Is it your dream to have a home of your own? Are you ready to finally take the plunge and commit yourself to the process of buying a home? Are the constantly increasing home prices worrying you? Are you unsure about how will you finance your property purchase?
In this brief guide on home loans, we answer all the important questions that home loan applicants have in their minds. We also walk you through the process of applying for a home loan to make the process of buying a home easier for you.
Home Loans: Everything You Must Know
Home loans are a type of secured loan. Secured loans are loans backed by collateral. In other words, in the case of secured loans, there is a security involved that the lender can sell and recover the loan money should a borrower default on loan repayment. Thus, lenders see secured loans as low-risk loans and therefore, charge a nominal interest rate on these types of loans. Home loans are the cheapest of all loans.
The interest rate is quite low here, which accompanied by a long and flexible loan tenor stretching up to 30 years considerably eases the burden of loan repayment. Home loans also offer tax benefits -- individuals repaying a home loan can claim tax benefits on both the interest and the principal component of their home loan. Thus, home loans are also one of the most effective tax-saving instruments these days. If you are planning to apply for a home loan
, keep the following things in mind.
Things to Keep in Mind to Experience a Hassle-Free Home Loan Journey:
1. The interest rate you get on your housing loan will determine the affordability of your loan as well as the ease with which you will be able to repay your loan. Low home loan interest rates not only minimize the total interest outgo and the cost of borrowing but also help borrowers keep their EMIs affordable. Thorough research and negotiations will help you avail of a home loan at low-interest rates. So, do both and do not sign a loan agreement with any one lender until you have spoken to at least a few and know that the lowest home loan interest rate you can be offered is being offered to you by your current lender.
2. Before initiating the home loan application process, access the home loan EMI calculator and use it to get a clear idea of the EMIs you can afford and the loan amount and loan tenor that will work best for you. This is crucial to ensure an easy and stress-free repayment journey.
3. Make it a point to also use a home loan eligibility calculator
. You may want a certain loan amount but your lender will decide whether you will be approved for the same loan amount. Your lender will take this decision considering factors, such as age, income, credit score, etc. A home loan eligibility calculator is a special online tool that helps borrowers figure out the loan amount they can borrow and will get approved for. Applying for this loan amount will help you get approved instantly.
4. Hire a legal expert to help you decode your loan agreement for you. If there is a line or term you do not understand, seek clarity from your lender or the legal expert you have hired but never sign a loan agreement without fully understanding everything it says.
5. Maintain an excellent CIBIL score. A CIBIL score in the range of 750 to 900 is considered excellent and helps home loan borrowers avail of a loan quickly and the best loan terms and conditions possible.
6. Check your lender's reputation. If a lender is offering you a very low home loan interest rate but has a dubitable reputation, stay away from them. A home loan is a long-term commitment and therefore, borrowers must choose a loan partner who is reliable, trustworthy, experienced, and has a good reputation.
Home Loan Application Process: A Step-by-Step Guide
Planning to apply for a home loan? Making yourself aware of the home loan application process in advance will help you experience a seamless journey and get approved for a home loan quickly. While the actual home loan process may vary a little bit from lender to lender, home loan applicants can expect their home loan application process to go this way.
1. The first step in the process is deciding on a lender. Some home loan applicants make the mistake of not doing ample research and going with the first lender they approach. Applicants must avoid making this mistake and choose their lender after proper research.
2. After you have decided on your lender, make a home loan application to them. Applying for a home loan is easy these days. Applicants can make an application online as well as offline.
3. While applying for a home loan, you will be asked to submit certain documents, such as KYC and income proof documents. Your lender will need these documents to gauge your repayment capacity. You will also be required to pay a one-time processing fee during this step of the loan process. The home loan processing fee is non-negotiable.
4. Once your application goes through, all you must do is wait for your lender to take a decision. If your lender approves your loan application, they will release a loan offer. This won't be the final loan agreement but it will mention details, such as the loan amount they are willing to sanction, the rate of interest to be offered, interest rate regime, loan tenor, etc. If you accept this loan offer, your lender will ask you for property documents and may even call you to their office for a formal discussion on the loan terms and conditions.
5. During the next step, your lender will assess all the property documents and carry out legal and technical verification of the property you wish to buy. If the property passes all the checks, you will be extending a formal home loan offer. Go through the loan offer carefully. If there are certain terms and conditions that you do not agree with, initiate another round of negotiations.
6. If you are happy with the terms and conditions mentioned in the loan agreement, go to your lender's office and sign the final loan agreement.
7. After you have signed the loan agreement, your lender will disburse the loan amount into your account and you can complete the process of buying your home.
Home loans are one of the most convenient and smartest ways of purchasing a home. However, they are a long-term commitment and a huge responsibility and one must take on this responsibility after making oneself fully aware of one's repayment capacity and when one is ready to make such a commitment.