Millions of urban Indians today use home loans to buy the homes of their dreams. But not everybody is familiar with the house loan procedure.
As a result, many loan requests are turned down, or borrowers find themselves in a difficult situation because they are unable to pay off their debts. In essence, a house loan is a sum of money granted to people by banks or Housing Finance Companies (HFC) in exchange for an Equated Monthly Instalment (EMI).
The sum disbursed allows the homebuyer to purchase the property, but the asset remains the bank’s security until the loan is fully returned. However, banks thoroughly verify the borrower and the property before the funds are given.
Additionally, they evaluate the homebuyer’s loan eligibility, and even a small financial disparity can cause problems. As a result, the house loan application process is complicated and requires critical knowledge.
The steps for obtaining a home loan from banks and HFCs are shown below.
Applying for a home loan
The procedure for a home loan begins with a formal application to the bank.
In addition, you are required to provide your personal details for the bank to scrutinize and assess your loan eligibility. Most banks will generally ask you for the following documents:
- Identity proof
- Address Proof
- Age proof
- Proof of educational/ professional qualifications
- Employment details
- Bank statements
- Proof of income
- Pan Card
- Property details (in case it is finalized).
Payment of loan processing fees
Your bank will charge you a non-refundable loan processing fee. Most banks charge between 0.5 percent and 2 percent of the loan amount as processing fees.
Additionally, you will be charged a Goods and Services Tax (GST) of 18 percent on the fee. Banks use this amount for commencing and maintaining the home loan process.
Of late, some banks have taken to waiving loan-processing fees to attract borrowers. You can negotiate with your bank and try to avail the benefit. However, not all banks will be open to relinquishing the processing fees.
Applicant’s scrutiny and verification
After you have submitted your application and the processing fees, the bank will evaluate your case and decide the amount you are eligible for.
You will be required to personally meet the bank’s officials, generally within 2-3 working days from submitting the application, so they can gauge your repayment capacity.
Post the personal interaction, the bank will proceed to verify all the facts and credentials you provided in your loan application.
Bank representatives will visit your workplace and place of residence to validate the information you have provided in your application. They will also evaluate the credit history of the borrower by scrutinizing your Credit Information Bureau (India) Limited (CIBIL) records.
Evaluation of repayment capacity
Verification of the borrower’s repayment capacity is the most crucial part of the home loan process. The bank may sanction or deny your home loan request depending on how satisfied it is with your ability to repay the principal (with interest) on time.
In case the bank issues a conditional sanction, all the stipulated conditions will have to be satisfied before the loan is disbursed.
Home loan offer letter
At this stage the bank proceeds to draft an offer letter with the following details:
- Sanctioned amount
- Rate of interest applicable
- Fixed or floating rate of interest
- Loan tenure
- Mode of repayment
- Special scheme (if applicable)
- Terms and conditions associated with the loan
You need to submit a signed acceptance copy to the bank if the contents of the offer letter are acceptable to you.
An acceptance copy is essentially a duplicate of the offer letter that the bank keeps for its records. Administrative fees (if any) levied by the bank need to be paid at this stage.
Prior to disbursing the loan, the bank will verify the property in question. You will be required to submit original copies of the title deed, no objection certificate, and other documents the bank might ask for.
A legal check will be conducted on the property to ascertain that the title is clear and that there is no dispute. Technical valuation of your property will also be conducted by the bank.
In the case of an under-construction property, the bank will scrutinize the location of the project, the stage, quality, and progress of construction, and evaluate the property on the basis of established parameters.
If a property is ready to be sold or is being resold, the bank evaluates its age, ownership, quality of construction, maintenance, locality, and legal clearances.
Bank-employed property valuators assess its value on set parameters and decide on the amount of loan to be sanctioned, your home loan is a secured loan and the property itself is the collateral. Therefore, your documents will be returned to you only once the entire loan amount has been repaid.
Home loan disbursal
Once all the above-mentioned formalities have been satisfactorily fulfilled, the registration process for the home loan commences. The legal documents need to be prepared in a format approved by the bank’s lawyer on stamp papers of required denominations.
Post this, you will be required to submit post-dated cheques for the agreed term and sign the home loan agreement. The home loan disbursal process will begin after you sign the loan agreement.
Depending on the type of disbursal agreed upon (whether lump-sum or in stages), your bank will dispense with the loan amount.
Ways to Increase Home Loan Eligibility
- Add a co-applicant
You can enhance the eligibility for a home loan by adding an earning family member with a good credit score, as a co-applicant. Doing so will also enhance the maximum amount that you can borrow because your EMI affordability will increase. While evaluating the eligibility for a home loan, some lenders may club the income of family members.
- Maintain a credit score above 750
A higher credit score (preferably around 800) can boost your home loan eligibility since a high credit score indicates your high repayment capacity. Having a high credit score can also fetch you a lower interest rate from the lender. You should also check your credit score regularly so that you can take corrective steps to enhance your score if it is low to avoid any loan rejections.
- Repay your debts religiously
Paying your debts sincerely can help build a good credit score which, in turn, will enhance your home loan eligibility. Additionally, you should also have savings and investments which may also increase your home loan eligibility.
- Open an account with your preferred lender
If, after exploring various lenders and comparing the benefits offered by them you have decided on a lender, it is a good idea to open an account with them. This should be done at least one year before applying for a home loan as you will have enough time to build a relationship with the lender. A good relationship with the lender will increase your eligibility for a home loan.
- Declare your additional income sources
Your eligibility for a home loan can be enhanced if you declare any extra sources of income as it indicates your higher repayment capacity.
- Choose a longer tenure
Choosing a longer repayment tenure can increase your home loan eligibility as the EMI amount will be lower which means that you are more likely to make timely payments. To the lender, it will appear as lower-risk lending to you and in the process, your eligibility for the home loan gets enhanced. However, on the flip side, it may lead to you paying a higher interest over the loan tenure.
Therefore applying for a home loan is an easy process and let that not stop you from applying for a home loan in Prestige Park Grove Whitefield Bangalore