What is Home Loan?
With the astronomical rates of real estate, it isn’t realistic to be able to pay for the entire home in a single instalment. Individuals can only afford to pay for part of the home, but real estate companies would need the entire sum. That’s where the home loans come into the picture.
A home loan is a financial product that let’s the bank pay the real estate company the full sum on your behalf while you pay the bank is smaller equated monthly instalments. You apply for a home loan with a bank or housing finance company. Once approved the bank (lender) pays the developer while your responsibility lies with paying the bank as per your approved EMI’s
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Characteristics of a home loan
Home loans are categorized as a secured term loan. Secured as the house which you have taken the loan for is offered up as collateral for your loan. There is a fixed term for which your home loan lasts. A home loan could range from 5 – 30 years depending on the amount of the loan and the EMI you will pay.
Individuals looking to buy a home must also arrange for the down payment (also known as margin money) for the home. Banks usually collect between and 10% – 25% cost of the property as the down payment.
Home loans can be applied for either as an individual or you could invite a co-applicant to apply with you. In most cases the co-applicant is a close family member like a parent or a spouse.
Types Of Interest Rates For Home Loans
Fixed Interest Rates:
A fixed interest rate remains the same over the duration of the loan. Banks and other housing finance companies very rarely use these type of interest schemes.
Floating Interest Rates:
Floating interest rates change based on the base rates charged by the lender. Base rates are largely dependent on the country’s economic status and current policy.
Fees Applicable For Home Loan:
Most banks will charge an administrative and processing fee when an individual applies for a home loan. In some cases, due to the competitive nature of the housing loan market applicants can get their processing fee waived off as a discount.
If you decide to pay off the loan amount before the stipulated time period there are no pre-payments charges levied by the bank.
Documents Required For Home Loans
As with most financial assets home loans require you to furnish some personal documents such as identity proof, address proof, and the property papers. Document requirements will differ from bank to bank and also from individual to individual in some cases.
For Salaried Employees
Proof of identity can be a passport, a valid driving licence or the Aadhaar card. Salaried employees would also need to provide salary slips, their appointment letter as well as their income tax returns. Along with the documents these individuals would also need to provide the buyer agreement as well as any and all payments made to the builder.
Documents For Businessmen
Documents to be furnished by self-employed individuals are a little more tedious. The proof of identity is the same as salaried individuals. However, to show proof of funds, self-employed individuals need to provide their income ta returns for the previous three years. They would also need to provide their profit and loss account statements for the previous three years which has been attested by a CA. Depending on the type of company you might also need to provide the partnership documents or the list of directors.