A home is a
dream possession for any one in this world. Due to the rising property prices,
it has turned out to be nearly an unfeasible task for an average earning
individual. The conception of home loan comes as a helping hand in
circumstances, when one cannot afford to make a bigger payment. There are
several home finance companies and banks to offer loans these days. The process
of selecting a loan service in the market has become a mind-numbing and complex
task due to the rapidly increasing finance market in the country. Adding to
this, there are obscure industry terminologies, which make the mission a lot
more complex. We present to you some fundamentals of home loan techniques, which
will help you understand the process of applying and getting a home in a more
Home Loan Basics
When to apply for
loan needs to be applied only after thorough planning however, even before one
decides to purchase or build a property. The amount is approved in parts and
given only after adequate confirmation of eligibility of the candidate and after
thorough processing of required documents and other procedures is
conditions for a home loan
upon the eligibility of the customer, home loan organizations primarily focus on
whether if the applicant is capable of paying back the loan. This is gauged by
taking into account, factors such as salary, age, educational qualification,
number of dependents in the family, income of applicantâ€™s spouse, other
properties, legal responsibility, constancy in income and history of savings of
companies generally account for 75-80% of the property value. However, depending
upon the other factors mentioned above the amount can vary drastically depending
on the decision of the institution granting the loan.
period normally ranges from to 15
years; however it may even be extended up to 20 years although at higher rates
Payable fees and
applicant may incur some additional charges which account for the following:
Fee: It is paid to the home loan age as a fee, which can be a percentage of the
loan or a fixed amount.
Fee: If the loan is re-paid before its term, then a fine has to be paid by the
individual, which is charged by the banks and range from 1-2% of the total loan
amount being paid.
If the loan
is not availed within the predetermined time, then few banks impose some tariff
at the time of sanctioning and processing the loan amount.
providers also charge as a fee for processing documentation work and consultancy
Security for the
cases, the property regarding which the loan is applied is considered as a
security. The bank that offers the loan has the control over the property till
the loan amount is completely paid off. However, certain companies demand
custody of more items while conceding a loan which can be life insurance
policies, assurance of shares, mutual funds documentation, deposits in a bank
and other investments.
Documents required at the time of
a/c statement of the last 6 months
copy of latest credit card statement.
and TDS certificate
recent pay slip
from the employer
financial statement of the previous 2 years
certificate of the enterprise under the Shops & Companies Act/ Factories
concession can be gained on both principle and interest paid towards home loans.
With effect since 1st April 2005 (assessment year 2005-07) under
Section 80C of the Income Tax Act 1965: Reimbursement of principle amount of
loan, beside other savings like PF, PPF, Life Insurance Premium etc up to a
maximum amount of Rs.1,00,000/- is entitled to be deducted from gross
Time required for loan
individual applies for a loan, the payment is disbursed within 3-15 days from
the day of application. However, the payment is done only once the process of
documentation, approval and other formalities are completed.
Types of Home Loans in
loan business in
flourished beyond imagination due to the economic progress of the country. This
led to a stiff competition amongst the loan providers. The housing companies are
coming with attractive offers to allure the customers. This led to the emergence
of several schemes and kinds of home loans in the market.There is a loan to
purchase a new home, which comes under the Home
Procurement Loan.One can also avail the Home
Construction Loan by mortgaging the
existing property.There is also a Home Improvement
Loan, which caters finance to repair the
house internally or externally. This includes loan for renovating the home,
adding tiles or taking up repair works like plumbing, tiling and making the home
water-resistant.Home Extension Loan takes care of the cost involved in the expansion or
alteration of home. This type of loan is granted after the applicant meets
certain pre-requisites based on the current property value, salary of the
applicant and also the financial background.Home
Conversion Loan provides adequate funds to relocate from the current
premises, which has been funded by a home loan to move to a new home. The
existing loan can be transferred to the new one, including any additional
approval of funds.A type of loan known as Land
Purchase Loan can be availed to purchase land for construction or rather
investment purposes.Any existing home loan with higher rates of interest can be
transferred to a new loan with lower interest rate by availing the facility of
Balance Transfer Loan.Any private loan taken from acquaintances can be paid off
with the help of Re-Financing
Loan to avoid higher rates of interest.If you
wish to sell your current property and go for a new home, then you can avail
Bridge Home Loan. This way one can
avoid extra burden in case if they do not find someone to purchase the old
home.There are also NRI Home Loans, for Non-Residential Indians to buy property for
residential or investment purposes.The stamp duty sum can be paid off on the
purchase of a property by availing the Stamp Duty
Home Loan Process
percentage of people who have the potential to bear the entire expenses of a
home is nominal. Hence, it has become vital for an average-income individual to
go for a home loan. Due to the boost in demand for home loans, the entire
process has been reorganized. However, still there are few compulsory procedures
that need to be followed while applying for a home loan.
application needs to be sent to the finance company from whom you wish to avail
the loan. Documents supporting the proof of age, address proof, identity proof,
specifics of educational qualification, particulars of employment, details of
the property about to be purchased, bank statements, financial history of the
applicant and also the health records are taken into consideration when applying
for a home loan.
application is sent for verification, certain amount in the form of procession
fee needs to be paid. This is usually charged on percentage basis (usually 1% of
the total loan amount) depending on the total amount of loan that has been
processing of the application gets momentum, once the application is approved by
the verification department of the agency. Once the paperwork is done and
processing fee has been paid, the financial institution may also organize a
personal meeting to discuss further proceedings.
finance company may send a field officer to survey the repayment capacity and
the employment stability of the candidate. The also verify the residential
information of the applicant thoroughly. This constitutes the most important
phase in the entire process, since any fault in any one of them may result in
the denial of the loan. However, the bank will disburse the payment if it is
convinced of the above parameters.
loan is approved, a statement is sent containing the details of the total amount
of loan approved, rate of interest, the type of interest being charged (whether
floating or fixed), number of years by when the loan needs to be paid off, and
other terms and conditions.
property regarding which the loan was taken, acts as security. Therefore, all
the originals of the document copies have to be submitted. The home loan company
may also carry out a thorough examination of the property and also conduct an
getting pleased with the technical, financial and legal assessment of the
property, the legal documents are prepared and a home loan accord is signed on
stamp papers after submitting post-dated checks for fixed term.
How to choose a Housing Finance
important challenge of a home loan, is selecting the right finance provider.
There are several loan providers in market today, and hence selecting the right
one can be really tiresome. The interest rates may not differ much amongst many
companies, however more prominence should be given to the company providing
better services. Any loan provider should wrap up the task with proper attention
meeting the needs of the customer, ensuring minimum documentation required and
also being receptive to their questions/doubts.
Factors to be taken into account while selecting a home
Amount of Loan
of loan granted is gauged based on the repayment capacity of the application and
also takes into account, the rate of interest, the duration of loan etc. The
EMIâ€™s calculation is based on the salary of the individual applying for a loan
which is about 50% of his monthly income. Sometimes, there is also a provision
to go for higher EMIâ€™s adding to the income of parents/spouse.
mandatory that the applicant scrutinizes the entire deed of the loan thoroughly,
to understand the intricacies within and to avoid confusion. Some loan providers
do not take into account, the technical assessment of the property, while the
others may perhaps be adamant on a registered credit that will sky rocket the
loan amount. Down payment penalty could be a very pricey amount, one may incur
in the form of hidden costs. One should plan to pay off the loan amount well
before time, however should be cautious regarding the fine, which may be charged
Fixed and Floating Interest Rate:
agreement should be read properly to ensure that the details regarding the rate
of interest are mentioned clearly. While, some providers may offer a fixed rate
of interest, the rest may charge a floating rate subjected to depend on the
Financing Corporations these days offer various services in their effort to
attract or retain their customers. The counsel offers guidance to the customers
in selecting the right property, legal obligations involved, having a dialogue
with the builder, quick processing and payout of the loan amount. These factors
play a vital role in selecting the right service provider to meet our
requirements and standards while applying for a home loan.
Tips for buying a property
property is a tedious and risky affair, if taken up without proper forecast and
investigation. Some of the tips stated below can come as a helping hand while
buying a property.catalog of all the prerequisites has to be prepared when going
for a property purchase to avoid any sort of ambiguity. Internet, real estate
agents, friends and relatives are one good source of information from whom we
can take guidance regarding the property value and market
and confirm if the property has already been encumbered. Any bank or financial
institure can be approached to verify if the property information is
comprehensible. Depending on the title deed, the financial institute approves
for any loan.
Project under construction:
letter and a development agreement can to be demanded from the builder if the
property is still under construction. The allotment letter is issued only after
an initial payment is made and contains the information regarding the total
value of the asset, construction and payment schedule, blue-print and
architecture plan of the property and deliery date of the property and builderâ€™s
liabilities in case of any issues.
development agreement is nothing but the document containing terms and
conditions as per which the landlord permitted the development of the property.
This deal is between the owner of the land being developed and the builder who
has taken up the development project.
purchasing any property, one has to ensure that the seller has the identity of
the property, the title and its possession before signing up any agreement. One
need to ensure whether the building meets the standards and requirements
pretensed by the local authorities and that all dues like property tax, society
tax, electricity bill, municipal bills etc have been paid. Also documents like
allotment letter, completion certificate and occupational certificate need to be
collected from the builder.
Stamp duty and Sales Deed:
can be seen as the amount charged on the transaction value of every registered
sale, that goes to the government. The sum that needs to be paid by the buyer to
register the property is contained in the Sale Agreement.
As per the
law, it is mandatory that the sale deed has to be stamped and registered in the
presence of both the buyer and seller at the nearby sub-registrar
Tips For Selling Property
It is neither a childâ€™s play nor rocket
science, when it comes to selling a property. One can really get tempted to sell
his property, owing to the boom the real estate market is going through.
However, certain precautions and steps ensure that you get the best deal at the
disposal of your property.
Some of the
property selling tips that can be very helpful are:
One can assess the value of his property by himself through
researh or approach any valuator who knows the market trend, even if it means,
spending few bucks. One should also probe regarding the market conditions,
financial help, procedure and other formalities.
potential buyers include retired government employees, young couples working in
MNCâ€™s, entrepreneuers etc. Hence we need to promote the value of the property
accordingly, neither under estimate it nor over quote. We can get help from
various agents in this regard to analyse the situation and the time to sell the
Right Cosmetic Work:
we may incur repair costs to re-model our property. It is very important to
ensure the returns are at least the 3 times the investment involved in the
repair of the property. However, investing exaggeratedly for a meager profit is
not an advisable decision.
buyer can be recognized by the virtue of his credit value, income and overall
offer of the buyer needs to be evaluated within taking into consideration the
market value. Once the initial agreement has been reviewed and analysis has been
done, financial processing can be taken up after consulting a legal advisor to
ensure the smooth processing of the deal.
proceeding with the registration of the property, it is recommended to obtain a
no-objection certificate from the society of the building to avoid any
This is the
letter though which the loan applicant conveys his willingness to acknowledge
the loan. This letter has to be sent to the bank within about 3 months from the
time the loan has been sanctioned.
This is seen
as the number of EMIâ€™s in the form of post dated cheques, which is signed at the
time of the disbursement of the loan.
contains information regarding the decided value, disbursement and the schedule
of construction, blue print of the property, date of delivery of the property
and the liability of the builder in case of any delay in the completion of the
project or issues post the custody of the property.
Annual reducing balance of the
loan, the EMIâ€™s are calculated on annual basis, based on the outstanding
principle at the beginning of every annual term. The amount is deducted from the
principle every year based on the interest being charged to the customer, which
is calculated for the entire year. The principal repaid during the year is seen
as the balance EMI and is subtracted from the opening principle balance for the
current year to obtain the opening balance on the principle for the next year
and so-on. Hence, the calculation of the interest may be initially high for the
first few years, however, gradually as the component of the principle increases,
the interest shrinks down.
pertains to the plan of the building that has been approved by the local
authorities or the municipality. This is actually a sketch or the layout of the
entire project in brief and is considered to be very vital, as it can be used to
verify if any illegal construction has been made.
Built-up Area (BuA)
includes the area over and above the carpet space, which also take account of
the inner and outer walls of the flat. This is usually more than 15-20% of the
entire area of the flat.
This is the
net exploitable area within the walls of the flat. This used to be a trend in
the past as it was seen as the area within the inner sides of wall to wall.
However, this is no longer seen as criteria and flats are sold on the basis of
Completion Certificate/ Occupational
document is the certificate given by the municipal authority to the developer
once the formalities like water and electricity connection have been taken care.
This also requires the project to be accomplished as per the statements given in
the approval certificate and the commencement plan.
Down Payment/Margin Money:
financial institution usually grants loan up to 85% of the total value of the
property that is being bought. However, the rest of the amount needs to be paid
by the buyer before the loan amount is paid. This is nothing but the down
payment or margin money.
It is the
Equated monthly Installment. Any loan can be paid off through EMIâ€™s during the
entire tenure of the loan.
Fixed Rate of Interest:
remains fixed throughout the tenure of the loan. This is an ultimate option when
there may be a speculation of any rise in the interest rates.
Floating Rate of Interest:
type, the interest rate may vary depending on the Prime Lending Rate (PLR)
predetermined by the reserve bank of
India. This can
happen only once in every 6 months. A drop in the PLR may benefit the customer,
but a rise may result in despair. Whenever, there is a fall in the EMI, some
amount of the EMI is refunded to compensate the customer due to a decline in the
Monthly Reducing Balance of the
This is same
as the yearly reducing balance with the exception of the balance being
calculated on a monthly basis and the EMI is divided into 12 installments to
calculate the opening balance of principal for the next month.
based on which the borrower gives the authority to the financial institution to
take the custody of the property as security if the loan is not repaid within
the time period. Normally, documents of the property are in the possession of
the bank that finances for the property, until the complete amount is paid
issued by the developer to the customer informing the completion of the
construction and that it is ready to be occupied. This also mentions the final
dues to be payable by the buyer before taking the custody of the
repaying the complete loan amount before the tenure of the loan is over, which
is normally 1-3 % of the total pre-paid amount.
This can be
paying off the existing loan which is on a higher interest rate by applying a
loan on a lower rate. This can be from the same bank or from a different
the re-financing is done through another bank, then a penalty of about 1% is
charged calculated on the outstanding amount.
Registration of an Agreement:
It is always
recommended to register the documents immediately after purchasing any property.
The registration can be done with the sub-registrar as per the provision of
Indian Registration Act. Also, the stamp duty needs to be paid before the
This is the
document supporting the transfer of the ownership of the property for a price to
be paid or proposed. This document needs to be registered
typically a percentage of the contract value imposed by the state government on
every sale that is registered. This is duly mentioned in the agreement to sell,
and is often paid by the purchaser and has his name registered in the land
revenue records. It usually ranges between 5-14% of the transaction