Planning to buy your first home? Then definitely you are looking to apply for home loan. Do you know how to apply for home loan in India? We will discuss about the 10 things to know before applying for home loan in India in this article.
Home loan is one of the major debts in everyone’s life. So before applying for home loan you should research properly to make yourself ready with all the aspects of home loan application process India. In this article we will discuss about such 10 awesome things to know before applying for home loan in India.
How to Apply for Home Loan in India
You may think that getting a home loan is very easy as every day you are getting so many calls from various banks and financial institutes. But in reality this is not that simple. You have to go through a thorough verification process and many more things before getting a home loan. But if you are well prepared with all these 10 facts then things will be much smoother for you when applying for home loan online or offline.
Before proceeding further we will take one example based on which we will continue our discussion. E.g. Sharmaji is applying for home loan. In that case the data will be like below.
- Salary: 50,000 / month
- Home Loan Amount: 25,00,000
- Interest Rate: 10.5%
- Loan Tenure: 20 years
- Monthly Payment (EMI): 24,959
- Total Interest Payable: 34,90,279
- Total Payment (Principal + Interest): 59,90,279
Things to Know Before applying for home loan in India
- Criteria for getting home loan in India
Anyone can apply for a credit card or open a bank account easily. But to get a home loan, first of all you should have a good salary with guaranteed job. Do you pay your income tax regularly and file your return online? Do you get your form-16 from your employer? If the answer of these questions is yes then you are eligible to get home loan.
- Cibil Score required for home loan
Now this is the most important factor which is used to check applicant’s credit history. Do you know cibil score required for home loan? You should have a good cibil score; otherwise bank may directly reject your home loan application. Although you have successfully passed the first point. You can know your CIBIL score online or offline very easily.
- Any other loans in your portfolio?
You have already taken a personal loan and a car loan? Then how come do you ask for another loan? Is your earning enough to ask for a home loan on top of those 2 loans? So banks will check the repayment capacity of a borrower. If you have already taken couple of loans which consume 40-50% of your salary then no bank will allow you to take home loan.
Also check income tax benefit on 2nd home loan
In the above example if Sharmaji had personal loan and car loan EMI burden of 15,000 / month then his effective salary would be 50,000 – 15,000 = 35,000. From which if you deduct home loan EMI of 25,000 then he will have only 15,000 to spend for his family’s monthly expenses. This may not be an exact calculation but what I want to say is Bank will divide your salary in this way and compare with your monthly expenses for last 6 months to decide whether they can allow you to get your desired home loan amount.
- Proving repayment capacity of a borrower
You may get a little hint of this in the previous point. The first thing bank will do is – checking whether you can repay your home loan or not. For that you have to share all your investment data with bank. E.g. how much cash you have in your bank account, any FD or post office savings schemes, any insurance plan or gold savings. Or do you have any property in your name? If you are a salaried person then your employment details.
If you are a self employed person then you have to show some guarantee which can convince the bank to give you home loan. So the thumb rule is, if you have a good financial record, have good investment and savings habit and you are working in a reputed organization then your verification will be done smoothly.
- Documents required for home loan in India
Now from the above 4 points you might understand the list of required documents for home loan is huge. You can check out the article I wrote dedicate to discuss what are the documents required for applying home loan.
- Property type and age of property
Now let’s talk about a different point which has a huge impact on getting home loan approval. Above 5 points are ok from your end but did you know that the property you are planning to buy has a huge role in getting a home loan? Yes, if the property is from a reputed builder, if the property is already approved by couple of banks then you can get loan very easily.
But if it is a resale property more than 10-15 years old, a bank auctioned property then you will face tough time to get a loan. Bank will also check the state of the property. Whether the flat is constructed, under-constructed, is it an empty land, will you construct immediately after buying a plot? Bank will investigate many scenarios of this kind. So better to stick with a flat or plot from a good builder or person with a good record. You can also go for Home Loan Insurance to minimise your risk.
Now the question might be how to know that the property you will buy has no dispute or problem? I would say, hire an advocate or any consulting service to verify the legal part of your property. In fact to check the construction quality, a local contractor similar to San Antonio roofing in USA could be helpful in this case.
Don’t worry about this expenditure, as this will give you a relief before spending 30 lakh or more on your dream home. Don’t believe me? Then I would recommend you to watch the “Khosla ka Ghosla” movie once…:)
- Ready with down payment amount?
So you are done with all the 6 points mentioned above. Now be ready with your down payment amount as bank may approve your home loan soon. What, you don’t have any down payment? Do you know that majority of banks only allow 85% loan of actual cost of the property. Remaining amount you have to pay while applying for home loan in India. If you are not ready with your down-payment then you have to wait for 1-2 more years for your dream home.
- Decide your tenure properly
While filling the home loan application form you have to choose within how many years you will repay the home loan. One can choose max 35 years. Then 25, 20, 15, 10 etc. More the tenure less the EMI, means monthly burden will be less. Again more the tenure means more interes. So you have to plan your financial future accordingly. In the above example if Sharmaji reduces the tenure to 25 years then he will pay EMI = 23,605 but total interest will be 45, 81, 363. Means monthly EMI got reduced by 1,000 but interest amount raised by 10 lakhs.
- Minimum lock-in period and pre-payment charges
You may think that you have enough money to buy a flat but it is better to take home loan first, so that bank can verify the property appropriately. Many people actually do like that mainly for this reason. And after that you may foreclose the loan immediately.
Hold-on for a while, you should know that a home loan must continue for minimum of 6 months. And after that if you want to close the loan then there might be some pre-payment charges. Although Govt. instructed that fee should be waived off, but still there can be some terms and conditions you should read before applying for home loan in India.
- Applying for a home loan with spouse
So after reading all 9 steps if you feel that you are not able to get your desired home loan amount, then you can go for applying for a home loan with spouse. If you are a working couple then your home loan eligibility will increase but remember you have to be ready with double set of documents.
Hope this comprehensive article will answer all your queries regarding how to apply for home loan in India. You have to provide every information true and know how much loan you can actually ask for. Otherwise there will be high chance of rejection of home loan application.
So consider all the things to know before applying for home loan in India & prepare well. Do you have more questions to ask? Did you face any other difficulties while applying home loan? Share all your experiences here by a simple comment to make this article more useful.