What are the things you should keep in mind while taking a home loan?

A glance

The loan amount also depends on the tenure of the home loan and the rate of interest. Apart from this, banks also fix the upper age limit for the loan.

Generally you take home loan for purchase of house/flat, plot or construction/renovation. Many times home loans are also taken for the enhancement or repair of the house. Here we are giving you all the necessary information about the home loan.

How much loan can you take?

Before starting the process of home loan, assess how much you earn and how much loan banks can give according to that. Your ability to take a home loan depends on your ability to repay it. It depends on your monthly income, expenses and family's income, assets, liabilities, stability in income.

Banks first see whether you will be able to repay the home loan on time or not. The more money you have in your hands every month, the more your home loan amount will increase. Usually, a bank or lending company sees whether you will be able to give 50 percent of the monthly income as home loan installment or not.
The loan amount also depends on the tenure of the home loan and the rate of interest. Apart from this, banks also fix upper age limit for home loan.

If you want to repay the home loan fast, then these tips will be very useful for you...

What is the maximum home loan you can take?

A down payment of 10 -20 percent of the cost of a house or flat has to be made. This is your own contribution.
After this, the loan is available up to 80-90 percent of the value of the property. It also includes charges like registration, transfer and stamp duty.
Even if the lending institution approves you a higher amount as a home loan, it is not necessary that you take the entire amount as a loan.
While buying a property, you should make maximum down payment so that the loan burden is minimal. Keep in mind that the bank lending on the home loan charges you a lot of interest over a long period.
Is it necessary to apply for home loan?
Yes, co-applicant is necessary in most of the cases. If the property is in the names of two people, then in that case both of them must be included in the home loan. If you are the owner of the property then any person from your family can be the applicant.

What are the documents required for home loan approval?

A checklist of documents to be attached is included in the home loan application form itself. Along with this, you have to put a photo.

From the legal documents for buying the house, the bank has to give you the salary slip (office attested and self-attested) along with the identity and residence proof and the bank statement for the last six months along with Form 16 or Income Tax Return.

Some home loan institutions also ask for life insurance policies, share papers, NSCs, mutual fund units, bank deposits or other investment documents as pledge.

What is Home Loan Sanction and Issuance?

According to the papers given by you, the banks decide whether to give you the loan or not. The home loan amount also depends on this.
If the bank has accepted your application and has decided to grant the home loan accordingly, then the sanction letter contains information about the home loan amount, tenure and interest rates etc. It also contains information about the terms and conditions of the loan.
When the loan amount is actually in your hands, it is called disbursement. This actually happens after the technical, legal and valuation related process is completed.
You can decide to take a loan less than the amount in the sanction letter. At the time of getting the loan, you have to provide allotment letter, photocopy of title deed, sale agreement and encumbrance certificate.
From the day the loan amount came in your hand, interest is charged on it.
How will the home loan amount come into your hands?
Home loan is given to you in lump sum or in instalment. There can be a maximum of three installments in this. In case of indoor construction property, the loan amount is given according to the progress of construction.
In case of such a property, you can enter into this agreement with the lending bank where the home loan amount will be given to the builder as per the construction. In case of ready-to-move properties, the loan amount can be availed in a lump sum.

What are the interest rate options on home loan?

The interest rates on the home loan can be fixed or flexible. In Fixed, the interest rates are fixed in advance and in Flexible it keeps on changing.

What is Marginal Cost of Funds Based Lending Rate (MCLR)?

This is a new method invented by banks to fix interest rates on home loans. Earlier banks used to fix interest rates on the basis of base rate. Now loan is available only at the rate based on MCLR.
In MCLR mode, banks fix the MCLR rate every month for one day, one month, three months or six months, one year, three years. After this, banks decide the interest rate by adding the spread component to it.
For example, if the MCLR rate of a bank is 8 percent for one year and its spread is 0.5 percent, then in reality the interest rate on the loan will be 8.5 percent.
In case of MCLR based interest rates, banks can reset it in a year.
In this era of declining interest rates, quarterly, half yearly reset option is better, on which your bank should be ready. If interest rates start rising, then in this case you may suffer a loss.

ICICI Bank also made home loan cheaper

The rate cut will be applicabe to all existing as well as new customers of ICICI Bank. The bank now offers home loans at 9.85% for women borrowers and those from the weaker sections, while for all other customers the rate would be 9.90%.
What is Base Rate and what to do if your Home Loan is linked to it?
All home loans taken after July 1, 2010 (but before April 1, 2016) are linked to the base rate. In this case, banks are free to calculate the cost of funds on the basis of average cost of funds or MCLR.

What are the costs involved in a home loan?

When you take a home loan, you don't just pay the loan installment. Although this does not apply in every case, but there are many expenses involved with it.
There may be a processing charge of up to 1% of the loan amount, which is sometimes waived by banks. In case of more expensive properties, two valuations are done and loan sanctioned on the lower valuation.
This is called the technical evaluation fee by the lending bank. Lending banks appoint another firm to check the documents of the borrower. Its cost is also included in the processing fee, some charge it separately.
What is the home loan monthly installment?
The amount you pay to the bank every month consists of both interest and principal, this is called Equal Monthly Installment or EMI.

How home loan can be repaid?

There are several ways to repay the home loan to the bank. Loan outstanding can be paid to the bank through Electronic Clearance System (ECS), you can ask your employer to deduct this amount from salary and pay it directly to the bank or by giving a post-dated check from the salary account.

How does the home loan amount change?

The installment you pay every month consists of the principal amount along with the interest. This principal is deducted from your actual principal amount. In fact, every month your interest amount decreases and the principal amount increases. Most of the banks adopt monthly reducing balance based approach.

Can you close the home loan prematurely?

You can also close the home loan before the tenure for which you have taken it. If you are in floating interest rate, then no charge is taken for it, whereas in fixed rate banks can levy charges.

What is part prepayment of home loan?

Apart from the regular installment, when you deposit any amount in the home loan account, it is a partial payment. This reduces your principal amount, thereby reducing the interest component in your installment amount.

This can reduce the tenure of your home loan, and actually save you the amount you pay as interest.

Do banks issue documents for every installment paid every year?
Every year banks send this type of document to you. This statement helps you to know about the home loan. Many banks also provide the facility to download it online.

Should I get insurance for a home loan?

It is always better to cover the risk of this home loan. It can be a big relief for your family in case of your absence due to some reason.

You can take a pure term plan or take a mortgage insurance plan for this. Both single and regular premium options are available in this type of plan.