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Home Loans – All You Want To Know Rules and Rates

Buying your own home is one of the most crucial financial decisions you will ever take. As a property purchaser, you are most likely to avail a home loan. You don’t want to go wrong there. If you are considering taking a home loan, then it is imperative to understand all about it right from the rules to the rates. Since taking a home loan is a mammoth of a task, and dealing with unfamiliar jargons and cumbersome legal formalities can be intimidating, we have compiled for you certain home loan aspects that you need to know before you apply for a home loan.

Eligibility Criteria

The first step towards availing a home loan is that you must find out whether or not you are eligible for a home loan.  Here is a list of a couple of eligibility criteria common to all banks and financial institutions; you must meet before you avail a home loan in India.

  • The eligible age of the borrower must be between 18 years and 70 years.
  • The minimum monthly income of the borrower is Rs.25000.
  • If the borrower is a salaried individual, then the minimum work experience required is 2 years. If the borrower is self-employed, then he/she is required to have business stability for a minimum of 5 years.
  • The maximum loan you can take as a percentage of the property value is 90%
  • Maximum EMI as a percentage of income is 65%
  • The loan amount eligibility is between Rs.15 Lakhs and Rs. 10 Crores
  • The maximum tenure for a home loan in India is 30 years. However, this may vary on the basis of other factors, such as the age of the borrower.

Apart from these criteria, some of the eligibility criteria are unique to individual banks and financial institutions.

Insurance Cover

When we look at a property from the perspective of loan, there are two types of insurances one should consider. The first one is Home Insurance and the second one is Home Loan Insurance.  Home Insurance is insurance that covers the risks to property due to fire, earthquake, theft, storm, flood, etc. More than often taking home insurance is mandatory. A large number of banks and financial institutions don’t advance a home loan without home insurance. This is usually clearly mentioned in the home loan agreement.

Home loan insurance refers to coverage against the risk of default on the home loan in the event of the home loan borrower’s death. If the home loan borrower dies within the home loan tenure, the bank will settle the outstanding loan. Unlike home insurance home loan insurance is not mandatory. However, it is very advisable to take one for the financial security of your family.


Documents Required For A Home Loan Approval

Here is a list of all documents required for a home loan approval

  • A completed loan application
  • Identification proof such as Driving License, Voter ID Card, Passport, Bank Passbook, PAN Card, Ration Card, and Employee ID.
  • Age proofing documents such as Passport, Birth Certificate, Driving License, Bank Passbook, and 10th Class Mark Sheet.
  • Address proof such as utility bills that are less than 2 months old (electricity, telephone, gas, water), LIC Policy/ Receipt, Passport, Bank Passbook, Bank Account Details, Voter ID Card, and Ration Card.
  • Income-related documents are required to be submitted. If you are a salaried individual, you must submit any one of the following:
  1. Form 16.
  2. Last 3 months payslip.
  3. Promotion Letter or Increment Letter.
  4. IT returns submitted for the previous 3 years.
  5. Certified letter from employer.

Apart from this, you will also be required to submit passport-sized photographs and any investment proofs.

If you are a businessman or self-employed, then you must submit any one of the following:

  1. The balance sheet and profit and loss account of your firm for the previous 2 years duly attested by a chartered accountant.
  2. You’re Income Tax Returns from the previous 3 years alongside the computation of your income correctly attested by a chartered accountant.

Apart from this, you are also required to submit passport-size photographs, proof of investments, the photocopy of Registration Certificate of establishment and Registration Certificate for the deduction of professional tax and Certificate of Practice.

  • Property related documents such as the sale deed, original receipts of advance payments made towards the purchase of property, etc.


 Types of Rates Of Interest Levied on Home Loans         

Here is a list of different types of home loans based on the nature of the interest rates.

Fixed Rate Home Loans: In a fixed rate home loan, the interest rate levied is fixed at the time of taking the loan, and it remains unchanged throughout the loan tenure.

Floating Rate Home Loans: In a floating rate loan, the interest rate levied is associated with the lender’s benchmark rate. If the benchmark rate changes the interest rate changes.

Combination Home Loans: In a combination home loan, fixed rate of interest is levied on a portion of the home loan, and floating rate of interest is levied on the other portion of the home loan.

Costs Involved In Taking A Home Loan

Before you apply for a home loan, you must know the additional costs involved in the process. The most common charges associated with a home loan are Application Fees and Processing Fees.

In order to conduct verification, the lender needs to incur some preliminary expenses. These expenses are termed as application fees that are paid by the borrower. Different banks and financial institutions levy different application fees. However, it usually ranges from Rs1000-Rs. 5000. Processing fees is the amount of money the lender’s need to cover the cost of credit appraisal.

The processing fees usually range between 0.50% to 1% of the loan amount plus the applicable taxes. Usually, processing fees depend on the home loan applicant’s income, profile, and loan type.

Other costs may include legal fees, balance transfer charges, Notary fees, and Indemnity cost.

Even though home loans come with a lot of rules, they are quite worth the effort. Purchasing a property is a big step in anyone’s life, and one of the best ways of doing it is through availing a prudent home loan.

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About the Author: Praveen Unnikrishnan

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