Given the often elevated costs in the real estate market, purchasing a property outright might be unfeasible for numerous buyers. This is when a mortgage comes into play. A mortgage serves as a financial tool that aids in realizing your ideal residence. Various financial entities, such as banks, can provide loans to qualified individuals for home acquisition, typically at a fixed interest rate.
Discover additional information on the process of applying for a mortgage here.
How Does a Home Loan Work in India?
You have the option to apply for a mortgage to purchase a home or improve your current residence through renovation, repairs, or extensions. Typically, financial institutions maintain distinct procedures for first-time homebuyers compared to those acquiring a second property.
Therefore, it would be wise to inquire with your lender about the details and expenses related to the home loan you are pursuing. In simple terms, the bank provides you with funds to purchase a house, and in return, you need to pay back the borrowed amount along with interest.
Home loan interest rates typically fall between 6% and 12%. Nevertheless, these rates differ among lenders and can fluctuate depending on factors like the current repo rate set by the Reserve Bank of India (RBI), economic conditions, and inflation. Opting for a floating-rate home loan means that the interest rates will adjust throughout the loan period in response to changes in the RBI’s rates.
Conversely, you may choose fixed interest rates, which, as implied, stay constant throughout the duration of the loan.
The duration over which a loan must be repaid is referred to as the home loan tenure. Generally, a longer tenure results in smaller Equated Monthly Instalments (EMIs), while accruing more interest overall. Conversely, choosing a shorter tenure allows for quicker repayment with lesser interest accumulation, but the EMIs will be higher.
Eligibility Criteria for Home Loan
To determine your qualification for a home loan, the bank evaluates your ability to repay the loan using various criteria, a few of which are outlined below.
- Monthly disposable income
- Assets
- Liabilities
- Stability of income
- Age
- Collateral security
- Employment type
- Residency status, i.e., resident or non-resident Indians
Steps For Home Loan Application Process
Though the specific procedures for obtaining a mortgage may differ from one financial institution to another, the following are the typical stages involved:
Step 1: Fill Out the Form
To begin the process, you need to complete the loan application form provided by a financial institution or an approved lender. You have the option to apply for a home mortgage via the internet by submitting this form on the lender’s official site.
Step 2: Submit Required Documents
Below is a compilation of frequently required documents you might need to provide in order to secure a home loan:
- Legal paperwork pertaining to the property you are acquiring, which comprises the architectural plans of the residence.
- Identity proof
- Address proof
- Latest salary slip
- Form 16 for businesspersons
- Bank statements or balance sheet for the last 6 months
Step 3: Processing of the Loan Application
Upon handing in the completed form and required documents, the bank will review everything and validate the information. A thorough investigation will be initiated to evaluate your credit score and assess your eligibility as a borrower. Once this verification process concludes, the bank will advance with your loan request.
Step 4: Property Verification
Prior to releasing the loan funds, banks commonly perform a technical and legal assessment to confirm the property’s validity. Factors such as clear ownership rights are often scrutinized during this process.
Step 5: Loan Sanction
Upon satisfying the bank’s requirements, you will receive a sanction letter from them; this document serves as verification of the approved loan. It includes particulars such as the eligible loan amount, applicable interest rate, whether the rates are fixed or variable, loan duration, as well as repayment terms and conditions.
Step 6: Processing Fee
It is probable that the bank will request a single payment charge, which may be required either prior to or following the approval of your loan.
Step 7: Loan Disbursement
The bank will provide a conclusive agreement document that describes all aspects related to the home loan. Additionally, you will get a welcome package along with a comprehensive schedule of your EMI payments.