Must Read: How to Choose Home Loan Safely – Follow these Steps
Owning a home is a dream of every person. Purchasing a home may mean different things to different people. To a middle- class person, it is an achievement of a life-time, while for the affluent it may represent their arrival on the social stage.
Nevertheless, whatever one’s means, banks and housing finance companies have consistently played a pivotal role in fulfilling this basic need? For a safe and beneficial home loan, proper awareness over the products, policies, terms and conditions of the bank is most important as ignorance may result in wrong decisions having a lifelong impact.
WHILE CHOOSING A HOME LOAN MANY QUESTIONS ARISE
- How do I go about obtaining a loan?
- How do I find a property that suits my budget?
- What will be the EMI? How is it calculated?
- What are the eligibility conditions for a home loan?
- What are the home loan interest rates offered by Banks?
These are basic questions that need to be answered! Obtaining a home loan may seem very cumbersome but a systematic approach will allow you to be a proud owner of your home.
CHOOSING THE LENDER
First before one sets out on the journey to buy a home one needs a pre-qualified home loan. Without this in hand, it isn’t recommended you begin your search for a new house. The more you hunt for a home without funds, the greater will be the stress. The first step towards your loan is choosing the best housing finance companies (HFC) which can guide you through the entire procedure.
Various points need to be kept in mind when discussing and finalising a home loan – interest rates, application processing fee (generally around 0.50% to 1.00% of total loan amount), legal charges, pre-payment charges, valuation fees, and other hidden costs.
WHILE CHOOSING THE BEST OPTION COMPARE FOR THE FOLLOWING IN THE COMPETITION
- Check the rate of interest being charged.
- Check the processing fees being charged.
- Check the movement of the benchmark rate over the last two years.
- Check the partial and prepayment fee clause.
- Consolidate debt so that not more than 50% of the monthly income is going into servicing debt.
THE PROCESS
Once you have identified the right institution, you will need to fill some forms: an application form, Know Your Customer form (KYC), age proof, and submit employment and Income details to the financial institution. The application is processed on the basis of income papers and KYC documents of the customer.
After this the Bank will do a due diligence to verify the authenticity of the borrower and check the veracity of the income papers. Once the due diligence is over, the Bank will assess the repayment capacity of the applicant and then sanction the loan on the basis of his/her credit worthiness.
On the basis of the sanctioned loan, it becomes easier for the applicant to identify the property. Later, if the applicant wishes to downsize the loan sanctioned, it can be done by simply intimating the same to the bank.
SELECTING THE RIGHT PROPERTY
Choosing the right property depends on various factors like budget, area, amenities, location, proximity to workplace , convenience. The importance you assign to each of these would depend on one’s profile, income and age.
A young executive, for e.g., would give importance to amenities, proximity, convenience, area and location. A senior level executive would prefer area, location, amenities, convenience, and proximity keeping in mind that the area where the house is located is a symbol of his social status.
A good real estate consultant who understands the wishlist can speed up the process.
TAX IMPLICATIONS
Government of India has provided various tax benefits on home loans.
The interest of up to Rs 1.50 lac paid on home loan on self-occupied property during the financial year can be availed by the borrower as a deduction from his/her income for that year. In addition, the borrower also gets an exemption within overall limit of Rs.1 lac under Section 80C of Income Tax Act for Principal amount repaid by him/her during the financial year.
The interest paid by the borrower on the home loan, till completion of construction of the property, is allowed as deduction from his/her income, in equal installments for the next five years within the applicable limit.
INTEREST RATES AND FORCED MAJEURE CLAUSE
Almost all banks offer home loans with – both fixed and floating rates of interest. As a thumb rule, the customer should go for floating rates when the rates are expected to fall and fixed rates when they are expected to rise in future. However you must realise that there is something called as Forced Majeure Clause. The Force Majeure Clause enables the lender to undertake appropriate modifications in the interest rates on home loans they sanction to their borrowers. This situation applies even if the borrower has opted for a home loan at a fixed interest rate.
So, while you read your home loan agreement papers, you can spot statement like this Provided further that from time to time, the bank may in its sole discretion alter the rate of interest suitably and prospectively on account of change in the internal policies or if unforeseen or extraordinary changes in the money market conditions take place during the period of the agreement.
There is a lot of awareness out there in the market and customers are increasingly examining the various aspects vs – vs home loans. Having said this, one should not get swayed by the lucrative interest rates and other such schemes being offered. Buying a home is definitely a dream comes true and home loan fulfils that dream. I will advise you to spend considerable time with your banker in helping you make a fair decision so that your dream home always has pleasant memories. Click Here for Apply Home Loan
Source: Economic Times
