Buying a home is one of the biggest financial decisions that you and your family would ever make and for most of us, taking a home loan is the sole way to bring alive our aspirations of homeownership. A home loan is an amount that an individual borrows from a bank or a housing finance company (HFC) for the purpose of buying a house / constructing a house. This amount has to be repaid in the form of easy monthly installments (EMI). The property is taken as a security against the borrowed amount by the financial institution. Being well aware of the home loan terms works is an effective way to avoid any unwanted surprises when you actually apply for one.
Here are 10 terms about Home Loan Terms you should know before you sign on the dotted lines!
The eligibility criteria for the Home Loan
Do you qualify for a home loan? If yes, how much amount are you eligible for? The lender will assess your eligibility depending upon your income & repayment capacity. Some of the other factors that are taken into consideration while evaluating a home loan are age, educational qualification, financial position, number of dependents, the income of your co-applicant, job stability & previous repayment track record. Some lenders provide a home loan eligibility calculator that will give you a quick assessment of your loan eligibility.
The Rate of Interest (ROI)
Your rate of interest will determine your interest outflow on your loan amount. Usually, the interest rates range between 8.5% to 14.5% for a Home Loan. Your rate of interest will depend on the strength of your home loan process. Quick tip – furnish as many documents as possible which clearly proves your income and property details. This will make your application more creditworthy and the lender and will offer you a better rate of interest.
Floating ROI on Home Loan
Floating Rate – the interest rate is generally linked to the lender’s benchmark rate. In case of any change in the benchmark rate, the rate of interest would also change accordingly unlike a Fixed ROI.
Fixed ROI on Home Loan
In a fixed-rate loan, as the name suggests the rate of interest is generally fixed when you are taking a loan. This fixed rate of interest is applicable throughout the complete tenure of the loan, but in some cases, lenders have small print that says that the fixed rate can be changed at intervals such as 10 years depending on market conditions.
Additional costs to be incurred
Besides paying EMI, there can also be other service & processing costs that the lender can levy upon the borrower when applying for the loan. It is important that you discuss the same with the lender and have a thorough understanding of these charges before applying for the loan.
Set your tenure according to your EMI budget
You can take a home loan for a maximum tenure of 30 years. Your home loan tenure affects your EMI in a significant manner, e. higher the tenure – lower the EMI and vice versa. There is no point in dragging your home loan for 25 years when you have the capacity to pay it off in 15 years. Similarly, if you wish for a lower EMI amount, then go for a longer tenure.
Once your home loan has been approved, you have to keep in mind that you need to repay it on time & hence it is advised that you follow a strict budget so that there is no problem or irregularity in paying the EMIs. You need to channel your resources towards regular & timely repayment of the loan in order to maintain a good credit bureau score.
List of crucial & mandatory documents
Following are some of the mandatory documents required for a home loan:
- KYC documents
- Aadhaar Card
- Voter ID
- Valid Passport
- Driving License
- PAN Card
- Credit or Income documents
- 3 recent salary slips
- Form 16
- IT returns for last 3 years
- Shop Act License or any other business license (applicable for self-employed applicants)
- Property documents
- Sale Agreement
- Title Deed – Index II
- Construction plan (applicable for applicants building their own home)
Click here for a handy list of the documents required while applying for a home loan.
Understand the Loan closure norms
Having a thorough understanding and being up to date about the closure norms is very important. If you are closing the home loan early with your own funds, then make sure you don’t pay any pre-payment charges to the lender. Check RBI’s latest guideline of pre-payment charges on home loans if you are paying it off with your own funds.
You can change/switch your lender
When you take a loan from a lender, there is no need to stick with the same lender forever. If you are getting a better deal from another lender, you have the liberty to make a switch and transfer your balance amount.
Hope this helps you with your home buying decision and empowers you to make a smarter choice. HomeFirst – We’ll take you home!