A Handy Guide to Apply for a Housing LoanFinancial Document Information ServicesUpdated on Sep 10, 2018 View more like this | Visit India, UN | Contact Anamika Verma |
Home Loan is the amount of money lent by loan providers to an individual for the purchase or construction of a house property. You have to bear a certain rate of interest to avail of this sum of money for a specific period of time.
Banks and financial institutions have certain terms and conditions for sanctioning a Home Loan. If you are aware of all the aspects of the Housing Loan, it becomes simpler to understand the terms and conditions and not get attracted by mere lucrative offers.
Here are a few points to keep in consideration before you apply for a Home Loan:
Types of the Home Loan – There are usually three types of a Home Loan based on the rate of interest.
- Fixed rate Home Loan – Under this type of loan, the rate of interest is fixed throughout the entire tenor of the Home Loan. It does not change with the changing market conditions.
- Floating rate Home Loan – Under this type of loan, the rate of interest changes with the changing market conditions. You can always switch from a fixed interest rate to a floating interest rate.
- Hybrid rate Home Loan – This type of loan is a combination of both fixed and floating rate of interest. The rate of interest is fixed in the initial years and then gradually changes in the later years.
Eligibility Criteria – You must be aware of the eligibility criteria before applying for a House Loan. You can calculate your maximum Home Loan eligibility with the help of an eligibility Calculator. Banks check the eligibility on the basis of various factors like age and qualification, number of dependents, employment stability, credit rating, financial situation, and the like before approving a loan.
The Rate of Interest – Banks apply the Marginal Cost of Lending Rate (MCLR) for Home Loans and Non-Banking Financial Institutions (NBFCs) apply the Prime Lending Rate (PLR) for Home Loans. Banks cannot lend Home Loans at a rate below the MCLR whereas NBFCs are free to set their own PLR. You should opt for the one that offers you the lowest interest rates.
Down-payment – Banks usually approve 80% of the total value of the house property for a loan. You need to put in the remaining 20% of the total value. The remaining amount is called margin money or down-payment. Ensure that you have the sufficient amount handy to pay as down-payment for the Home Loan.
Credit Score – A Credit Score is a numerical representation of the creditworthiness of an individual. It shows your credit history with respect to loan repayment and credit card payments. A credit score of 750 and above is an ideal score. If you have a good CIBIL score, you can avail a higher amount of loan from the bank. In case you have a low Credit Score, banks are usually reluctant to grant a House Loan.
EMI – EMI is the Equated Monthly Instalment that you need to pay to the bank every month to repay your Home Loan. Make sure that the EMI does not exceed more than 40% of your total monthly income to have monthly financial stability.
Cost of the Loan – In a Housing Loan, you have to pay the down-payment, EMI and the interest on the loan. Apart from these, there are additional charges on a Housing Loan. These are legal fees, processing fee, documentation fee and administrative fees. Such charges usually contribute to 0.5% to 2% of the total loan amount. You should compare the loan charges of several banks and then make a decision.
The Bottom Line
You should keep the above-mentioned points in mind before applying for a Home Loan to avoid any hassle in the future.
Banks and financial institutions have certain terms and conditions for sanctioning a Home Loan. If you are aware of all the aspects of the Housing Loan, it becomes simpler to understand the terms and conditions and not get attracted by mere lucrative offers.
Here are a few points to keep in consideration before you apply for a Home Loan:
Types of the Home Loan – There are usually three types of a Home Loan based on the rate of interest.
- Fixed rate Home Loan – Under this type of loan, the rate of interest is fixed throughout the entire tenor of the Home Loan. It does not change with the changing market conditions.
- Floating rate Home Loan – Under this type of loan, the rate of interest changes with the changing market conditions. You can always switch from a fixed interest rate to a floating interest rate.
- Hybrid rate Home Loan – This type of loan is a combination of both fixed and floating rate of interest. The rate of interest is fixed in the initial years and then gradually changes in the later years.
Eligibility Criteria – You must be aware of the eligibility criteria before applying for a House Loan. You can calculate your maximum Home Loan eligibility with the help of an eligibility Calculator. Banks check the eligibility on the basis of various factors like age and qualification, number of dependents, employment stability, credit rating, financial situation, and the like before approving a loan.
The Rate of Interest – Banks apply the Marginal Cost of Lending Rate (MCLR) for Home Loans and Non-Banking Financial Institutions (NBFCs) apply the Prime Lending Rate (PLR) for Home Loans. Banks cannot lend Home Loans at a rate below the MCLR whereas NBFCs are free to set their own PLR. You should opt for the one that offers you the lowest interest rates.
Down-payment – Banks usually approve 80% of the total value of the house property for a loan. You need to put in the remaining 20% of the total value. The remaining amount is called margin money or down-payment. Ensure that you have the sufficient amount handy to pay as down-payment for the Home Loan.
Credit Score – A Credit Score is a numerical representation of the creditworthiness of an individual. It shows your credit history with respect to loan repayment and credit card payments. A credit score of 750 and above is an ideal score. If you have a good CIBIL score, you can avail a higher amount of loan from the bank. In case you have a low Credit Score, banks are usually reluctant to grant a House Loan.
EMI – EMI is the Equated Monthly Instalment that you need to pay to the bank every month to repay your Home Loan. Make sure that the EMI does not exceed more than 40% of your total monthly income to have monthly financial stability.
Cost of the Loan – In a Housing Loan, you have to pay the down-payment, EMI and the interest on the loan. Apart from these, there are additional charges on a Housing Loan. These are legal fees, processing fee, documentation fee and administrative fees. Such charges usually contribute to 0.5% to 2% of the total loan amount. You should compare the loan charges of several banks and then make a decision.
The Bottom Line
You should keep the above-mentioned points in mind before applying for a Home Loan to avoid any hassle in the future.
