know that any additional expenditure can come in the form of a processing fee that can add up to 1% of the loan amount. Most of the banks will agree between 0.25-0.5% of the loan amount as a processing fee.
You may have to pay a due diligence fee on behalf of the bank. Please clarify the processing fee amount as some of the banks may lower the processing fee and ask you for a higher charge for due diligence. So, it becomes necessary to clarify with the bank before you avoid spending more than your budget limits.
After you submit your essential documents, the bank will verify the documents given by you. Usually, the bank will take 2-3 days to verify your documents. During the verification process, the bank may ask you to come for a face-to-face interview to know your financial background. During the interview, the bank will test whether you are capable of repaying the loan.
Banks will not offer you a home loan without adequately investigating the property's legality, repaying capacity, and financial background. The banks will study your bank statements, transactions, savings, investments, business activity, bank balances, cheque bounces, and much more.
If your cheque gets bounced, it can lead to the ineligibility of getting a home loan.
The bank will also check your net income and credit score. A credit score of 750 or more indicates a healthy credit score. Banks will scrutinize not only your financial health but also personal details through a field investigation. Do remember that your job sector will also determine whether you are eligible for a home loan.
Sectors like job loss, instability, and high attrition are often considered not fit for getting a home loan.
Once banks check that the property you are looking to purchase is right and free of legal hassles, they check in-depth about the creditworthiness aspect. In this process, the bank checks your repayment history and examines defaults. They acquire the details of your EMI repayment capacity based on your liabilities and incomes.
The home loan approval process is by far the most critical step in acquiring a home loan. During this process, the bank decides whether to accept or reject your proposal for getting a home loan. To ensure that the home loan doesn't get rejected, you need to carefully furnish all the listed documents.
If your home loan gets approved, the borrower will get information about the maximum amount approved by the bank and the interest rates charged to various tenures. The bank communicates the details of home loan approval through an official sanction letter that confirms your home loan.
After you acquire the official sanction letter that approves your home loan, you can submit original property documents to the lending bank. The bank will keep the documents in custody until the loan borrower repays the loan. The bank verifies the property documents by sending a representative to visit the property before the loan's approval.
Acceptance of the offer letter is the final process of home loans. After a thorough analysis of your loan application, the bank will issue an offer letter containing the bank's final loan approved. You need to accept the terms and conditions and sign the loan agreement.
After you sign the loan agreement, the bank hands over the demand draft to the seller, and you can then take possession of the property. The offer letter will mention the rate of interest and the sanctioned loan amount. The letter mentions the number of EMI's to be paid, tenure, mode of repayment, etc.
Now, we will tell you a few do's and don't s while applying for a home loan.
Do thorough research about the property's price, clearances for the project, builder's background, etc.
You need to know about the amount you have to pay as down payment, stamp duty, processing charges, and registration fees.
Ensure all the documents are in order, such as Income Tax Returns, Salary Slips, property agreement, registration, etc.
Take adequate time to enhance your credit history before applying for a home loan, as the bank may recommend better terms and conditions.
Do not take too many loans before applying for a home loan.
Do not exceed your credit card expenditure and pay your pending loans on time so that you can avoid decreasing your credit score negatively.
Please do not take a massive loan as it may be difficult to repay it to the bank. Affordability becomes essential while acquiring a home loan.
Now that we have discussed the process of home loans.
Let us give you some insights into the types of home loans.
Home loans can come in various forms that are quite different from one another. In the home loan department, loans are available for varied purposes.
Land Acquisition Loan is one of the first types of home loans. Housing finance companies and banks offer loans for buying a piece of land for developing a house. Buying land is the right decision. 85% of the cost of the land can be given as a loan by banks
(a) Identity Proof.
(c) Address Proof.
(d) Latest Salary Slip.
(e) Form 16
(f) Last six months bank statement.
(a) Identity Proof.
(c) Address Proof.
(d) Income statement, balance sheet, and income tax returns for the last three years.
(e) Proof of Business.
(f) Business Profile
(g) Educational Qualification.
A home purchase loan is one of the most sought after loans for purchasing a property. You have the options of fixed, hybrid, and floating home interest rates when it comes to applying for a home purchase loan.
It is one of the types of home loans designed for people who want to construct a home according to their wishes rather than buying a pre-constructed home. The approval process is quite different in this type of home loan.
The most significant clause in the home construction loan is that the plot needs to be purchased within a year so that the plot's cost can be included in the loan amount. The loan amount is looked upon based on the estimate of the construction cost. Some of the popular home construction loans include the schemes provided by a good number of Banks.
Looking for an additional bedroom or balcony?
Few of the banks offer home loans for a home expansion, including alteration of current structure and construction of new homes. Home renovation loan and Home extension loans are quite popular in the types of home loans category.
Home Conversion loans are quite different from any other home loan. In this type of home loan, people who have availed a home loan and purchase a home but want to move into a new home can choose home conversion loans.
By successfully transferring the current home to a new home, loan borrowers can acquire funds to purchase the new home and not repay the previous home loan. However, home conversion loans are quite expensive.
If you already own a home, but you can't afford the expenses of renovation and repair works like internal and external repair, electrical renovation, painting, and construction of overhead water tank. You can always take the help of a home improvement loan.
It is an attractive option for people who would like to transfer their home loan from one bank to another bank due to lower interest rates or lack of quality of services.
It is one of the unique types of home loans that are exclusively designed for non-resident Indians who want to purchase a residential property in India. The application and formality processes are quite different for this type of home loans. Usually, few public and private sector banks provide NRI loans as a housing loan portfolio.
Bridged Loans are referred to as short-term loans created for existing homeowners who look forward to purchasing a new property. In this type of loan, the mortgage of a new house with a bank becomes necessary.
Stamped Duty loans are provided to cover the stamp duty charges during the purchase of a property.
Home Loans are becoming trendy while purchasing a new home. Home-buyers are smart in looking for the right home loan plan. They compare home loans schemes online and check the prices from numerous websites. After choosing the right home loan, the home buyers look for a renowned lender to apply for the home loan.
Some of India's top lenders are here to provide you with a simplistic procedure in getting your home loan approved. They help you reduce the paperwork and suggest practical steps to avoid making mistakes while availing of your home loan. Ensure that you use a home loan EMI calculator to know your monthly installments and plan your finances better.
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