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FAQs – Home Loans
What is Home Loan?
Home loan is the money borrowed from a bank or a housing finance institution on interest for buying / constructing / upgrading a residential real estate property.
Does Loan tenure affect the loan cost?
Longer the tenure you have, the lesser will be your EMI but higher would be the interest outgo. In shorter tenures, you pay a greater EMI, but the loan gets repaid faster and you pay less by way of interest.
What is EMI ?
EMI stands for Equated Monthly Installments .An EMI is made up of two components, principal and interest. Any loan availed by a borrower is repaid in EMIs over the loan tenure to the bank on a specific date every month. The EMI’s are fixed when you borrow money from the bank as a loan. EMI’s are used to pay both interest and principal amount of a loan in a way that over a specific number of years, the loan amount is repaid to the bank along with interest.
What is Pre EMI?
under the Pre-EMI option, the borrower is required to pay only the interest on the loan amount that will be disbursed as per the progress on the construction of the project. The actual EMI payment starts after the possession of the house.
Can I get In principal approval and actually avail of the loan later?
Yes, before you choose the house you want to buy, Lender give you an in-principle approval based on your income and capacity to repay. This makes the entire process of identifying and buying a house easier and more flexible. You won’t be under pressure to identify a house as you know how much funds the bank would make available to you.
How does my salary/Income influence my home loan amount?
Apart from other criteria and norms of the lending bank, the home loan amount is generally calculated on the basis of your EMI and NMI ratio, where NMI is the take-home pay after taxes and other payroll deductions. The EMI/NMI ratio varies in the range of 20% to 70% for different Net Annual Income slabs. The loan amount can be increased by including a co-applicant.
What is tax rebate available on home loan?
As per Section 80C of the Income Tax Act, you are allowed separate deductions on the principal and interest amount of the home loan amount, along with other entities like ULIP, EPF, PPF, ELSS and NSC’s. In case of the principal amount, you can claim a deduction of upto Rs 1.5 lakhs while in case of interest, it is upto Rs. 2 lakhs. The amount of stamp duty and registration is also eligible for tax deduction, subject to certain conditions.
It is important to note that the tax break can only be claimed for the year in which the construction of the property has been completed.ty has been completed.
What is down payment?
Generally, banking & finance institutions pay around 75% to 85% of the cost of the property bought. The remaining 25% to 15% of the amount is paid on an up-front basis, which is popularly known as the down payment.own payment.
What documents should I check before buying a property?
Conversion Certificate( If agricultural land is converted to non-agricultural)
Khata Certificate (especially in Bengaluru)
Latest Tax Receipts
Occupancy Certificate ( if it is constructed property)
When do I make my home loan application?
There is no particular right time for making your home loan application. As soon as you have figured out your budget and zeroed down on the property that you want to buy, you should apply for home finance.
Is visiting the lending bank compulsory to avail home finance?
Yes, mostly. Although a lot of loan processing work has been shifted to online platforms, still a loan applicant is required to visit the lending bank branch at least once to formally close the loan processing formalities. Many private banks have started sending their representatives to borrowers’ place to get documents and forms signed and verified.
Will the lending bank provide the entire cost of the property that I wish to buy?
No. Generally, banks only lend 80% of the cost of your property. The rest 20% is to be borne by the loan borrower. However, to ease out the process for customers, most banks have broken up this ration into 10-80-10 so that at the time of availing the loan, customers are only required to pay 10% of the total cost and the rest is paid by the bank.
When does the repayment period start?
Repayment of loan starts after the entire home loan is disbursed to the borrower. In case of under-construction properties banks allow payment of the partially disbursed amount. Towards this partially disbursed loan amount, customers are free to either repay the principal and interest amount both or just the interest amount or none at all.
Can loan repayment be made ahead of schedule?
Yes. All banks allow pre-payment of home loans. Some banks charge a pre-payment fee for that while others do not.
Do I have the right to choose between base rate and MCLR for my home loan request?
Current home loan borrowers who have a running home loan account can choose to continue with base rate or switch to MCLR. New home loan borrowers need to avail the new MCLR rates which are subject to change every set interval of time as mandated by the RBI.
How long does it take for home loan to get sanctioned?
Your home loan will get sanctioned as soon as all the required documents are submitted and verified successfully. This may take anywhere between 10 to 30 days.
Is taking a home loan a smart investment move?
Any kind of property is considered an asset and hence buying a property is considered as a wise decision. Also, real estate prices have been appreciating on an annual basis. If you are confident that your income is sufficient to cover you for a long term liability like home loan then you can surely avail one to buy a property.
What collateral do I need to furnish as security?
Since home loan is a huge loan amount and the tenure also is long, hence, almost all banks ask borrowers to furnish some collateral as security against the loan. This include the papers of property for which loan is being sought, some other property papers, any fixed deposit schemes or insurance schemes etc. that are on the loan borrower’s name.
Can I apply jointly for a home loan with my spouse? Will both our incomes be considered for loan quantum?
Yes. You can apply jointly in your and your spouse’s name. Both of your incomes will be considered for determination of loan quantum.
What documents do I need to submit to avail home loan in India?
Generally, all banks ask for proof of address, proof of identity, bank account statements and salary details/Income details from home loan borrowers. This list may differ a bit from one bank to another.
If I deposit my property documents as security with the bank, when will I get those back?
Any property document that you submit as security collateral is returned to you only once the entire home loan amount is repaid and the home loan on your name is closed.
Can I avail home finance for renovation or construction of house?
Yes. Home loans are offered under various sub-heads. Housing finance for renovation of property or construction of house is also offered by all major banks in the country.
Can I switch from fixed to floating rate of interest and vice versa during the tenure of my home loan?
Yes. Most banks allow switching between fixed and floating rates. However, customers may be charged a particular fee for the same.