One of the most significant choices a person will ever make is whether to purchase a house or live in a rented house. Many of those who decide to purchase a house are able to realise their dream quite easily nowadays because of reasonable financing options. It is quite common practice for people in India and other countries all over the globe to take out a house loan to finance a portion of the amount of money that is required to purchase a property.
People save for several years and then depend on unknown lenders to take out loans when they need money before the availability of housing loans. On the other hand, a lot of things in the sector have improved for the better. It is the result of the shifting preferences of customers as well as the increased stringency of supervision and regulations. Though getting a house loan has become easier, it still requires a good understanding of housing loan eligibility. Here, Gharpedia has solved a lot of questions related to housing loans in India. Read on to learn what is housing loan? how to get a bank loan for a house? how to apply for a house loan and much more.
What Are Home Loans?
A house loan is a money obtained by a person to purchase a property through a variety of banks or Non-Banking Financial Corporation (NBFC). Home loans are often taken for purchasing a house, flat, or piece of land on which to build a house, as well as for the purpose of renovating, extending, or repairing an already existing property.
The lender receives a security interest in the property in the form of a mortgage until the loan is repaid. The deed to the property will remain in the possession of the bank or other financial institution until the loan, together with the accrued interest, has been repaid in full.
How Does a Home Loan Work In India?
The amount of the home loan obtained by the person is paid directly by the bank or NBFC to the owner or builder of the property. It is assumed that the borrower would repay the loan amount in the form of a monthly EMI throughout the set duration, together with the interest that will be added to the principal balance.
In general, your housing loan eligibility is determined by your ability to make payments and the price of the property. To be eligible for a house loan, one of the most crucial requirements is that you have a consistent source of income. And the amount of your EMI should be between 40-45 percent of your wage or income.
Here is a step-by-step guide to the Home Loan Application Process:
01. Fill Out the Application Form
The first step in acquiring a mortgage is filling out the application form. It is the most basic document, and it requires you to include personal information such as your name, address, telephone number, employment, monthly and yearly income, and facts about your schooling, among other things. Along with the form, the borrower must provide documents proving their identity and residence, as well as their income, including income certificates, ITRs for the last three years, and bank statements for a housing loan in India.
02. Verification of Documents
The next step for the housing loan in India is to submit the documents to the bank. It may take the bank up to two days to check your paperwork, even though this step of the house loan procedure is often quite important. You may have to physically visit the bank and participate in an in-person interview at this stage of the process.
03. Background Check
The banks will review your documents and carry out an independent background check on the borrower’s qualifications. In this regard, the financial institution could conduct an inquiry based on the information that you provided in the form. This information might include your former and current home addresses, your employment, the credentials of your employer, office contact details, and so on.
04. Obtaining Your Credit Report
Since the RBI made it essential for credit bureaus to offer their consumers a free credit report yearly, this procedure has been significantly simplified since its implementation. The Credit Information Bureau (India) Limited (CIBIL) is the most popular of the four credit information companies licensed by the Reserve Bank of India.
A credit score of more than 750 is excellent. And it is an indication of how reliable an individual has been in the past about paying back debts. A score ranging between 650 and 749 is good, and lenders may offer you a home loan after inquiring into your other financial details. However, lenders usually consider 650 as the minimum CIBIL score required for a housing loan in India.
05. Pay Processing Fee
Your financial institution will assess a non-refundable house loan processing fee, which it will use in the initiation and ongoing servicing of the home loan procedure. In recent years, several financial institutions have begun to compete for customers by forgoing payment of loan-processing costs. To take advantage of the incentive, you need to first negotiate with your bank and then make your purchase. On the other hand, not every bank is likely to have a negative attitude regarding processing costs.
06. Evaluation of Repayment Capacity
The most important step in the process of getting a house loan is making sure that the borrower has enough money to pay back the loan. The bank will either approve or reject your application for a house loan based on how confident the financial institution is in your capacity to make timely principal and interest payments.
07. Processing the Property Documents
The bank will keep property documents in its possession until you repay the house loan in full. Before granting the loan, the bank will make sure that all the relevant property paperwork is in place. Additionally, the bank will send a representative to the property location twice; once before the approval of the loan and again after the sanction of the loan.
08. Loan Disbursement
The stage known as “loan disbursal” is the last one that occurs throughout the process of obtaining a mortgage loan. At this stage, your housing loan gets approved.
Conclusion
You may avoid facing the whole cost of the property all at once by obtaining a housing loan in India, which enables you to finance a part of the purchase via EMIs. The ability to make a down payment demonstrates your readiness to manage your finances, and a larger down payment reduces the overall cost of the loan.
Author Bio
Harsha Sachdeva – Harsha Sachdeva has been working as a Freelancer with several clients for more than 7 years now. She’s explored various domains of content creation and delivers on every front while managing her content agency, Habtoz. Her keen interest in content development has given her an expansive base through which she can express her thoughts clearly and easily. She’s a Juggler and a problem solver who has a solution to most of the problems. An overthinker with a mountain of thoughts. So if you’re interested in grabbing a cup of coffee to talk business with her, you’ll have to bring her down from that mountain. She’s soft-spoken, good at heart, and a finger lickin good chef too.
Her Just Do It attitude with a Think Different approach to write content is like Opening Happiness for everyone. She likes connecting with her audience, advocates the power of content, and believes that it can transform lives. There are some things that money can’t buy, for good content there’s Harsha.
She is currently the CFO @Comely Enterprises Private Limited, Director @Habtoz Consultancy Private Limited, and Partner @Troofal Interactive.