Aspiring to own a house? Need a home loan for the same? Well, it’s not easy to get a home loan, especially for the middleman. There are various factors and aspects that need to be considered before availing a home loan.
Everyone must be aware of the United States Housing bubble that took place around 2005-06. In this, there was a rise in subprime lending by the banks and the people in anticipation that the house prices will rise, borrowed the loan in huge numbers. But then as the interest rates began to rise and the house prices to fall, there arose a situation of Default. Thus the economy suffered a lot.
As earlier said, in India, the current banking system is very well organized and getting a personal loan is not that easy.
The various pre-planning to be done for availing a home loan are enumerated below:-
1) Eligibility Criteria
The best way to calculate loan eligibility is by calculating EMI. Banks limit the installment at 40-50% of borrowers Salary*(Basic+DA). For repayment of a loan, various factors are judged by financial institutions. Age is one of them. Also if the person availing loan has a large number of dependents, then the chances of getting the loan would be against him. Other factors include a spouse’s income, job stability, and qualification. Moreover if one has another loan pending, the eligibility goes down even further.
2) Types of loan
There are basically two types of home loan interest:-
Fixed Rate of interest
In this, the interest rate is fixed and it remains constant for say 10-15 years or for the entire loan tenure.
Floating Rate of Interest
In this type of loan, the interest rate is linked to the lender’s benchmark rate. If there is a change in the benchmark rate, the interest rate also changes proportionately. From April 2016 onwards all the home loans taken are based on MCLR (marginal cost of a fund – based lending rate) benchmark rate. However, HFC’s (housing finance companies) continue on the PLR (Prime lending rate) model.
So, now if you plan to take a home loan, see the MCLR and the spread to know the home loan rate. Spread is the rate one has to pay over the MCLR rate. So according to this SBI did cut the MCLR rate from 8.9% to 8%. People thought that SBI decreased the rates. But actually, SBI did not pass on this entire reduction of 90bps to customers. Instead, the spread (margin on top of MCLR). Thus home loans feel by around 50bps. And so now it will be in the range of 8.6-9.1 % depending upon the ticket size and type of loan.
3) Home Loan Amount
Most lenders/financial institutions provide a housing loan ranging from 75-90% of the cost of the property depending upon the loan value. If there is a co-applicant (adult child, parent or spouse), then his/her income is also considered to increase the loan amount.
4) Cost of the home loan
All the costs such as interest payments, processing fees, administrative charges, prepayment penalties, etc. should be perfectly analyzed. Also, it must be seen that the lenders/ financial institutions do not apply any hidden charges. As per the regulatory norm, the fees and charges should be fairly disclosed on the site.
5) Tenure
Longer the tenure of the loan, lesser is the EMI burden. Home loans can be sanctioned for a maximum period of 30 years, subject to customer’s eligibility.
6) Tax Benefits
Many of the people may not know about the tax implications and tax benefits they are availed with. It’s really very necessary to know about this. For instance Principal amount that one payment can be claimed to the maximum of Rs 1, 50,000 under section 80C of Income Tax Act. The interest paid up to Rs 2, 00,000 or actual amount repaid can be claimed as the deduction.
7) Documentation
While you need to submit your KYC documents and credit/income documents along with the home loan application to avail the home loan approval, you need to submit the property documents in original to get your home loan disbursement.
8) Home Loan first or loan first
I bet many of us might not know that one can pre-approve the home loan even before one has selected the house. Pre-approval helps you fix the exact budget and helps and helps your home search focused.
9) Insurance Cover
Do the best possible research to find out the best possible home loan insurance available to cover the loan amount.
10) Default
One must be regular in paying EMI’s. If you miss more than 3 installments, then according to the SARFAESI Act, lenders have the power to take action against default directly without the intervention of courts.
Conclusion
Do not hastily rush into getting the home loan based on any one factor. Analyze all the factors properly. Consult 2-3 banks or housing finance companies and decide accordingly.
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