Investing in a dream property is undoubtedly one of the major decisions you take in your life, but it holds a lot of significance and has various risks involved. People can be seen buying their dream properties as per their budget, some go for lavish properties and some people have to opt for a home loan to buy a property. Speaking of a home loan, trust me if you are not well-versed with its process and other related things, then it can turn out to be a laborious task for you. But, you don’t need to worry as I am going to discuss the complete process of how you can easily acquire a home loan.
Applying For A Home Loan
You begin the procedure of a home loan with a formal application to your bank. In addition, you will also have to provide your personal details to scrutinize and assess your eligibility for the loan. Majority of the banks require the following documents –
- Identity Proof
- Address Proof
- Age Proof
- Proof of educational/professional qualifications
- Employment Details
- Bank Statements
- Proof of Income
- PAN Card
- Property Details
Loan Processing Fees
Banks usually charge a non-refundable loan processing fees, on an average it is 0.50% and 2% of the loan amount. Your bank will use this amount to start and maintain the whole home loan process. Of late, in order to attract increasing number of borrowers, some banks have started to waive-off the loan processing fees. You can put your negotiating skills to test and make your best effort to avail the benefit. However, don’t expect every bank to renounce the processing fees.
Close Analysis And Verification
Once you have submitted your home loan application along with the processing fees, the bank will take a closer look at your case and will decide an amount you are eligible for. You are supposed to meet the bank officials, usually after 2 or 3 days of submitting the application, so that they can determine your repayment competency.
Post the personal interaction, your bank will then verify all the documents and credentials you have shared in your home loan application. Bank representatives may visit your workplace or the place of residence you have mentioned in your loan application.
Evaluation Of Repayment Competency
This step is considered as one of the important steps in the home loan process. Your bank will have a close look at your repayment competency to repay the principal (along with interest) and on the basis of that they will decide whether to approve or reject your home loan application. In the event your bank agrees to issue a conditional sanction, you will have to satisfy all the stipulated conditions before the loan amount is disbursed.
Receiving Home Loan Offer Letter
This is the stage where your bank will draft an offer letter mentioning the following details –
- Approved loan amount
- Rate of interest
- Fixed or floating interest rate
- Loan term
- Mode of repayment
- Special scheme
- Terms and conditions of the home loan
If the contents mentioned in the offer letter are acceptable to you, then you will have to submit a signed acceptance copy to your respective bank. An acceptance copy is basically a duplicate of the offer letter which your bank will keep as a record. If you are liable to pay an administrative fee to your bank, then you need to pay at this stage.
The bank will take its time to first verify the property in question before the loan amount is disbursed. Your bank will ask you to submit some documents such as – the original copies of title deed, NOC (no objection certificate), and other documents. The bank will also conduct a legal check of the property in order to ensure that the title is clear and there is no dispute whatsoever.
In addition, technical evaluation of the property will also be done by your bank. If the property is under-construction, the bank will examine the location of the project, the progress of the construction and on the basis of these factors, the evaluation of the property will be done. In case the property is ready to be sold or is being resold, then the bank will evaluate the following things –
- Quality of construction
- Legal clearances
Bank will use their property valuators to evaluate the value of the property, this also helps in deciding the loan amount. Remember, the home loan is a secured loan and the property is the collateral. Therefore, you will get back your documents only when you repaid the entire loan.
Home Loan Disbursal
Once you successfully fulfill all the above-mentioned formalities, the registration process for the home loan begins. Make sure you have prepared the legal documents in a format approved by the layer of your bank. You will also have to submit post-dated cheques as per the agreed term and finally sign the loan agreement. The process of a home loan disbursement will begin once you have signed the loan agreement.
How Your Bank Determines Your Loan Borrowing Capacity?
Your bank will factor-in following things in order to make out your borrowing capacity –
Age – Majority of the banks prefer that when a borrower pays off his/her last EMI, then his/her age should not be more than 58 years. Be informed that your age will play a pivotal role in deciding your home loan term.
Salary Structure – Majority of the banks don’t consider bonuses, incentives, perks, and allowances as a part of your salary. If such components comprise a significant part of your salary package, then it will reduce your loan eligibility.
Liabilities – Make sure your liabilities (EMIs of other loans) are not more than 50% to 60% of your monthly income.
Cash flow and expenses – These are key standards for deciding your home loan eligibility. It is assumed by most of the banks that around 40% of your monthly income can be directed towards the payment of EMI. Let us assume if your monthly income is Rs. 1,00,000, your bank will assume that you are able to pay a maximum EMI of Rs. 40,000.