Introduction:
Everyone wants to own a home, but many are unable to do so because of financial limitations. As a result, lenders and the government assist people in realizing their dreams by offering loans.
A home loan, also known as a mortgage or housing loan, is a financial product offered by banks and other financial institutions to facilitate the purchase of residential properties. It enables individuals to own a home without the need to pay the entire purchase price upfront. Loans, in general, involve borrowing a sum of money from financial institutions, creating a debt that must be repaid within a specified period, along with interest. In the case of home loans, the primary goal is to make homeownership accessible by providing a structured repayment plan.
Meaning:
A home loan is a kind of financial product offered by banks or other financial institutions to assist people in buying residential properties. It is also referred to as a mortgage or housing loan. A home loan’s main objective is to make it possible for customers to purchase a home without needing to pay the full purchase price up front.
1) Why people get home loan:-
Before understand home loan we first need to understand what is loan
Loan:- A loan is a quantity of money taken out from banks or other financial organizations by one or more people or businesses to handle urgent or scheduled expenses. By doing this, the borrower creates a debt that must be repaid within a certain amount of time, with interest.
After learning what a loan is, we are able to understand home loans and the reasons behind them.
A home loan is a kind of financial product offered by banks or other financial institutions to assist people in buying residential properties. It is also referred to as a mortgage or housing loan. A home loan’s main objective is to make it possible for customers to purchase a home without needing to pay the full purchase price up front.
2) Things to Consider Before Applying for home loan:-
1) Credit Score:- Your creditworthiness is rated by a three-digit figure called a credit score. 300 to 850 is the range of FICO ( Fair Isaac Corporation) scores. You have a better chance of getting approved for loans and better prices the higher your score.
2) Financial Stability:- Evaluate your salary, work stability, and any additional sources of income to determine how stable your finances are. Lenders will assess your loan-repayment capacity.
3) Budget and Affordability:- Calculate how much you can borrow given your existing financial circumstances. Think about your monthly income, out-of-pocket expenses, and other debts.
4) Down Payment:- Spend less on a down payment. Typically, lenders demand a down payment equal to a predetermined percentage of the property’s worth. More down payment translates into better terms on loans.
5) Loan Amount and Tenure:- Calculate the loan amount you need and choose a suitable tenure. While a longer tenure may result in lower EMIs, it may also increase the overall interest paid.
6) Interest Rate:- Compare interest rates from different lenders. Understand whether the rates are fixed or floating and choose the option that aligns with your financial goals.
7) Hidden Cost and Fees:- Consider additional costs such as processing fees, administrative charges, and legal fees. Factor in these costs to understand the total expense of taking the loan.
8) Loan Type:- Understand the types of home loans available, such as fixed-rate, floating-rate, or a combination. Choose the type that suits your financial preferences and risk tolerance.
9) Government Scheme and Subsidies:- Explore any government schemes or subsidies available for home buyers. This could potentially reduce your financial burden.
10) Loan to Value (LTV) Ratio:- Be aware of the LTV ratio, which is the percentage of the property value that the lender is willing to finance. It may impact your down payment amount and interest rates.
3) Can I get 0% Home Loan:-
The RBI guidelines state that you are not eligible for a 100% house loan. For a home loan in India, the majority of lenders need a minimum down payment of 20% of the property value, while each bank has different requirements. There is no way that any financial institution will provide an Indian home loan with no down payment.
4) What are the prepayment and foreclosure options:-
Verify whether the lender permits early loan repayment and whether there are any fees involved. If you choose to close a loan before its predetermined term, you may be charged foreclosure fees for some loans.
5) What are the benefit on taking home loan:-
1. Tax benefit on home loan: The Indian government offers an exemption from taxes on both the principal and interest paid on home loans in an effort to encourage more and more individuals to purchase their own homes. Under Section 80C of the Income Tax of India 1971 Act, a person may deduct up to Rs 1.5 lakh from their gross income in a given fiscal year. While Section 24B of the Income Tax of India Act permits a deduction of up to Rs 2 lakh on the interest component. Only after the house’s construction is finished are the income tax deductions accessible. Income tax deductions are not available while the property is being built.
2. Tax benefit on second house: Under Section 24B of the Income Tax Act, you are able to deduct the whole amount of housing loan interest paid for a second home.
3. No prepayment charges: There are no prepayment penalties on flexible-rate house loans, when compared to other loans where lenders charge such penalties on payments made toward the loan. Therefore, you may reduce your load and apply any extra money you have to make a down payment on your home loan. Prepayment fees will apply to house loans with adjustable rates, always.
4. Balance Transfer Facility: If a different lender offers you a loan with a better interest rate, you have the option to transfer your house loan to them.
5. Makes it easy to buy dream home: Many people find it difficult to purchase a home with their own funds; however, because home loans can be repaid in convenient monthly payments, purchasing a property is made easier.
6. High repayment tenure: With a payback period of up to 30 years, it has the longest of all house loan types. By extending the tenure, one can lessen the weight of equivalent monthly installments.
6) what is loan disbursement process:-
The process of home loan disbursement involves several steps, including documentation verification, property valuation, and approval from the financial institution. It is essential for applicants to understand the intricacies of this process to ensure a smooth and efficient experience.
7) IS SBI good for home loan:-
The biggest mortgage provider in the nation is SBI Home Loans. More than 31 lakh families have been able to fulfill their dream of buying a house because of it. SBI Home Loans are provided to you on a strong basis of transparency and trust that has become rooted in the bank’s history.
Conclusion:-
In conclusion, a home loan serves as a crucial financial instrument that empowers individuals to achieve homeownership without the burden of paying the entire property value upfront. Understanding the intricacies of the loan process, exploring available benefits, and considering essential factors before applying are key steps in making informed decisions. With the right knowledge and careful planning, prospective homeowners can navigate the complexities of home loans and embark on the journey towards realizing their dream homes.
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The above article has been prepared as by Mr. Sachin Vishwakarma (sachin.vishwakarma@abacussolutions.co.in) and reviewed by Mr. Suyash Tripathi (suyash.tripathi@abacussolutions.co.in)
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