Home Loan Guide for the First Time Loan Applicants
House is one of the three core necessities of life after food and clothing. Buying a home involves the family’s security with substantial financial investment, and most of us require financial support to fructify the dream of a ‘home sweet home.
To fulfill the need of prospective homebuyers or homemakers, banks and financial institutions extend house loans under specific rules and conditions. As a first-time homebuyer, you must clearly understand different aspects of home loans, such as eligibility criteria, tenure, interest rates, moratorium, restructuring, and so on.
Therefore, we will delve deeper into the home loans, requirements, and steps for first-time buyers in the following paragraphs.
What is Home Loan?
A Home loan is a specified amount of money borrowed by an individual at a pre-fixed interest rate from a bank or financial institution. The loan amount should payback through EMI (Equated Monthly Installments) within the tenure given in the home loan agreement.
Purpose: People apply for a home loan to buy a new house or build a home, or for renovation purposes. The tenure spans a maximum of up to thirty years.
- Suppose you have taken a home loan against property and fails to pay EMIs within tenure. In that case, the lending body has the authority to recover their money through selling your property that was pledged as collateral.
- On average, people commit around 40 to 45 percent of their annual income to pay EMIs on home loans for twenty to thirty years.
As per RBI guidelines, banks and financial institutions cannot charge prepayment penalties on home loans.
Tip: Always pay EMIs on time. Plan for a long-term financial commitment before applying for a house loan in India.
Advantages of Home Loan
- Property experiences an appreciation of the price in the long-term
- Timely repayment boosts your credit score and helps in getting new loans and credit cards.
- Tax benefits on interest amount during the construction phase, principal amount, stamp duty, and registration.
Tip: If you buy a home loan for the first time, apply for a joint home loan with your partner to avail more tax benefits.
Steps to Apply for Home loan
First-time buyers can apply for the home loan against property or according to their annual salary or income.
1) Check eligibility, decide loan amount, EMI, and repayment tenure
The first thing before applying for a home loan is to decide your financial situation. Ideally, your monthly repayment should not exceed sixty to sixty-five percent of the annual income after taxes.
Check your loan eligibility with different ages and tenure. Choose the shortest term to save on the total payable amount because the longer the assignment, the more you commit to paying.
Inform the lending body about your financial commitments and liabilities. If you want to borrow more money, there is a provision to add up to three earning members of the family.
As per RBI, the loan amount can not exceed 75 to 80 percent value of the property, so make arrangements for the rest before applying for the home loan.
2) Approval Status for builder projects and resale properties
If you are buying a home in a builder’s project or a resale property, check the following requirements beforehand:
- The resale property should be registered with the name of the owner. All documents regarding the property should be in order.
- For builder projects, check the project’s map, permissions, approval status, etc.
- Banks do not grant loans for properties in the gram panchayat area or projects without maps.
3) Decide on floating or fixed rate of interest
Industry experts always go for floating interest because of zero prepayment charges; trends are sowing downward graphs for the rate of interest.
Floating rates are perfect for people who cannot afford extra expenses over fixed monthly payables.
Check with your bank and decide after comparing different interest rates.
4) Foreclosure, Prepayment, and Moratorium Considerations
Go through all the details regarding charges on home loans to avoid surprises in the later stages of repayment. Select a lender that does not charge a prepayment penalty.
5) Things to Consider for selecting the lender
Do not go for the first bank you come across on the web or through referral. Make a thorough comparison of the different rates of interest. Talk to customers who have availed home loans previously (if possible), customer support, rules regarding restructuring, and turnaround time.
After getting the best offer, apply for a home loan to buy or build your dream abode. Applying does not assure approval. Home loan approval depends upon multiple factors such as age, gender, income, credit score, age of the property, etc.
To get the best offer, build and maintain a good relationship with your existing. Banks trust old customers for home loan approvals.