There are several standards and guidelines that banks must adhere to whenever they are offering home loans to a customer. If you are looking to go for a home loan to purchase your dream property, you should always be careful before finalizing any decision. Most banks have separate policies with regard to those who are first time homebuyers and those who are opting to purchase their second properties. You should always make it a point to ensure that you get all necessary information from your bank with regard to the features and intrinsic aspects of the home loan in question. You should be well versed with everything in order to avoid any unpleasant situations in the future.
The Reserve Bank of India (RBI) has stipulated that banks must be adhering to its guidelines whenever they sell any financial product like a home loan to any customer. Banks should be offering information on the rate of interest that is applicable on your home loan along with the fees and other charges which are applicable. They should also be providing all information on the aspects which impact the interest payable and the rate of interest alike. Banks should also be providing properly authenticated loan document copies that you have executed at their own expense. They should also be copying all of the enclosures which have been quoted in your loan document upon being requested.
This is usually given in the brochure supplied by banks but there are several other things that may remain concealed. There should be total transparency on part of the bank and you should also keep it in mind that a loan application cannot be rejected by a bank without giving you a valid reason for the same.
You should also be aware of the fact that before you venture to apply for a home loan, the bank will naturally work out your overall eligibility. You should have a clear idea of how your eligibility will be assessed by the bank in question. Your repayment abilities will be analysed by the bank while zeroing in upon overall eligibility for the home loan. Your overall repayment ability will be based on your surplus/disposable income every month and the bank will take into account factors like your net monthly income, the surplus subtracted from monthly expenditure and so on in addition to income of the spouse, liabilities, assets and income stability. The bank will naturally emphasize more on how you repay your home loan in a stable manner. You should always be providing documents that are needed for obtaining home loan approval. You should possess all legal documents which are related to the property which is being purchased. The bank will also be seeking residence and identity proof along with your latest salary slips with employer’s authentication and also self-attestation. You will also have to submit Form 16 and the bank statements for last 6 months or the balance sheet whichever is applicable.
Know your own eligibility
You should be aware of your home loan eligibility before applying. This will naturally be dependent on your repayment abilities every month. This will be worked out on the basis of your monthly surplus or disposable income and also other aspects. The higher your monthly income is, the higher amount that you will be eligible for. Approximately 40-50% of the net monthly disposable/surplus income is deemed as available for repaying the home loan by the bank. The loan amount will also be influenced by the interest rate and tenor. Banks usually have a maximum age limit for applications and this may influence overall eligibility as well.
Most banks and financial institutions will need 10-20% of the buying price for a home as the down payment from your end. This is also known as the own contribution and the remainder which is roughly 80-90% of the value of the property, will be put up as the loan from the bank. The entire amount will be inclusive of transfer, registration and stamp duty costs. You should always borrow what you need and should not jump for a higher amount just because you are eligible. Try and maximize the down payment that you make so that you have a lower home loan amount and lower overall interest outgo.
If you have a co-applicant, your home loan eligibility will naturally increase. If someone is the property co-owner then he/she will also have to be the co-applicant. In case you are the sole owner of your property, any immediate family member can be the co-applicant for the loan. You will have to offer documents like your photograph, legal purchase documents for the home, identity and address proof, latest salary slip/income proof, IT returns/Form 16 and last 6 months’ bank statement/balance sheet. Some financial institutions may also need some collateral in the form of shares, life insurance policies, national savings certificates, deposits in banks, mutual fund units and investments.
The bank will then decide whether to sanction you the home loan or not. The loan amount that can be sanctioned will be dependent on your eligibility and the final screening done by the bank. The sanction letter has to be provided by the bank which states the terms and conditions for the loan including the rate of interest, tenor and so on. The terms and conditions will remain valid until the date stated in the sanction letter. When you get your home loan, it will be in the form of disbursal. The bank will have several legal and valuation steps to take care of prior to disbursing your home loan amount. You have to submit your allotment letter at this stage along with title deed photocopies, agreement to sell and encumbrance certificate. The rate of interest will apply on the disbursement date and not the one which is mentioned on the sanction letter. If this scenario comes up, there will be a new sanction letter made by the bank.
The home loan amount may be fully disbursed or via instalments. Disbursal is usually done on the basis of the construction progress in case of under construction properties. Always have an agreement where construction progress is linked to payments with your real estate developers. For properties which are ready, the disbursement is made at one go.