Consider 5 things before you apply for Home Loan

by Naveen A. Outreach Agency

Owning a home is the biggest dream for millions of families. The joy of having your family name on the door is priceless. The futility of paying rent is today understood by most people when they can with small payments own their home at a location of their choice.

A home loan, like a good friend, allows you to realize your true potential and helps you in every step of the way to get the roof above your head. But many do not know where to begin for home loans. All top financial lenders, like Tata Capital, are ready to give home loans to eligible borrowers. Borrowers should know 5 key things before they apply for home loan. Let us discuss these 5 important things.

1. Exact need for a home loan: A good thing to start is by finding out why do you need a home loan. There are different types of home loans to suit different customer needs. Some need a home loan to buy a new home. Some need a home loan balance transfer to take advantage of cheaper interest rates. Some want a home loan top up to access more cash for various reasons. There are also some borrowers who require a home extension loan, and some even want a personal loan for home renovation. Find out why do you need the home-related loan for and that makes it that much easier to decide the next steps.

2. Affordability of interest rate: After deciding your home loan purpose, the next big question is the interest rate. Many ask: "Can I afford the home loan?" The short answer is yes. Home loans today are extremely affordable thanks to ultra-low interest rates. For instance, Tata Capital today gives home loans up to Rs 30 lakh to salaried persons at 9.05% effective rate. For amounts greater, you get at 9.2%. Women borrowers of home loans can access 0.05% lower rates. For self-employed non-professionals, home loans come in the 9.2-9.45% range.

3. Know the home loan EMI: Once you know the interest rate, to understand the affordability simply use a home loan EMI calculator. This will tell you the EMI that you will pay over the loan tenure, say 15 or 20 years. Every EMI that you will pay comprises a principal component and interest component. This calculation is done for the duration of the loan period or loan tenure. Home loans are highly smart. In the initial years of the loan repayment period, EMIs have a larger component of interest payment and a smaller component of principal repayment. In the later stages, the EMIs have a larger principal and a lower component of interest. Don't worry: your EMI is uniform throughout the period of the home loan. So, you pay a similar amount every month.

4. Find out eligibility and documents required: Most salaried and self-employed people are eligible for home loans. But there is some confusion in borrowers' minds about the same. Let us clear that up. Lenders like Tata Capital classify borrowers based on their source of income. So, eligible borrowers can be salaried individuals working in reputable companies, self-employed professionals, self-employed non-professionals or business persons. If the borrowers earn income sufficient to service the home loan, they will get the credit. Another important criteria is age. If you are above 24 years of age at the time of borrowing the home loan, you will have no problem. On the higher side, you should be below 65 years of age or superannuation at the time of loan maturity. This is for salaried individuals.

Depending on income source, home loans may be given upon submission of proper papers and documents like photograph, identity proof, residence proof, latest salary slip, Form-16 from employer, six months' bank statement, education proof, business existence proof, latest income tax returns (ITR) for 3 years, business profile etc. These documents are extremely important for getting home loan approval from the lending institution.

5. Remember home loan fees & charges: Apart from interest rates, home loans have some other associated costs. It is important for you to know these fees and charges before you apply for a home loan. All these add up to the final cost of owning the home. Firstly, there is a non-refundable processing fee which can be up to 0.5% of the loan amount. Next, there is a stamp fee levied by the state government. This fee varies across states. It is safe to assume that it would be between 3% to 8.5% of the property value.

While servicing home loans, irregular, delayed or missing EMI payments can attract penalties. Top lenders like Tata Capital are 100% transparent and would readily disclose all fees and charges to customers before the loan. If you want to prepay a big chunk of your home loan, there may be charges. This fee kicks in whenever prepayment exceeds the 25% limit in a year. Full foreclosure of home loans attracts some fees if you use someone else's funds. Any fees levied by a collection agency and legal action will be on actuals.