Most homebuyers today opt for a housing loan to help them finance their dream of owning a home. In an effort to encourage more people to invest in real estate, many banks have begun to simplify their home loan process and offer attractive interest rates. SBI, for example, has slashed the base rates for their loans by about 30 points. Speaking about the effects of lowering base rates for housing loans, investment expert Harsh Roongta said in an interview to Business Standard, “Older customers have been paying a much higher rate of interest for a very long time. This measure will reduce the burden of such investors”. For those who are unfamiliar with the home loan process in India, applying for one can be very intimidating. Understanding the steps involved is one of the most important things a first-time homebuyer should know before investing. It will also help you save a lot of time and ensure that the process goes smoothly. Here is a complete guide to applying for a housing loan in India.
When applying for a home loan, the first step is obtaining the form. Every bank has a home loan application form that you must fill out with all your details. The bank you choose to take out a home loan with can either be one that you feel has the lowest home loan rates or a bank that you have an existing account with. Once you decide on a bank, you can download the application form from their website (if they have this feature available) or collect it directly from the branch. While the exact details you will need to fill in varies between each bank, there are some which all have in common. In general, you will be asked to fill out your personal information as well as your financial details and the estimated cost of your property.
When submitting the application form, you will also most times be asked to attach certain documents along with it. These documents will act as proof of the information you have provided in the application form. The documents required will be specified on the form, but these are usually the main documents that are required:
A Government-approved ID proof should be submitted which has your photograph, address and DOB. You can use your passport, Aadhar card, driver’s license or any other ID proof that matches these requirements.
You can attach utility bills, phone bills or an ID proof that has your current residential address as proof of residence.
If you are a salaried individual, you can include your offer letter or similar documents as proof of your employment. Business-owners can include documents specifying their role as employment proof.
Your recent account statement will need to be submitted along with your application. This will be used to check your current balance as well as your spending patterns to determine whether you are eligible for a home loan.
At the time of submitting your application when applying for a home loan, banks will charge you a ‘processing fee’. This charge is usually around 0.24% to 0.5 % of the total value of the loan you are requesting. The exact amount varies between banks, but sometimes, you can negotiate with banks to bring down the amount payable as processing fee. Banks claiming to offer zero processing fees can be attractive, but they offer you little real advantage. Most times, they adjust these charges elsewhere in the home loan rates so you end up paying the same amount.
For a bank, giving you a home loan always involves some degree of risk because there could be a chance that you end up defaulting on your repayment. This is why, banks generally make a thorough background check to ensure that your details are accurate and that you are financially equipped to repay the loan. Some banks will ask you to meet them in person with all your documents for an interview, although this is becoming increasingly rare. In most cases, banks will send their representatives to meet you at your home or workplace to verify the details you have provided. It’s a good idea to keep multiple copies of all the documents you have submitted so you can be prepared for an evaluation.
Banks use many parameters to help them understand whether or not you are a good candidate for a home loan. Your age plays an important role because it tells a bank how many working years you have left to be able to pay back the loan. This is why, younger candidates tend to get approved much quicker. For salaried individuals, working with a well-known, reputable organisation can be an advantage because it acts as an indicator of the stability of your job and future career growth. For self-employed applicants, a financial statement of your business is important to show a bank that you are capable of repaying the loan.
But one of the most important factors that banks take into consideration is your CIBIL score. A CIBIL score or credit score shows a bank how reliable a candidate you are for a loan. It is a number between 300 to 900 that is based on your past credit behaviour. When you enter your details on the website, banks will send your financial history to the bureau, based on which your CIBIL score will be calculated. If you have always paid back previous loan instalments on time, if you don’t have any outstanding payments and you haven’t defaulted on credit card payments, your CIBIL score will be high. This will tell a bank that you are very likely to pay back your home loan on time. A low CIBIL score, however, indicates irresponsible credit behaviour and can seriously affect your chances of getting approved. Increasing your CIBIL score is one of the terms to consider before applying for a home loan.
Banks use information about your financial and credit history to approve of the loan and also set the maximum amount that you are eligible for. Based on the home loan rates specified by the bank, you can choose to avail of the entire amount or a portion of it depending upon your requirements. The maximum loan amount will also depend upon the total value of the property as home loans can cover only 80% of the entire value. The remaining 20% will have to come from your savings. After your loan has been approved, the bank will send you an offer letter specifying the loan amount, repayment period, rate of interest and other terms and conditions. You will have to sign a copy of the letter and send it back to the bank as proof of your acceptance.
Banks require a set of copies of all documents related to the property you are investing in as security. Some of the documents required are:
This is a certificate issued to the property developer and acts as proof of the legality of the development. It is issued by local development authorities, co-operative housing societies and other bodies which are required to inspect the property. This is why, choosing a reliable builder like Shriram Properties can help speed up the home loan process as they will already have the required certifications in place.
The title documents serve as proof of ownership by the seller. If the seller you are purchasing the property from is not the first seller, you will need to provide the entire chain of deeds documenting the transfer of the property from each seller.
When you are getting ready for a house hunt, it is essential that you ensure a builder has all the required approvals ready.
A bank will usually send one of their representatives to check the property in person to ensure that it is a legitimate construction. Some of the parameters evaluated include:
While this inspection can take some time, it is also very useful because it helps you understand whether the property meets the required guidelines and is a good investment.
Once the property has been evaluated and your details have been verified, the bank will draw up the final loan disbursement documents. The draft of the document has to be approved by a lawyer and checked for legal validity. The last step will be to stamp the agreement and get it registered formally.
The final step of the process is to sign the agreement so the bank can disburse the amount to you. Along with the signed document, you will also need to submit the original property documents to the bank who will keep these with them until the full loan amount is repaid. Before you can receive the loan amount, you will have to show proof that you have paid the remained 20% of the total property value. Generally, the cheque will be made out to the property developer and not to you personally.
Once your home loan approved, you can finally invest in the house of your dreams. Your home loan is also one of the best tax-saving options to explore in the homebuying process. These incentives are why potential homebuyers looking to buy their first home should not hesitate before deciding to invest in real estate.