The way to apply for a home loan in India

You need to know few basic things before you can apply for a home loan.

Home loans – some tips and tricks to get the best deal

Buying a home is a big ticket purchase. So if you are purchasing your property with a combination of personal funds and home loan then it is best to remember a few points in order to get the best bang for your buck. Home loans are extended today by banks and financial lending institutions all over the country. The rates of interest are attractive and vary slightly from bank to bank. The first step in the process is to estimate your personal worth and eligibility for a home loan. Once that hurdle is crossed then starts the journey of repayments of the loan and here a few points to understand to ensure that you get the best from your home loan deal.

Fixed and Floating

A few banks have completely done away with the fixed-rate schemes and some of them did offer fixed home loans earlier with low interest rates ranging between 7.5-8 %.The catch, of course, was that these rates would be reset every three years and subsequently linked to the rates predominant at that time. If the borrower is not comfortable with the new rates then he will have the option of paying off the entire loan after giving the essential notice. This can be done either by pre-paying the mortgage or moving to another lender. As the interest rate cycle is slow, it is wiser to select a floating rate loan now.

Monitor Interest Rates

During the tenure of the loan, you need to continuously monitor interest rate changes not just the ones made by your lending bank or financial institution, but also the action taken by others. You can consider changing over to another lender if you find that only your bank/ HFC keeps increasing the rates. Also remember that every time there is an interest rate hike; the tenure of the home loan gets prolonged. If you have initially taken a loan for 25 years then the rate increase might even stretch the tenure to 30 years if you do not want your EMI quantum to increase.

Component of Principal in EMI

The principal and the interest are part of your home loan EMI payment. There are banks mostly in the public sector, where the principal component makes up 45% of the EMI. In others the interest is a much bigger component, with principal forming a tiny percentage. These kinds of loans with a higher interest structure will take longer to get repaid.

Insure your property

Ensure that you always read the terms and conditions of your home loan and also take out insurance immediately on the property. Many home owners ignore this. The home loan agreement may say that in case you fail to insure the property or pay premiums regularly, the lending bank would reserve the rights to insure it by debiting your loan account. The sum assured has to equal to the full market value of the property

Compare banks before zeroing in on one to avail your loan from. Every bank has different rates and different criteria for granting loans. The public sector banks offer the best repayment schemes but the private banks might make more attractive offers on interest rates and initial processing. So choose wisely because it is a 20 year commitment.

Generally, you need 10 step process to apply for a home loan in India:

1. Home Loan Eligibility - As a first step to apply for a home loan in India, you should  Calculate your Home Loan Eligibility and estimate your home budget accordingly.
2. CIBIL Score - After assessing your loan eligibility, you should Check CIBIL Score, to ensure that your loan will easily get approved. In case your CIBIL Score is not above 750, you can always Improve CIBIL Score before you apply for home loan or start your home search.
3. Evaluate Interest Rates - After checking your CIBIL score and assessing your loan eligibility, you should compare interest rates of various banks. You can compare interest rates online through portals like Bankbazaar,deals4loan etc.
4. Loan Application - After selecting lowest interest rates available, submit loan application to the concerned bank along with Documents required for Home Loan.
5. Appraisal by Bank - Once you make loan application, the bank will evaluate your  credit history and assess your repayment capacity based on your  income, age, experience, qualifications, nature of business of your company etc.
6. Loan Sanction - After evaluating your application, the bank will sanction your loan and send you an offer letter mentioning the approved loan amount, tenure, interest rate offered, EMI, mode of repayment etc.
7. Legal Evaluation of Documents - After you accept the offer letter, you will have to submit title documents of the property in original to the bank. The bank will conduct its title inspection and if everything is found OK, bank will keep all original documents with itself until the entire loan is paid off.
8. Valuation Check - The bank will also conduct an independent valuation of the property by making a physical property visit to assess true value of property.
9. Loan Agreement - After completing the valuation and legal check, bank will call to sign the home loan agreement. You will be given one copy of loan agreement for your records.
10. Loan Disbursement - After signing the agreement, the bank will disburse the loan amount in full (in case of ready to move property) or the next instalment amount (in case of under construction property).