Availing a home loan is a great way to get the necessary funds to buy your dream home. But, before you start looking for the best lender, you must understand how the loan works. Read on to know more.
Today, with the easy availability of home loans in India, almost every home buyer relies on a loan to purchase of their dream home. Availing a home loan is a huge financial commitment. It is therefore paramount that you understand how a home loan works and have a clear idea of the lending industry in general. In India, the private banks, PSUs or public-sector units, housing finance companies and non-banking financial companies and even foreign banks offer home loans. Each of these lending institutions may have different lending norms, but the general criteria for lending are thesame among all lenders.
If you are a first-time borrower, you must know the following important things about how home loans in India work.
Today, almost all the lending institutions in India offer online services, and they list down their interest rate for different home loan schemes on their website. You can browse through the websites of different lenders and compare the features, benefits and drawbacks of the loan products. Based on your assessment of the different lenders and their schemes, you can choose the one that best suits your needs.
A lot of loan applicants believe that the lenders fund the 100% of the property cost However, you must know that the banks only lend a maximum of 80% of the property’s value. You must bear the remaining 20% of the cost by yourself.
Today, almost all the major real estate developers and builders get their properties pre-approved by financial institutions. So, when you shortlist the dream home, you must check, which financial institution has approved the project. You can apply for a loan with the financial institution that has approved the project. This will help you fasten the property appraisal and legal verification process.
The loan approval process starts with the filling upthe application form and verification of personal and property-related documents. So, get all your documents ready beforehand to avoid any delay in approval. You can visit the website of the lender and know about the various documents required for the type of home loan you wish to apply.
Home loans offer tax benefits to borrowers under Section 80C, Section 24 and Section 80EE. Make sure that you do your research well about the various deduction associated with a home loan and take advantage of it.
One of the critical factors that the lenders consider to determine your loan eligibility is – your profession. For instance, if you are a salaried employee, the lender will calculate your eligibility based on your net salary. For business owners, and self-employed people, the eligibility is calculated based on the income tax returns filed by them in the past three years.
When you apply for a home loan, the lenders may recommend buying an insurance cover for the loan. Buying insurance is not mandatory, but it would help you to buy an insurance cover, especially if you are borrowing a big amount. If you purchase insurance, it will increase your EMI amount since it would also include the premium. But it would help you to keep your family and the property protected, in case you fail to repay the loan.
Lastly, you must get familiar with the various costs associated with availing a home loan. Apart from the interest paid on loan, there are many other costs that you must bear. Some of the most common fee that lenders charge includes processing fees, legal verification charges, foreclosure fee, late payment charges, balance transfer fee, and administration charges. Knowing these charges will help you make an informed decision while choosing the lender.