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Types of Home Loan
• Purchase Loan : This is the basic type.
• Improvement Loan : This is for the renovation or repair of the home.
• Extension Loan : This serves to extend or expand an existing home.
• Conversion Loan : This helps the borrower to transfer the existing loan to the new home which requires extra funds.It is that loan wherein the borrower has already taken a home loan to finance his current home, but now wants to move to another home,so the new loan pays the previous loan & fulfills the criteria.
• Bridge Loan : This helps finance the new home of the borrower when he wants to sell the existing home.It is normally a short term & helps during the interim period when he wants to sell the old home & want to buy a new one, It is given till the time a buyer is found for the old home.
• Construction Loan : when the borrower wants to construct a new home.
• Land Purchase Loan : It helps to purchase a land for construction & investment purposes.
Documents needed:
• Age Proof
• Address Proof
• Last 6 months bank A/C statement
• Passport size photograph of the applicant & co-applicant
• Income Proof of the applicant & co-applicant
In case of Salaried:
• Copies of pay slips for last few months and TDS certificate
• Latest Form 16 issued by employer Bank statements
• Employment certificate from the employer
In case of Self-employed:
• Income tax assessment order
• Profit and loss account for the last few years
• Copy of audited financial statements for the last 2 years
• Copy of partnership deed if it is a partnership firm or copy of memorandum of association and articles of association if it is a company
Process & various steps:
• The first step:find your property followed by the verification of property documents, post that the documents are examined & simultaneously you can start searching for the lender who can offer the BEST Home Loan Deal after checking your eligibility criteria.
• Eligibility : Banks offer the loan amount only after checking your profile(age, income & salary).
• Select the Best Home Loan : Comparing home loan interest rates is the primary feature.Application fees, processing fees, legal charges should not be neglected when comparing.
• Applying : you have to fill in the application form wherein the lender requires complete information about your financial assets & liabilities; other personal & professional details together with the property details & its costs.
• Documentation & Verification : You are required to submit the necessary documents.
• Credit & default check : The borrower’s repayment capacity is reached which is based on the income, salary, age, experience & nature of business etc. Bank checks out the borrower’s eligibility. Bank also checks credit history.
• Sanctions Loan & Offer letter: After the credit appraisal of the borrower bank decides the final amount & sanctions the loan.The bank further sends an offer letter to the borrower which constitutes the details like rate of interest, loan tenure & repayment options etc.
• Acceptance Copy : The borrower needs to send acceptance copy to the bank.
• Bank checks legal documents : The legal documents of property from the borrower to check its authenticity so as to keep them as a security purpose.
Valuation of the property by the bank which determines the loan amount sanctioned by the bank.
• Agreement sign up : The borrower signs the loan agreement & the bank disburses the loan amount.
Charges:
• Processing Charge : It is Non-refundable Fee payable at the time of submitting the loan application(0.5 to 1 % of the loan amount).
• Administrative Fee : Fee incurred by banks at the time of loan sanction.Few banks removes this.
• Prepayment Penalties : When the borrower pre-pays the loan before the loan tenure, banks charge a penalty (1 to 2 % of the pre-paid amount).
• Legal Charges : For legal and technical verification of the property,Banks also incur some charges from the customer.
• Delayed payment Charges : Banks charge 2% to 3% of the EMI When there is a delay in the payment of EMI.
• Cheque bounce charges : Banks charge between Rs. 250 and Rs. 500 for every bounced cheque.
Important Pointers:
• Increase Loan eligibility
• Credit History : Chances of getting a home loan are increased if you have a good credit history.It is very hard to get a loan from another bank when you already have a bad debt with one bank.
• Clubbing of income : Your eligibility will augment when you club your income with your spouse’s income.Bank in this case will calculate your eligibility on the basis of the clubbed income of both the applicants.
• Enhance your loan tenure : Longer is the loan tenure,the EMIs will be lower which further increases the repayment capacity,& in turn enhances the loan eligibility.
• Step-up Loan: In this type of loan EMIs remain low in the beginning & increase gradually as and when the borrower’s spending power increases. Therefore lower EMIs in the initial years enhances the borrower’s ability to pay & further increases the loan eligibility.
• Increase the down payment : Bank finances only 85 to 90% for the property & the rest amount has to be funded by the borrower. You should increase the down payment if you have more than required amount which will mitigate your debt considerably.
Tax Benefits in Home Loan
The home loan borrower enjoys Tax Benefits on both Interest paid & the Principal re-paid. Under Section 24(d) of Income Tax, the deduction of interest payable on the home loan is up to a maximum of Rs. 1, 50,000.
Under Section 80(c) of Income Tax, Principal amount for the repayment of loan along with other savings & investments is eligible for tax deduction up to a maximum limit of
Rs. 1, 00,000.
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