Purchasing a house is a quintessential dream of every Indian millennial. However, considering the stock market is volatile, buying a home is not that easy. This has increased the demand for home loans. If you are a first-time home buyer, you should be aware of the know-how and functioning of housing loans in the current scenario.
What is a home loan?
You avail of a home loan to fund the purchase or construction of the home. You could also use the credit to refinance an existing mortgage or reimburse the expenses of buying a second-hand property.
What are the types of house loans?
Home loans in India are of four kinds:
- Home purchase: This is a standard type of loan that you use to build an apartment or invest in an already constructed property
- Land purchase: It is used to purchase land where the individual decides to construct their home. Lenders offer a maximum of 80 per cent value while the applicants have to arrange the remaining
- Home construction: People opt for such loans when they wish to build a home on their land. The application process for such credit is lengthy and tricky
- Home improvement: Such loans are taken to renovate their existing property, and it solely depends on the debt-to-income ratio and financial profile of the applicant
What are the eligibility criteria?
The conditions differ for salaried and self-employed individuals. The primary requirements are:
- You should be aged between 18 to 60 years. For self-employed, the maximum limit is 65 years
- Salaried, as well as, independent professionals should earn a stable income and remain in the organisation for at least two to five years
- The minimum income requirement varies from bank to bank
However, three crucial factors qualify you for the home loan:
- Monthly salary: You should not shell out more than 40 per cent of your income towards the loan EMI
- Additional liabilities: Income solely does not guarantee you the credit. If you have existing debts, the loan amount decreases. Precisely why you have to clear your stance regarding other obligations
- Down payment: Every lender does not offer you the entire loan amount. They will give you only 80 per cent of the property value, and you have to mobilise the remaining. Ensure to make a high down payment, which will appease your EMI pressure
What are the documentation procedures?
The documents required for home loan varies from lender to lender. The standard ones are:
- Duly filled the application form along with a photograph
- ID and address proofs such as PAN card, Aadhaar, driving license, passport, utility bills, ration card, voter’s ID, etc.
- Processing fee cheque
- Last six months bank statement
- Salaried professionals have to provide their previous three months’ pay slips, employment letter, and form 16
- Independent professionals need to submit education qualification certificate, business proofs, ITR of previous three years, CA audited balance sheet and profit & loss statement
Factors every first-time home buyer should remember:
- Although most banks ask for only 10 per cent down payment, add an extra 5 to 10 per cent to it as it reduces your interest and debt to the bank
- The cut-throat competition between lenders has worked well for customers. You receive not only lower interest rates but also cashback offers
- Know your salary and where it goes. Promotions, hikes, job jumps can fasten the EMI repayment of home loans
- Map out your expenditures before taking a credit