Owning a house is a sense of pride and security and a signal of financial establishment to your near and dear ones. We usually prefer owning a house rather than paying the rent. But due to insufficient financial resources, we take a back foot. This is where the home loan becomes a necessity, as it adds towards fulfilling your dream of being an owner of a house and not a tenant. So it can be said that being aware of the home loan process and the best home loan offers is important. Here is the total guide to the home loan that is necessary to be mindful of while you opt for a home loan.
What is a home loan?
It is the amount that the bank or the home loan finance company lends to the consumer, and in return, the consumer has to pay the EMI. The consumer purchases the property with the amount lent by the bank, and the purchased property becomes the collateral for the bank. However, a few procedures are followed by the bank prior to lending the amount, like the verification of the house buyer and the property and also checking the loan eligibility of the borrower.
The process to apply for a home loan:
The steps are as follows:
1) Home loan application: First of all, apply for the housing loan with an application for the loan to the bank, and a few personal details need to be given like identity proof, age proof, address proof, educational qualification certificate, employment details, bank statements, pan card, income proof, and property details.
2) Processing fee payment: The bank charges a processing fee for the loan, which has to be paid along with the GST of 18% of the fee. However, this fee is not charged by all the banks, so you get a chance to negotiate on the fee and avail the best home loan.
3) Scrutinisation and verification: The next step after the application and the payment of the fee is the evaluation of the borrower. The bank scrutinizes the borrower in order to confirm the loan amount to be given to the borrower. Then the consumer must visit the bank’s official within 2-3 working days after the application. In this meeting, the bank official accesses your loan repayment capacity. After the personal meeting, the details you provide in the application are verified by the bank. In order to confirm the details you mentioned in your application, the bank official will visit your workplace and your residence. The bank will also scrutinize your credit score.
4) Assessment of repayment capacity: The bank will evaluate your capacity to repay the home loan in this step. This is one of the most crucial steps in the process of a home loan purchase. Here the bank will accept or reject your request for a home loan depending on the bank’s satisfaction with your ability to repay the home loan within the specified time period. There are chances that banks may issue conditional sanctions. In such cases, all the specific conditions need to be fulfilled prior to the disbursal of the loan amount.
5) Drafting of a Home loan offer letter: Once your home loan is sanctioned, the bank will make a draft of the home loan offer letter along with the details like:
- Sanctioned loan amount
- An interest rate that is applicable (usually less interest home loan is preferred)
- Type of interest rate, whether floating or fixed interest rate
- The time span of the loan
- Repayment method
- Any scheme that is applicable
- Terms and conditions applicable to the loan
You should now submit a signed acceptance copy to the bank after you agree with the details provided in the letter. This acceptance copy is kept with the bank as a duplicate copy of the offer letter for its record. At this stage, the processing fee (if levied)has to be paid.
6) Property Verification: Now you have to submit a few documents to the bank, like the original copies of the title of the deed, (NOC) no objection certificate, and any other document demanded by the bank, as the bank will verify the property before the disbursal of the amount. Here the bank will ensure that the title of the property is clear and there are no legal sanctions.
If the property in question is under construction, then the technical valuation is done by the bank. In this, the bank confirms the location of the property, the quality of the construction, and its progress. Also, the property is evaluated based on its confirmed parameters.
In case of property being resold or ready to be sold, the bank verifies its age, possession, construction quality, legal clearances, etc. The property evaluator of the bank will assess the value of the property, and then the loan amount is decided based on that.
7) Disbursement of the loan amount: After all the above-mentioned processes are completed, the home loan registration process starts. The lawyer of the bank approves the format according to which the legal documents are to be prepared. Next, the home loan agreement is signed, and a post-dated cheque has to be submitted based on the agreed terms. After the agreement is signed, instant home loan disbursement starts.
Factors affecting the borrowing capacity assessment:
The bank considers the following factors while determining the borrowing capacity:
- Income structure
- Income and expenses
Types of Home loans in India:
Different types of home loans are as follows:
1) Home purchase loan: This can be availed when you purchase a new or pre-owned house.
2) House construction loan: This is availed when you choose to construct your house rather than purchasing a pre-constructed property.
3) Home improvement loan: This loan helps you to renovate your house. This includes interior and exterior repairs, painting, electric repairs, etc.
4) Home extension loan: This is helpful when you want to do extra construction in your house, like constructing a new room, etc.
Thus, the home loan process acts like your financial support system in achieving your dream of owning a house. Nowadays, the digital home loan process is like a cherry on the cake in the process as it helps you to choose the best home loan offers.