Home Loan Handbook: All Questions Answered

What Is A Home Loan?
(Let’s break it down for you)

A Home Loan – now that’s what you need when you plan to buy a house of your own. A place to unwind, charge yourself, or just be a couch potato. A Home Loan saves you from paying rent, changing houses every two years and tip-toeing around some grouchy landlords. But hitting a home run on this particular item is no child’s play. Not all of us are Scrooge McDuck with a shiny ‘money bin’ for a swimming pool. Though a Home Loan might not be enough to help you buy the house of your dreams, it’ll definitely help you bag a beautiful two or a three-bedroom house.

But first, you must get that all-important nod of approval from your loan provider. Your Home Loan application will be accepted only after you pass the eligibility test.  Also keep in mind that a Home Loan is a secured loan. This means you’ll have to pledge security to the bank to get one. An existing house, a piece of land, your Fixed Deposits – all of these can be pledged as security. Don’t panic, the bank won’t take away your asset unless you skip your EMI payments.

If you have been looking to buy a house, this guide will prove handy. It has the answers to all your queries regarding a Home Loan – features, repayment, interest rate and much more. Read on.

Types of Home Loans
(Different strokes for different folks)

Home Loans come in multiple flavours and colours. What we mean to say is that the term Home Loan is a big wide umbrella with many offerings. There are many requirements pertaining to real estate that can be met with a Home Loan. Listed below are the various types of Home Loans:

Land-Purchase Home Loan: When it comes to getting a house of your own, you might wish to start at the very roots. Thinking about buying a piece of land and building on it rather than going for a ready-made home? A Land-Purchase Home Loan would be the thing to help you do just that. It is issued for the purpose of purchasing land alone. Banks usually finance up to 85% of the land cost.

Home-Construction Loan: Now you have a piece of the Promised Land but what about the walk-in cupboard, the French windows, and the parking for your darling car? You will need a Home-Construction Loan for all these. A Home-Construction Loan is exclusively taken for constructing a house rather than purchasing a constructed property. This loans affords you the flexibility to plan your home.

Purchasing A Home: Well, we understand if you don’t want to deal with the hassle of supervising a noisy construction site. In this case, you can apply for a Home Loan to purchase either a new or an old property. Home Loan lenders usually finance up to 80% to 95% of the property value. You can opt for either a fixed or floating rate of interest. More on interest rates here.

Home-Expansion Loan: If you wish to add another storey to your house or build a few more rooms in your backyard, apply for a Home-Expansion Loan.

Home-Improvement Loan:  So your parents let you have the old colonial house your great-grandfather bought 150 years ago? It’s like a dream come true. But the walls of your dream house are flaking and your German Shepherd has left patchwork artistry on the patent leather couch. What to do? Apply for a Home-Improvement Loan. You can take this loan to refurbish your home and make it look as good as new.

Home-Conversion Loan: It might happen that you avail a Home Loan for a certain house and then a few months later, find something better for the same price. You want to make the switch and that feeling of, “Oh, I should have looked around more?”, is giving you sleepless nights. What to do? Abracadabra – a Home-Conversion Loan! With the help of a Home-Conversion Loan, you can use the loan taken for one property to buy another property. If you are a few bucks short, your lender bank might cover that too.

Resale-Property Loan: As the name goes, a loan sanctioned for buying resale properties is called a Resale Property Loan. A resale property is one which has been previously owned by someone else. It is not a new house and you will not be the first owner.

Commercial-Property Loan: You have a start-up business going full swing and the ever-growing team is struggling for elbow room in your makeshift house-office. Now you don’t want fights for chairs leading to a civil war of sorts. To remedy this, you purchase a commercial property to set up your office space. Keep in mind, interest rates for a Commercial-Property Loan are different from those for a Residential-Home Loan.

Stamp-Duty Loan: A Stamp-Duty Loan can be taken to pay off stamp-duty charges that come with the purchase of a new home. The amount received as Stamp-Duty Loan cannot be used for any other purpose.

Bridge Loans: This loan is to help you buy an additional property. It is suitable for those who wish to purchase a second home. Bridge Loans are short-term loans and are usually granted for a period of less than 2 years.

NRI Home Loans: This loan can be taken by non-resident Indians to purchase properties in India. The formalities for NRIs getting a Home Loan in India are the same as those for resident Indians.

Balance-Transfer Home Loan: It refers to the process of transferring your Home Loan from one lender to another. Home buyers mainly opt for a Home-Loan balance transfer to get attractive and lower rates of interest on their principal amounts. A Home Loan transfer is also known as loan switching. There are two ways of switching your Home Loan – either you can approach your bank as a new customer and submit all property documents to get a Home Loan at lower rates or get a waiver on credit evaluation.

Top-up Loan: You can take a Top-Up Loan on your Home Loan to meet personal expenses or to buy things for your new house. Having a Home Loan is mandatory to get a Top-Up Loan. Top-Up Loans are ideal for those people who are in need of urgent cash. Moreover, these loans come at a lower rate of interest than a Personal Loan.

Second Home Loan: This loan is designed to help you purchase a second house. If you are making this purchase for investment, get a good idea of how much it will appreciate. A second home will come with many new taxes. Tax for giving it on rent, wealth tax, since a second home means pure wealth. Also check your pockets before taking a second Home Loan. Will you be able to afford it?

Mortgage Loan: Mortgage refers to a legal agreement that transfers the right of a property from the buyer to the Home Loan lender. A Mortgage Loan is a type of secured loan where the property being purchased is used as security against the Home Loan. A Mortgage Loan works like a Home Loan. You pay it back to the lender with interest and within a certain time period. There are two types of mortgage offerings on the shelf – Repayment Mortgage and Interest-Only Mortgage. With repayment mortgage, you reduce your mortgage balance with each EMI. However, if you opt for an interest-only mortgage, you pay only the interest amount first and the principal later.

Reverse Mortgage Loan: A reverse Mortgage Loan allows you to take a loan against the value of your property. There is no need to pay EMIs until the property is sold or the borrower dies. It is often given to homebuyers above the age of 62 years. Married couples are also eligible for Reverse Mortgage Loans as joint borrowers. When the homeowner dies, the legal heir can either keep the house or sell it. If they decide to sell the house, the profits from sale go towards paying the mortgage and any balance remaining is kept by the nominee.

What Is A Pre-approved Home Loan?
(Receive before you ask)

A pre-approved loan is one where a bank or lender is ready to give you a loan for a certain amount without you having to ask for it. A pre-approved Home Loan allows you to apply for a Home Loan before finalising a property. Banks offer pre-approved Home Loans to both existing and new customers. They check the credit history, including income, debt-repayment history, current assets, and outstanding debts before sanctioning an amount. A bank needs to be convinced of your creditworthiness to provide you with the amount you deserve.

There are pros and cons of a pre-approved Home Loan. It’s wiser to be well-versed with them.

Benefits Of A Home Loan?
(Oh, yes. Here’s all the good stuff.)

The purpose of a Home Loan is to power you with sustainable financial strength to make a home purchase. After all, it’s easier to cook meth in your own home than a rented one – as Walter White quickly learned. Just a warning, there is no saving you if you get caught. (Hey, just saying. We don’t endorse narcotic manufacture or use in any way!)

A Roof Above Your Head: To have your own home perhaps will be the biggest investment of your life. It offers you shelter and long-term security. Moreover, real estate appreciates more often than it depreciates. No wonder owning a house is a badge of honour in itself. Hence, being able to own a property is the first and foremost benefit of applying for a Home Loan.

Investment Purposes: Property value appreciates at the speed of light. It’s an investment that, more often than not, will give you fantastic returns. Sometimes, more than 100%. You buy a house today and within a few years, its market value will shoot past what you paid for it. To this end, many people buy under-construction properties at affordable rates and then rake in profits from a sale when prices soar. If you feel a property has great potential for growth, grab it now with a Home Loan.

Inner Peace: Having a home of your own fosters a sense of accomplishment and security in you and your family members. With a house of your own, you will be more confident to take on the other challenges of life.

Features Of A Home Loan
(What’s the fuss all about?)

When taking a Home Loan, it’s important to look at the principal and the interest amounts independently. Confused? Well, the two will be treated separately by the lender bank.

Your first few EMIs will go towards paying the interest amount and everything after that will go towards principal repayment. This knowledge will help you determine the right loan amount for you. With this said, we can delve into the key features of a Home Loan. Class is in session.

Amount: Amount refers to the money borrowed by a person from a lender to purchase a house. A lender is under no obligation to sanction the total loan amount requested. The sanctioned amount will depend on your salary or income, repayment capacity, and the value of other assets in your name.

The loan amount is one of the things that plays a role in influencing your EMIs.

Higher Loan amount =Bigger EMIs

Smaller loan amount =Smaller EMIs

Interest: Home Loans come with two types of interest rates – fixed and floating rates. If you opt for a fixed rate of interest, you will pay a fixed amount of interest for the whole tenure of the loan. However, a floating rate of interest will trace the ups and downs of market conditions. A general thesis states that floating rates tend to be less expensive compared to fixed rates.

 At any time during your loan tenure, you can switch from a fixed rate of interest to a floating rate and vice-versa. But keep in mind, banks charge a fee for this.

Tenure: Tenure is the total number of years you will take to repay the Home Loan – principal and interest alike. The minimum Home Loan tenure is usually 10 years and the maximum is 30 years. Before you decide the tenure, factor in your salary and other expenses. Tenure plays a critical role in determining your EMI amount.

Longer tenure =Smaller EMIs

Shorter tenure =Bigger EMIs

Banks will consider your age and total years of work experience before determining a tenure. If you are many years away from retirement, getting a long-tenure loan will be easier.

Insurance Costs: Some lenders, when sanctioning your loan, might insist that you insure your Home Loan. Yes, you heard it right! Insure your Home Loan and not your home. This is a strategy adopted by banks to buffer themselves against any problem, such as the demise of the borrower. In such a situation, the bank can recover the outstanding loan amount from the insurance company. Though some banks might insist on an insurance cover, it’s not mandatory for you to go with their offer. You have all the freedom to explore options outside. We are a democracy, after all! More about Home Loan Insurance here.

Documentation: Documents are the life force of a Home Loan. Though it’s important to submit all documents from your end, it’s equally important that you cross-check all documents provided by the bank. Have the loan amount, interest rate and all other details printed on the bank’s letterhead and duly signed by the authority concerned. Cross-check the details. An extra zero or a typo in the interest rate will play havoc with your finances. Better safe than sorry.

Other Costs: If a lender offers you a Home Loan at a ‘too good to be true’ rate of interest, don’t just grab it. A low rate of interest on a Home Loan can be a honey trap. Keep a look out for processing, administration and legal fees. When these are clubbed with the interest rate, the sum might set you back a great deal. These additional costs, however, are negotiable. Turn on the charm and get negotiating!

Tax Benefits: A Home Loan comes packed with many tax benefits. Home buyers get tax exemption on the principal as well as interest payments. Besides, as per the Budget (2016), first-time home buyers are set to get additional deduction of Rs.50,000 on interest for loans of up to Rs. 35 lacs.

Important Home Loan Terms
(Know your ABCs)

Who Is A Home Loan Nominee?

A nominee is a person who is entitled to receive the ownership of your property in case you are no more. Pick your favourite child! The concept of a nominee comes into play when you insure your Home Loan or purchase Home Insurance. If you pass away during the Home Loan repayment tenure, your insurance provider will pay up the outstanding loan amount on your behalf. Plus, your nominee will become the new owner of the property.

Who Is A Home Loan Guarantor?

A guarantor is a person who vouches for your credibility before a Home Loan provider. Don’t confuse a guarantor with a co-applicant. A guarantor is a person who guarantees to pay somebody else’s debt if the principal borrower defaults on his/her payments.

When it comes to choosing a guarantor, banks usually ask for someone who is a part of your family or someone close to you, maybe a good friend. A guarantor needs to submit proof of his/her income, such as salary slips, property documents, PF details, etc., to prove that he/she is capable of repaying the Home Loan in case you go rogue.

What Is Home Loan Collateral?

Home Loan Collateral refers to the security against which the lender sanctions a Home Loan. Collateral is also known as secured lending or asset-based lending. In case of a Home Loan, the property you are looking to purchase can serve as collateral. In case you fail to repay your Home Loan, the bank will claim ownership or take possession of your property. Securities/collaterals protect lenders against Home Loan defaulters.

Don’t get ideas. Defaulting on your loan is a crime with long jail terms, which is nobody’s idea of fun. And nobody will give you a loan after this act.

Talking about collateral, a marketable collateral is one which can be sold under normal market conditions at existing market values. In other words, marketable collateral refers to the exchange of financial assets, such as bonds and stocks, for borrowing money from a financial institution. What’s the use? A marketable collateral will help you get a bigger loan amount from the bank.

What Is LTV (Loan-To-Value Ratio)?

It is a financial term indicating the ratio of a loan to the value of an asset purchased. The term is used by financial organisations and banks to calculate what portion of a property the borrower owns debt free and what portion is being paid with a loan. The loan-to-value ratio is applicable to Home as well as Auto Loans.  You can calculate LTV by dividing the total loan amount with the total value of your property. LTV basically refers to the percentage of your property that is mortgaged and the percentage that is not.

Eligibility For A Home Loan
(Do you make the cut?)

You have kept your eyes trained on your dream home, but have you glanced at the eligibility factors? If not, it’s time you did.

Borrower’s Profile: When you apply for a Home Loan, banks will employ FBI-grade scrutiny to vet your profile. They will employ their best agents to study your monthly income, age, exiting loans and CIBIL Score, among other things, to determine your creditworthiness. Let’s break down these factors one at a time.

Monthly Income: If your Home Loan is a cheeseburger, your monthly income is the cheese. The more the cheese, the better the burger. If you earn a good monthly income, the loan amount sanctioned will be higher and vice versa.

Age: Your age is another factor that affects your Home Loan eligibility. Banks decide the tenure of your loan based on your age. The younger you are, the longer the tenure of your Home Loan. And vice-versa, of course.

Existing Loans: You have a fat salary but the bank didn’t quite sanction the amount you were hoping for. You even broke coconuts every Monday morning. Hmm, do you have an existing loan? Well, then, if a certain sum of your salary is already going towards paying your existing loan, this will reduce your disposable income. Moreover, if banks find that your monthly expenses are higher than your monthly income, they can say no to your loan application.

CIBIL Score: You might have your income sorted but things are only starting to warm up. CIBIL Score is a word you will hear many times when applying for a Home Loan. In fact, it’s the most important determining factor to win a Home Loan. With a good CIBIL Score, you can get financing for up to 85% of the total value of your property. Or even 100%.

Now, What Is A CIBIL Score? It is a three-digit number that will tell the lender all about your credit history. A CIBIL Score ranges between 300 and 900. A score of 700 and above is ideal to get a Home Loan. However, the closer you are to 900 the more assured you can be of receiving a Home Loan.

Apply For A Home Loan Despite A Poor Credit Score? Yes, you may get a Home Loan despite a bad Credit Score. But, the bank may charge you a higher rate of interest and may ask you to apply with a co-applicant, one who can take responsibility in your absence.

How To Get A Good CIBIL Score: You can get a good Credit Score by following these steps – make all you debt repayments on time, never utilise the entire credit limit offered on your Credit Card, and maintain a balanced combination of secured and unsecured loans. Making frequent requests to check your Credit Score may have a negative repercussion on your Home Loan application.

How To Improve Your CIBIL Score: You can easily improve your Credit Score by paying your debts, loan EMIs, and Credit Card bills on time. Credit Score agencies review your score from time to time.

Debt-to-income Ratio: Banks calculate your debt-to-income ratio before sanctioning your loan amount. A low debt-to-income ratio will work to your advantage, telling the banks that you have healthy spending habits.

Educational/Professional Qualification: Yes, all those endless lectures on career plans make a difference when you apply for a Home Loan. Your academic and professional qualification can help you score good grades in the eligibility section.

Profession: Banks will consider you a risky bet if you don’t earn a regular income. But if you are in a stable, well-paying job, getting a Home Loan will be easy-peasy.

Employer Category: Do you work for a company whose name makes everyone look up to you in awe? If yes, you are in a good position. Banks usually have good interest rates for employees of big-banner companies; better than the rate they would offer to employees of smaller unknown firms.

Builder/property chosen: Your eligibility for a Home Loan is also dependent on your choice of property. If you think you could take over a troubled property and work magic with the papers, well, think again. It won’t be easy if you are looking to buy it with a Home Loan. If your property is not government approved, banks can reject your loan application. Banks run property checks before sanctioning a Home Loan. What do you think you are paying a legal fee for?

Past Relationship With Lender:  Isn’t it easier to call in a favour from your friend than someone who you don’t know too well? Well, the same applies to your Home-Loan provider. A lender who knows you well will help give you a Home Loan more readily than the others. A friendly banker might even throw in some special discounts.

Meeting the eligibility requirements* should be your goal if you wish to get a Home Loan. If there is anything you need to fix, fix it before you send your application.

*Eligibility requirements differ from bank to bank.

How to Improve Your Home Loan Eligibility
(The secret sauce to get your loan application approved)

If you spot glaring loopholes in your eligibility checklist, it’s important that you rectify them before pressing the submit button on your Home Loan application. Here are some steps you can take to dress up your eligibility.

Opt For A Longer Loan Tenure: You can raise your Home Loan eligibility by opting for a long-tenure loan. It will make your monthly EMIs smaller and help you pay off the debt smoothly. Lenders like long tenures as it brings them more interest money.

Clear Your Outstanding Debts: Having too many outstanding loans or debts may affect your Home Loan eligibility. First, pay off any ongoing loans and then apply for a Home Loan. This will help you win a higher loan amount. 

Club Incomes By Adding Co-applicants: Maybe your salary can afford you a fancy apartment, but what if you can get a villa with a co-applicant on board? A co-applicant could be anyone from your family. Just club two salaries together and you can ask for a higher loan amount. Remember, banks don’t allow friends or relatives who are not blood relatives to be a co-applicant. Minors are also not eligible for co-application.

Step-Up Loans: Opting for a step-up loan is another way of increasing your Home Loan eligibility. In a step-up loan, you pay lower EMIs in the initial years, but increased amounts towards the end of the loan tenure.

Add Perks: If you are a salaried employee, mention your annual bonus, variable pay, and other such performance-linked payments under the income section. This will greatly boost your repayment capacity and hence, result in a higher loan amount.

Home Loan Eligibility Calculation
(Work it out, Einstein!)

We understand you would like to calculate your eligibility before applying for the loan. You can do so by entering the following information in a Home Loan Eligibility Calculator.

• Loan Amount
• Annual Interest Rate
• Monthly Salary
• Home Loan tenure you are seeking
• Total EMIs you can afford to pay per month

Wasn’t that simple?

You can find Home Loan eligibility calculator on the website of almost any bank. Else you can visit third-party financial website to assess your eligibility for a Home Loan.

(Psst, try us. We are good!)

Many EMI Calculators also provide a loan amortisation table that give you exact details of what amount you have paid and how much is outstanding. You can compute your Home Loan EMIs either at a monthly reducing balance, an annual reducing balance, or a daily reducing balance.

Documents Required For A Home Loan
(What you’ll need for a well-prepped file)

Just like the eligibility criteria, the list of documents required to process a Home Loan may differ from bank to bank. The following table lists out the most commonly required documents.

Apart from the above-mentioned documents, banks may ask for additional documents while processing your Home Loan application.

How To Choose A Home Loan?
(Inky, Pinky, Ponky won’t really work.)

Just choosing a cupcake can take a considerable amount of thinking. This, for heaven’s sake, is a Home Loan. But what if we make choosing a Home Loan easier than choosing cupcakes? Follow these steps and by the end of it, you’ll be able to identify the Home Loan made for you.

Evaluate Your Capacity: First, calculate the amount you can afford to repay—keeping interest in mind—and don’t go over your budget. It’ll be like jumping into 10 ft of water when you can swim only in 5 ft.

Understand The Loan Package: It may happen that Home Loans with low interest rates come with higher processing fees and other charges. Moreover, if you pack your loan with top-up features, you may find yourself carrying more weight than you can bear. Before you sign on the dotted line, be very clear about every little cost involved. Ask your banker as many questions as you must so that you thoroughly understand the whole package.

Understand Your Financial Needs: When deciding on the loan amount, consider your monthly expenses. This will give you a true picture of your repayment capacity. Also, anticipate expenses that might come up in the future – the school fees of your children, medical expenses, etc. Strategising in advance will help you budget well once the EMIs start.

Calculate The Down Payment: When taking a Home Loan, calculate how much down payment you can afford to pay and then determine the loan amount. Banks usually finance 80% to 95% of the total property cost. However, there are lenders who provide 100% of the property cost. In that case, you may end up paying a higher rate of interest. The more down payment you make, the less you’ll need to borrow and hence, less small interest pay-outs.

Look Out For Prepayment Charges: This might seem trivial initially but bargain for a Home Loan that comes with zero prepayment charge. So, if you find yourself coming into money during the loan tenure, you can make additional payments at no extra cost. This will help you save big bucks which would have otherwise gone towards paying interest.

Compare: For something as simple as grocery shopping, you scout multiple shops to find the best quality products at the best prices. Likewise, it’s important that you explore and compare Home Loans – lender institutions, interest rates, time taken for processing, and other fees and perks to spot the best deal. Also, compare fixed and floating rates of interest and see which would work better for you.

Eligibility: Always check your eligibility criteria before applying for a Home Loan. Make sure you have a goodCredit Score and that all your documents are in order.

If you are still confused, settle for a cupcake instead. Kidding! If you feel no good deal is coming your way, take the help of the internet. Hey, here’s a thought: Visit BankBazaar and compare Home Loans from the comfort of your phone or laptop.

How To Choose A Property
(Yes, this is a toughie.)

 Before purchasing a property, consider the following factors. If you have rich parents, then you probably don’t need to worry about it, of course!

Affordability: Consider the price of the property. Do some quick math and see whether you would be able to afford your EMIs or not. Borrow only as much as you can afford to repay without disturbing the rest of your budget. While calculating your affordability, you need to consider the registration fees and stamp duty. These costs are not included in your Home Loan amount.

Appropriateness: Finding a property in your budget is not enough. It’s important that it meets your requirements – accessibility, facilities available, nearby schools and hospitals, public transport etc. Or dog-grooming salons or koi ponds if that’s more your thing. You get our drift.

Shop Around And Compare: After selecting a property, find out whether the price you are willing to pay is fair or not. You can do this by comparing the prices of similar properties around the area. If you feel assured, then go ahead and make the purchase. If there is even a hint of doubt, seek out property advisors.

Home Loan Interest Rates
(That all-important rate that will make you sit up and take notice.)

 The interest rates on Home Loans will differ from bank to bank. Then there are fixed and floating rates.

Additional Charges For A Home Loan
(Oh, yes. Brace yourself. There’s more!)

The fees and charges applicable on a Home Loan differ from bank to bank. Apart from the interest rate, you need to pay certain additional charges. Mentioned below is the checklist of these charges:

Loan Processing Charges: All lenders charge a non-refundable processing fee on Home Loans. It is the cost involved in processing your Home Loan.

Prepayment Charges: It is the amount paid for foreclosing your Home Loan.

Charges For Late Payment: If you miss EMI payments, banks will charge a late-payment fee.

Conversion Charges: You can switch between different interest rates by opting for a conversion facility and paying a certain amount for it.

Repayment Mode Swap Charges: If you ask for a change to your EMI repayment mode, lenders may charge you for it.

Document Retrieval Charges: When you apply for a Home Loan, the lender will ask you for the house documents. You will get these documents back after the loan has been paid. The lender will keep these documents at a central storage unit and you will be charged for it when you get the documents back. This is known as a document retrieval charge.

Cheque/AD/ECS Bounce Charges. If an EMI cheque bounces because of lack of funds, the bank will add a cheque-bounce charge to your loan.

CIBIL Report Charges: It refers to the cost involved in purchasing your CIBIL report. Yeah, nothing comes for free!

Administrative Charges: It refers to the cost involved in administering your Home Loan. Keep counting.

Legal Charges: Banks charge a legal fee for having your documents vetted by a legal eagle.

No Objection Certificate Or No Due Certificate Charges: Bank may charge you for giving you a No Objection Certificate or a No Due Certificate after you pay up your Home Loan.

Basic Registration Charges: The charges involved in registering your property under the Registration Act 1908. The registration charges for a property may vary from state to state.

Transfer Charges: It refers to the cost involved in transferring a Home Loan from one lender to another.

Stamp Duty Costs: Stamp duty charge is levied by the state government on your property after calculating its market value.

Service Tax And VAT: Service Tax and Value Added Tax may be applicable on properties under construction.

Broker’s Fees (if applicable):  It is applicable if you have used the services of a broker to purchase a property or to process your Home Loan application.

Home Appraisal Cost (if applicable): It is the cost paid to an appraiser by your lender.

CERSAI Charges: This charges is for fraud protection. Banks usually charge Rs. 250 to Rs. 500 to ensure security interest with the help of CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest of India).

All the above-mentioned charges are levied during the tenure of your Home Loan. Hence, it’s important that you understand them properly before finalising a deal with your lender.  Having a clear idea about these fees and charges will help you bargain better and get maximum juice out of your Home Loan application.

Talking about interest rates, it is wise to familiarise yourself with BPLR. BPLR stands for Benchmark Prime Lending Rate. It is a reference rate for banks to determine Home Loan interest rates. BPLR is the minimum interest rate at which a bank can give a loan. Earlier banks followed the Base Rate system instead of the BPLR rate system.

Costs Not Approved By Banks As Part Of A Home Loan

Banks do not include stamp duty, registration and other documentation related charges in the Home Loan amount. These charges are excluded from the total value of the Home Loan. Figure out a way to pay for them. As per the Reserve Bank of India mandate, banks should not include the aforesaid charges while calculating the cost of your chosen property. Don’t say we didn’t warn you!

Know About Home Loan Co-application
(Because two’s company.)

There are both advantages and disadvantages to a applying for a Home Loan with a co-applicant.

Advantages of Home Loan Co-application:

 Tax Benefits: Under the Indian Income Tax, 1961 Act, a Home Loan co-applicant is eligible for tax benefits. These benefits are applicable on both the principal as well as interest amounts. To avail of these benefits, the property needs to be registered in the name of both the primary applicant as well the co-applicant. The applicable tax benefits on a Home Loan can be claimed by the owner and the co-applicant once the construction of the property is complete.

Higher Amount: You are eligible for a higher loan amount if you apply with a co-applicant.

Flexible Repayment: The repayment procedure is flexible. It is not mandatory for the co-applicant to make contributions to EMI payment.

 Disadvantage of Home Loan co-application:         

• Since two applicants are involved in the Home Loan, documentation and loan processing may take extra time.

• If the primary borrower takes the responsibility of repaying the Home Loan and fails to do so, it will affect the CIBIL score of both the applicants. If one’s going down, the other one’s going down with them. Yikes!

Difference Between Home Insurance And Home Loan Insurance?
(Charity begins at home)

 Home Insurance

Home Insurance protects your house against attacks from the Asgardian Army, an angry Hulk and ant attacks. Home Insurance is designed to protect your home as well as its contents from unforeseen material damages. Home Insurance is also known as Home Buyers Insurance Generally, Home Insurance covers the following risk factors:

• Fire
• Lighting
• Flood
• Inundation
• Storm
• Riot
• Strike
• Earthquake
• Terrorism (It can be optional)
• Theft or Robbery

Home Insurance Policies can be customised to suit your personal needs. Check out the sub-categories in Home Insurance:

Comprehensive Home Insurance: It protects your home as well its contents from all possible risks.

 Basic Home Insurance: It provides you with limited protection. You can pick hazards you are most vulnerable to. No, your in-laws do not count.

Broad Insurance: It is mixture of both basic and comprehensive coverage. You can choose comprehensive coverage for your building and basic coverage for your belongings.

No-Frills Cover: This applies to products not covered under the above three insurance plans.

Home Loan Insurance

 Another type of insurance related to property is Home Loan Insurance. Home Loan Insurance covers an entirely different set of risk factors compared to Home Insurance. It provides protection against the risk of death of the borrower. In case of the demise of the borrower, the insurance provider would repay the outstanding Home Loan amount.

Banks usually offer Term Life Insurance Plans to the borrower to this end. They tie-up with Life Insurance providers and then club your insurance premiums with your Home Loan EMIs. The criteria for offering Home Loan Insurance may differ from bank to bank.

We know it’s an additional burden but you get tax benefits on premiums paid towards your Home Loan Insurance Policy.

Keep in mind that if you opt for Home Loan foreclosure service, you may end up paying a huge amount of money as Insurance premiums.  Also, if you opt for Home Loan balance transfer to another bank, you might face difficulty transferring your insurance policy.

Choosing A Home Loan provider
(Presents more of a dilemma than an all-you-can-eat buffet table)

There is so much choosing to do with a Home Loan that you might be tempted to just drop all plans of buying a house. But if you want a house, hurdles must be crossed.

There are two types of loan providers.

• Banks
• Housing Finance Corporations (HFC) or Non-banking Financial Institutions (NBFC)

No matter who you pick, consider the following things before applying:

• Interest rates
• Loan tenure
• Monthly repayment modes
• Lenders’ rating
• Fees and charges involved
• Compare schemes and offers offered by various other financial organisations

HFCs and NBFCs may loan you money to pay stamp duty and registration charges but charge you a higher interest rate. Choose wisely!

Post-Application Process
(Stay calm and do your thing)

Now you know enough about what to do before you apply for a loan. But aren’t you curious about what goes on backstage? Well, here is how the bank processes your Home Loan application.

• The lender will evaluate your loan application and follow it up with a personal discussion with you. Remember to carry all your documents for verification when you are summoned.

• After this, banks will undertake a separate investigation, unbeknownst to you, to cross-check the validity of your documents and details mentioned in the application form. You may have people visiting your home or workplace to verify these details.

• If the bank is satisfied post investigations and verifications, it will accept your Home Loan application and grant you the maximum loan amount you are eligible for.

• Finally, you will receive a notification from your lender about your Home Loan sanction via email or by post. The letter will contain the following details (largely):

• Loan amount sanctioned
• Loan tenure
• Rate of interest at which the loan is being offered
• Mode of repayment chosen by you
• Special terms and conditions, if any

Once, you are satisfied with what the bank offers, you can sign and send a copy of your acceptance. Hurray!

Application to disbursal timeline

 Your bank will initiate the disbursal process after you sign the loan agreement. If your property is under construction, your bank will divide the loan amount and disburse it in instalments. If it is a fully developed property, the bank may release the entire amount in one go.

All About Down Payments
(The tricky bit)

When you purchase a property, you need to pay a certain amount upfront to your builder. This money is called the down payment and is usually about 20% of your property value. Sometimes, arranging an amount of Rs. 15 lakh to Rs. 20 lakh can get challenging. Therefore, calculate how much down payment you can afford to make before you take a final call on your property deal.  Banks usually loan 80% to 95% of your property value.

Don’t have enough to make a down payment? Now you know why we ask you to start saving and investing early. Well, we’ll reprimand you later. Here are some solutions to fight your down-payment battles:

 Ways of arranging down payments:

Personal Loan: The easiest way to put together your down-payment money is to opt for a Personal Loan. However, Personal Loans come at high rates of interest.

Loan Against Investments: If a Personal Loan is turning out to be too expensive, take a loan against your investments. You can secure a Personal Loan against collateral. This will bring down the interest rate on the loan. Smart, eh?

Borrow From Family Or Friends: Another way is to borrow from family members or friends. By doing so, you can completely skip paying an interest and no EMIs. You can always give an expensive gift though.

Liquidate Your Savings: You can also arrange to pay the down-payment money by liquidating all your savings – Stocks, Mutual Funds, Gold, National Savings Certificates, Fixed Deposits, etc.

Home Loan Penalties
(Yes, there’s more than just a rap on the knuckles.)

 The moment you are sanctioned a Home Loan, it becomes your responsibility to repay it. Don’t make light of your EMI payments. Here are some things to avoid when repaying your Home Loan, lest the bank show you the yellow card.

 Loan Prepayment: Banks may charge you up to 2% of the total outstanding amount as penalty for prepaying your Home Loan.

Missing EMIs: When it comes to monthly repayments, your lender will not brand you a defaulter if you skip one EMI. But if you skip two or three EMIs at a stretch, you will be sent a notice reminding you about your pending payments. If you still don’t make payments, your lender will send you a legal notice and you will be categorised as a Home Loan defaulter.

Once you have been termed as a defaulter, your bank will initiate the process of repossessing your property. It can arrange for the public sale of your house to get back its due amount. If at all you reach this stage, your Credit Score takes a brutal hit, leaving you ineligible for loans in the future.

What if you have a genuine crisis hovering over your head and you will surely repay the loan as soon as conditions improve?

Try this:

• Ask the lender to grant you a grace period to clear off the dues and continue with smaller EMIs. Your reason for not being able to pay your EMI has to be legitimate and worthy of consideration – loss of job, downfall in business etc.
• You can request your bank to refinance your Home Loan if you feel burdened by high interest rates. Banks may increase you loan tenure to make your EMIs smaller.
• Liquidate all your savings such as Fixed Deposits, Mutual Funds and Provident Fund and use them to pay off your pending EMIs.

Ways To Repay Your Home Loan?
(In bits and pieces)

You can pay off your Home Loan via monthly EMIs. You need to plan your monthly EMIs as per your repayment capacity so that you can avoid financial setbacks in the coming years. You can use any of the following methods to pay off your Home Loan:

• EMIs / Pre-EMI
• Tranche-based EMI
• Step-up/ Step-down
• Accelerated Payment Scheme

• Balloon Payments

Pre-EMI: A pre-EMI is one where you pay interest only on the disbursed loan amount, not the total loan amount sanctioned. This will help reduce the amount you pay as interest.

Tranche-based EMI: If you have purchased an under-construction property, your loan amount will be disbursed in batches, in sync with the speed of the construction. In most cases, you will begin loan repayment only after the property is fully constructed and the entire loan amount has been disbursed. By opting for tranche-based EMI, you can start making payments right after the first disbursal. This will even out the burden in the long term.

Step-up and Step-down Home Loans: A Step-Up Loan is a type of a Home Loan that comes with a lot of flexibilities. You can pay off your Home Loan by opting for a mix of EMI options. Here, the EMIs are lower in the initial years and as time passes, EMIs increase in amount. The main advantage of a Step-Up Loan is that it increases the loan eligibility of a borrower.

Step-Down Home Loans are initially offered at higher rates of interest due to which you will have to pay fat EMIs. But, over the course of the loan tenure, the EMIs will become smaller.

Accelerated Payment Scheme: This method allows you to repay your Home Loan quickly by making lump-sum payments from time to time.

 Balloon Payments: Your loan amount is not divided over your loan tenure in its entirety. An oversized payment is kept for last. This is called a balloon payment. It’s important that you start saving from the very beginning of your loan tenue to make this payment.

What Is Home Loan Foreclosure?
(Here’s where you can jump the gun.)

Home Loan foreclosure means closing your Home Loan before the end of your tenure. To foreclose your Home Loan, you need to consider the total EMIs paid and then decide on a foreclosing date. This is will help you calculate the exact foreclosure amount.

Calculating the foreclosure amount of your Home Loan is quite simple. To do so, you can take the help of an online foreclosure calculator where you need to enter the following information:

• Total loan amount
• Loan tenure
• Applicable rate of interest
• Total EMIs already paid
• Foreclosing month – the month on which you decide to foreclose your loan

Banks may charge you a prepayment charge of anything between % and 4% of your total loan amount to foreclose your Home Loan.

What Is Home Loan Refinancing?
(Ooh, we like big words.)

That moment when you buy something and the next day it goes on sale. Yeah, the same can happen to Home Loans. Interest rates might dip sometime during your loan tenure. Do you just writhe in misery? Certainly not! You opt for Home Loan refinancing.

Home Loan refinancing refers to the process of taking a mortgage loan to replace an existing Home Loan. Refinancing will help your loan receive a better rate on interest on better terms. How does loan refinancing work? Your old or the first Home Loan is paid off using the mortgage loan and a second loan begins. This loan option is easily available to a borrower with a good credit history.

Home Loan borrowers usually opt for Home Loan refinancing for the following reasons:

• To get better and lower interest rates
• To purchase or build a new home
• Home renovations
• Merge existing debts

Things To Consider Before Closing Your Home Loan
(Prepare a checklist)

All Home Loan borrowers need to consider the following points before closing their Home Loan.

Collect Your NOC: It is important to collect a no objection certificate (NOC) from your lender once you have closed your Home Loan. The certificate should state the name and address of the property against which the Home Loan was taken, Home Loan account number, name of the borrower and most importantly a declaration that you have repaid your Home Loan completely.

Collect All Original Documents: Don’t forget to collect all your original house documents at the time of closing your Home Loan. Getting your originals back can be a tiresome process but make sure you collect them.

Check That All Document Pages Are Intact: Usually, borrowers keep property documents at centralised locations and outsource this service to third parties. Therefore, it’s important that you check your documents for any tampering that might have occurred. If you spot a discrepancy, immediately report it to your lender.

Update Your CIBIL Database: After closing your Home Loan, you can request your lender to update the same in the CIBIL database. Keeping your Credit Scores up-to-date will reflect well on you.

Remove The Lien From Your Property: After you have paid your loan, remove the lien on your property from the registrar’s office so that no outsider can have a claim to it. Lien refers to legal claim against a property to secure a loan. It is a form of collateral against which the Home Loan amount is sanctioned.

Documents Required For Property Handover Post Closure Of A Home Loan
(Return Gift)

 You have done your part of the documentation work. Now, it’s your Home Loan provider’s turn. If you have paid all your dues and the loan has come to a close, you must collect the following documents from your lender, without fail.

• Original property documents in Power of Attorney format, in case of demise of the loan account holder.
• A request letter form the Legal Heir/ Claimant/ Nominee(s) for handover of Property documents.
• Letter of relinquishment for surrendering the property in favour of either legal heirs or nominees, or surviving owners.

Finally, get back all your original documents and get an NOC (no objection certificate) from your lender stating that they have no interest on your property and all payments are cleared by you.

It’s after all your house purchased with your hard-earned money.

Home Loan And Tax Advantages
(Axe that tax, yes!)

 Finally, some savings. Tax benefits on a Home Loan are determined by the various sections of the Indian Income Tax Act, 1961.

Under Section 80 CC:

• The tax amount paid towards repayment of your principal amount is liable for a tax deduction under this section. The maximum deduction offered under this section is Rs. 1,50,000.
• Also, enjoy tax deductions on the amount paid as stamp duty and registration charges.

Under Section 24:

• You can enjoy tax deduction for payments made towards the interest amount of your loan. The maximum tax deduction allowed for a self-occupied property under Section 24 is Rs. 2 lakh. There is no maximum limit if the property is not self-occupied. However, if a property is not constructed within 5 years from the date of taking a housing loan, tax benefits on the interest amount will fall.

• Tax deduction on payment of interest will not be allowed before the completion of construction.

 Under Section 80EE:

• This is a new addition to the existing tax benefits on Home Loans. Under this section, a home buyer can enjoy an additional deduction of Rs. 50,000 on the interest paid. This new deduction is on top of the tax deductions of Rs. 2,00,000 and Rs. 1,50,000, made under Section 24 and Section 80C, respectively. The deduction will be applicable if:
  • The property purchased is less than Rs. 50 lakh and the value of the loan taken is less than Rs. 35 lakh.
  • The loan should be granted between 1^st April, 2016 and 31st March, 2017.
  • Tax benefits will be applicable till the end of your loan-repayment tenure.

However, tax benefits available under this section can only be availed after the property has been fully constructed. Keep in mind, no tax benefit will be applicable if an income tax assesse transfers his/her property to someone else before 5 years from the date of possession.

Tax Benefits Of A Second Home Loan
(There’s an upside!)

 When you own two properties, one property is considered as self-occupied while the other is considered as let-out property. However, you can get tax benefits on your second house by claiming it as a self-occupied property. It is better to purchase your second home in the name of your spouse, if she/he does not own any other residential property.

In case your second home is lying empty, the Income Tax Department will consider its rental value and you will be taxed as per the applicable tax slabs.  But you will be allowed to deduct interest on your Home Loan based on the estimated rent. If both your houses are rented out, the incomes received from both the properties will be taxable and there will be a full deduction of the interest paid on the second Home Loan.

Renting vs. Buying A Property
(The evergreen debate continues)

Having a house always gives you a sense of accomplishment. But there are benefits to staying in a rented house as well. Let’s compare the two.

What is Bank Valuation of a property?
(2+2=4)

When you decide to take a Home Loan to purchase a property, your bank will evaluate your property and come up with its own valuation report.  This is done for the purpose of ensuring that banks don’t sanction a Home Loan that is more than the value of your property.  However, the evaluation of the bank may not necessarily be accurate.

Market Value of a property

The market value of a house refers to the price charged on a property under standard conditions. Usually, the market value of a house is calculated considering the following key factors – the external condition of your house, water supply, locality and internal characteristics such as size of your home, numbers of room you have, construction quality, ventilation etc. It is also influenced by the demand-supply ratio for properties.

Tax Value of a Home Loan

Tax value of a Home Loan refers to the tax benefits offered on a Home Loan. Tax benefits can be claimed on the principal amount as well as the interest amount of your loan.

Property Valuation Process

Property valuation process refers to the process of evaluating the market value of your property. It is a comprehensive report of your property and details all the major assets. Property valuation can be done by self or with the help of external sources.  External sources can be private evaluators or government-approved evaluators.

Property Valuation Calculator/Online Property Valuation Calculation in India

A lot factors determine the real value of a property. There are many third-party websites that offer online calculators to help you calculate your property value instantly. Just enter the following details:

• Property name
• Configuration
• Area in square feet
• Flat no/unit no/ plot no
• Street name
• Landmark
• Location

Apart from entering the aforesaid property related information, you may also be required to enter certain personal details such as:

• Mobile number
• Email-id
• Landline no, if any

Thus, online property valuation is the easiest and fastest way to calculate and estimate the real value of your property. If you plan on selling your property, you’ll know how much to ask for.

 Property Valuation Methods

 When it comes to property valuation, a lot depends on the location, quality, construction, maintenance and its proximity to various amenities. Listed below are some of the key property valuation methods:

• Investment Method: It takes into account the income-inducing power of your property. It is a practical method of evaluating your property value and it takes into account the future cash flow that your property can bring.

• Comparative Method: It compares the latest sales figures and comes to a comparative evaluation of your property value. This method of comparison is ideal for purchasing residential property.

• Contractors Method: This is a cost-based approach and it evaluates a property by considering the cost of land as well as the cost of buildings.

• Profit Method: This method evaluates property value by considering the number of business activities conducted at the property.

• Residual Method: It is used to evaluate residential properties. The method is apt for those properties which have scope for development and redevelopment.

What Is A Bank-Approved Lists Of Projects?
(Projects that passed with flying colours)

 Mostly all banks have their own list of approved projects and they offer loans for approved projects only. The list of bank-approved properties is made by a bank at its sole discretion. The list is prepared after studying valuation reports of many projects. Once thorough verification is done, banks tie up with builders to speed up the process of loan processing and to avoid duplication of Home Loan processing.

However, banks don’t provide any assurance pertaining to project completion, cost, regulatory approvals, quality of construction, amenities etc. Therefore, it is advisable that a Home Loan borrower investigate these aspects independently.

Mentioned below are some regulatory authorities which oversee housing projects. CREDAI, HUDCO and NHB are the three big names.

CREDAI: Stands for the Confederation of Real Estate Developers’ Associations of India. It is the apex body for all registered private Real Estate developers and builders in India. It has nearly 11,500 Members, 23 State Chapters, and 156 City Chapters.

HUDCO: Owned by the Union Government of India the Housing and Urban Development Corporation Limited is authorised to foster affordable building and urban development in India.  HUDCO operates under the administrative control of the Ministry of Housing and Urban Poverty Alleviation.

NHB: NHB stands for National Housing Bank (NHB). It is a subsidiary of the Reserve Bank of India and was established in 1988 under the National Housing Bank Act, 1987. The sole purpose of establishing NHB was to encourage housing finance institutions at local as well as regional levels. NHB is an apex financial institution and works as a principal agency to promote housing finance.

Home Loan – Common Mistakes
(Those little boo-boos to avoid)

 Listed below are some of the common mistakes that Home Loan borrowers should avoid:

• Don’t choose a lender randomly. Shop around and compare the interest rates offered by various banks and choose the lowest rate available in the market.
• Read and understand the terms and conditions properly and try to find out if there are hidden charges in the whole process.
• Home Loan borrowers sometimes fail to create a balance between loan amount, EMI repayment and loan tenure. So, don’t borrow an amount which you may not be able to repay on time. Don’t bite off more than you can chew!
• Don’t forget to calculate your down payments. Usually people assume that they would be able to make or arrange the down-payment amount. But when it comes to making the down payment, you might face difficulty in arranging the amount. So calculate your down-payment amount and plan for it.
• Insure you Home Loan so that if something goes wrong, your insurance provider will take care of the remaining payable amount.

Reasons For Home Loan Application Rejection

It may happen that your Home Loan application fails to reach the credit officer and faces rejection midway. Listed below are some of the major reasons why your Home Loan application might be rejected:

• Low CIBIL Score
• Insufficient work experience
• Insufficient monthly/annual income
• Too many dependents
• Unsatisfactory educational qualification
• A previously rejected Home Loan application
• Working for a small company
• Property value less than the purchase cost
• Error in the application form and details don’t match in verification
• Processing fees cheque bounces due to insufficient funds
• Property too old

When Your Home Loan Application Is Rejected
(Buy a car. Kidding, yo!)

 If your Home Loan application is rejected, you can re-apply. But before you re-apply, try to find out the reason for the rejection and fix it. Consider the following things before applying for a Home Loan:

• Lower the loan amount if the reason of denial was insufficient income
• Pay off any existing debt

Bring up your CIBIL score. If your CIBIL score is low, the bank may reject your Home Loan application right off the bat

• Know the lending policies of your bank properly before you apply

Can You Sell A Property Under Loan?
(Who is going to stop you?)

 You can easily sell a property with an outstanding loan amount.  Here is how you can go about it.

• You can transfer the outstanding loan to the buyer. The buyer needs to sign a fresh agreement with the bank and needs to open a new account. The seller will need to close its existing Home Loan account.
• If the buyer wants to opt for a different lender, then a fund transfer will be allowed after signing a tripartite agreement between the buyer, seller and the lender bank.
• If the buyer does not want a Home Loan, he/she can pay off the outstanding amount and pay you the balance. In this case, the bank will release all property documents to the new buyer. A seller has to submit the following documents at the time of selling his/her property:
• Mother deed (a document containing information about the origin of a property).
• NOC from the society
• Encumbrance certificate
• Sale deed
• Property tax receipts
• Sanctioned plan
• Electricity bills paid
• Other documents pertaining to the loan

Home Loan and property disputes

Property disputes are very common in India. The cases related to property ownership are long lasting and exhausting. Besides, it is very difficult to sell a property when it is under dispute. Property disputes normally arise because of the following reasons:

• Illegal possession of property
• Title or registration related disputes when a person challenges the registration of a property in the name of another person.
• Sometimes the dispute may be between the landlord and the tenant where they both fight to possess the same property

In the case of families, in order to avoid a property dispute, it is important to have a property agreement within the family as to how the property should be distributed equally among the family members.

Real-Estate Investments
(What everyone always talks about)

 Real estate refers to properties like land or buildings. It is usually divided into three broad categories which include:

• Residential: Land, house and condominium
• Commercial: Office buildings, warehouses and retail store buildings
• Industrial: Factories, mines and farms

 Real-estate investments refer to purchase, management, rental or sale of properties for profit. Real estate is a kind of asset with limited liquidity compared to other forms of investments such as stock, Mutual Funds, Fixed Deposits, etc.

These days investment in real estate has become increasingly popular since it provides good returns on investments. Banks also encourage investments in real estate by financing a wide range of properties across the country. The real-estate market in India is increasingly booming, offering opportunities for investors to earn big.

However, you need to be a bit careful about investing in real estate given that a lot of risk factors are involved. Mentioned below are some tips you can follow to avoid risks in real-estate investments:

• Make sure it is not too risky for you to invest in real estate. Find out how much you can afford to invest.
• Start with a good and well-thought-out business plan with a timeframe of 5 to 10 years in mind.
• Check your Credit Score to know your eligibility. To invest in real estate, you would need financial assistance. Banks prefer to provide loans to those investors whose Credit Scores are higher. Also, make sure your debt-to-income ratio is low.
• Shop around and find a good bank to get capital for your investment.
• Don’t limit your search. Who knows? You might find a better deal if you dig deeper. You can also get help from a good realtor to find the best deal.
• Read up on real-estate investments and understand its various pros and cons to lower the risks.

Overall, you should know where the real-estate industry is heading to and how to leverage this.  A good market research strategy will definitely help you to choose the right property for your investment.