Getting Your Home Loan Right (FAQs)

[rmani84]

Q. Is it important to have a good credit history if i want to take a home loan?
Yes, It is very important to have a clean credit history if you want to fund your house purchase through a home loan. Its also equally important to have a credit history (No personal loans or credit cards in the past means there's no good track record for you). Make sure you take a personal loan or have a credit card and maintain a clean record before you plan on taking a home loan.

Banks and other lending institutions are more confident in lending to an individual with clean credit history compared to someone with dubious or no credit record. In case your have a bad credit history of not servicing your other lines of credit regularly, it will be in your interest to get disciplined with regards to making regular payments towards those credit lines

Q. How do i know the amount of loan i am eligible for?
When budgeting for house purchase, its advisable to know the amount of loan you would be eligible for. This will help you prepare a budget that is much closer to reality. Lending institutions will not fund a loan with EMI payout (Including other loans) above 40% of your take home salary

First, get a rough idea of the amount you would be eligible for. Calculate your net take home salary annually. Multiply your annual take home salary by 4 to get a conservative home loan amount you would be eligible for. If your net take home salary per month is Rs 50,000/- per month. Your annual take home pay is Rs 6 Lakh Rs (12 * 50,000). Your home loan amount eligibility would be 24 Lakhs (4 * 6 Lakhs).

To get a more accurate loan amount eligibility, check in many online calculators like HDFC Loan eligibility.

Other option is to approach a bank and ask them for a pre-approval loan letter. This letter will contain the maximum amount you would be eligible for.

Q. Can i enhance my home loan eligibility?
If you feel the amount of loan you are eligible for is less than what you had expected, then there is a way to enhance your home loan eligibility. Make any of your first relative the co-borrower in the home loan. Remember that the co-borrower should be a earning member. This way, both incomes are clubbed together to arrive at the amount you would be eligible for the home loan.

Q. How do i calculate the amount of loan that i should target for while budget for the house purchase?
Banks will fund a house purchase, provided the technical scrutiny reveals that the house you purchase is clean. But, keep in mind that they will not fund the entire amount even if you are eligible for it. For instance, if you are planning to buy a house costing Rs 50 Lakhs, they will ask you to fund part of your purchase through your own resources. This is known as margin money.

[rmani84]

Q. What is margin money? How much margin money do banks or HFCs ask for?
The part of the house purchase you will need to furnish from your own resources is known as margin money or down-payment. Banks and HFCs typically ask for a margin money of 20 percent of the total home loan amount from the lender. So, if the cost of the house is Rs 50 Lakhs, you will need to furnish Rs 10 Lakhs from your own resources. The balance Rs 40 Lakhs would be financed through a home loan.

Q. Can i pay more margin amount than what is mandatory?
Yes, you can pay more margin amount that what is necessary. The advantage of paying higher margin amount is that your loan EMI would be lesser. By way of more savings per month, a lower EMI also increases your chances of clearing off your home loan much before the original loan tenure.

On the contrary, reducing your EMI beyond a certain extent also reduces the tax savings you get via home loans. So, carefully balance your EMI taking all considerations.

Q. How do i select the lender from whom i should borrow the home loan?
Every lender worth its name offers home loan as part of its portfolio. All of them go out of the way to woo the retail home buyers. One of the most effective tools in their Armour is rate of interest that they would offer. Make sure not to fall into the trap of floating interest rates. Your interest rate initially may be low, but in a floating case, it will mostly go up in time in Indian scenario as inflation shoots. Its your duty to ask for other details like pre-payment penalty, processing fee and any other hidden charges.

Among the first things, take a look at how pro-active the lender has been in passing the benefits of reduction in policy rates to its existing customers in the past. Get in touch with people who have taken loan from same institution to get an idea.

Second, enquire about the convenience of getting a loan. While taking to existing customers comes handy, check social networking sites to get the feedback about the lender.

Third, check the profile of the lender. Find out how long they have been in the business of home loan finance. A longer track record is useful. Try to get a home loan from Government Nationalized banks like SBI, LIC and so on.

Q. At which stage of the house purchase process should i start with home loan application?
Ideally, you should start your search for right lending institution at the time you start planning your house purchase. As you search for a house, keep checking whether the developer has a tie-up with lending institutions. If any of these lending institutions happens to match with the ones you have shortlisted, approach them and ask them for details like rate of interest, other charges and time to sanction the loan.

[rmani84]

Q. How do i calculate the EMI that i will have to pay on the amount i am eligible for getting as loan?
Once you receive the pre-approval loan letter from the lending institution, you will get to know the exact EMI that you will need to pay to service the loan. In case you do not have the pre-approval loan letter, you can take the help of online EMI calculators.

Q. Can i decide the duration for which i want the home loan?
The lending institution will most probably as you to take the loan for 20 years which is the maximum loan tenure these days. Remember that, longer the loan duration, the higher is the interest payout. While taking the loan, it is your right to choose the duration of the loan. The only thing you need to check is that, the EMI should be less than 40% oy your monthly take home salary.

So, ideally choose a loan tenure that's short and suits you, and not what the personal at the lending institution tries to convince you.

Q. What are the documents that i will need to submit along with the home loan application?
Most lending institutions as you to furnish a set of common documents along with your home loan documents. You will need to submit the following documents along with a filled-out home loan application.

• Three passport size photographs
• Proof of identity (Photo copy of Voters ID card/ passport/ driving license/IT PAN Card)
• Proof of residence (Photo copies of recent telephone bills/ electricity bills/ Property tax receipt/ Passport/ Voters Id)

In-case you are a salaried employee, you will also need to submit the original salary certificate from your current employer, the TDS certificate on form 16, or a copy of Income Tax Returns for the last 2 financial years duly acknowledged by the Income Tax Department.

Q. What are the factors on which the final amount disbursed to me as a home loan is calculated on?
Though you may qualify for a higher amount as home loan based on your financial profile, it does not mean that the lending institution will sanction that loan amount for the loan. The amount will depend on the value of the house that the lending institution perceives is right and not the value mutually agreed between the seller and you. This typically happens in case of resale properties. Based on the value of the house, you will need to fund the margin money. The lending institution will fund the balance amount through a home loan.

Q. After submitting the home loan application with all necessary documents, how will i get to know if my application has been accepted or rejected?
Once you have submitted the home loan with all relevant documents, you should get the sanction letter from the lending institution between 7 to 10 working days depending upon the lending institution. Among other things, the letter will contain your loan account number. Once you have received this letter, it means your loan application has been approved. If you do not receive this letter for more than 15 days, contact the personal from lending institution through whom you applied for the home loan.

[rmani84]

Q. How do i come to know that the disbursal of my home loan has been done?
After the lending institution sanctions the loan you had applied for, it typically conducts due diligence on the property that has to be financed. Once it receives the technical report about the property on the agreed date, you will need to visit the office of the lending institution to put down the signature on the home loan agreement.

After undergoing this procedure, the loan is disbursed within two or three working days. In case the property has been already approved, the home loan agreement would be signed much earlier.

Q. At the time of signing the home loan agreement with the lender, do i need to pay any amount?
There are no charges that you will need to pay at the time of signing the home loan agreement. However, what you need to pay is the interest on the home loan for the balance number of days of the months in which you sign the home loan agreement.

Q. If my home loan application has been rejected by one bank/home loan finance company, can i apply for a home loan at another institution?
Yes, you can apply; but before that you will need to know why your loan was rejected in the first place. For instance, if your loan was rejected because of your bad credit history, or that the building was not being made as per sanctioned plan, then the chances of it being rejected again are high. Fix any irregularities and then reapply with another institution.

Q. Is there any fee that i need to submit along with the home loan application?
At the time of submitting your home loan application, you will need to give a processing fee to the lending institution. As the name suggests, this is a fee to process your application. Typically, this is either a percentage of the loan amount or a fixed amount, whichever is lower. The percentage of loan amount to be charged as processing fee varies across lending institutions and could be as high as 25 percent of the loan amount.

Q. If all my papers are in order, within how much time should the home loan be normally disbursed?
If all papers are in place, then the time taken to disburse the loan should be ideally 15 working days from the time you apply for it, provided the property to be financed is clean. The disbursal of loan can be faster in case you have a pre-approval loan letter and if the property concerned is pre-approved.

Q. Can i foreclose the loan much before the original loan tenure? Are there any charges for the same?
Yes, you can pay off the loan much before the original loan tenure. There are typically no charges if you foreclose the loan from your own resources. However, if you move to another lender through the re-finance route, then you will need to pay 2 percent of the outstanding loan amount as pre-payment penalty.

Q. Once the loan is foreclosed, what documents are returned by the lending institution to the borrower? Also, how much time is taken by the lending institution to return those documents?
First, the lending institution will send you a letter stating that you have cleared off the loan and that there is no amount outstanding in your loan account. Second, it will return you the original papers of the house. Third, in case you provided any collateral at the time of taking the loan, the lending institution would also return that to you. Typically, you should get these within a month of clearing off the loan.

[rmani84]

You can save up-to 1 Lakh under 80C on tax exemptions and 1.50 Lakhs on interest paid towards home loan under Section 24(b)
Deduction under Section 80C of the Income Tax Act
The portion of the EMI paid towards repayment of principal amount of the loan can be deducted from income. The borrower can get a tax deduction for a maximum amount of Rs. 1L each year under this section irrespective of his tax bracket.

Deduction under Section 24(b) of the Income Tax Act
The interest paid towards home loan is treated as an 'expense' under 'Income from house property' and is deductible under Section 24(b) from the total income of the assessee. The maximum deduction permitted under this section is Rs.1.5L per annum.

A home loan helps you create an appreciating asset even when its self-occupied. Home equity can be leveraged in case of emergencies, or act as a major bridge of funds to secure kids future for instance.
As there is housing shortage in the country, over the long run prices of residential units will move only one way - north. Once you have cleared off the loan in full, your ownership of the house will be 100 percent.
You can borrow against your ownership of the house to meet your financial needs in future, like your child's higher education or an emergency in the family.

You can create a source of income through rent when you have more than one house
In-case you own two houses, rent out one property and use the other one. Renting out the property not only ensures that the second house is taken care off in terms of regular maintenance, but also provides you with a regular source of income by way of rentals.

It helps you to benefit from capital gains in the long term. In case you have more than one home
A house is an appreciating asset and over a period of time it will only increase in value. So, if you have two houses and want to move out of your investment in the second house, you can sell it off. This way, you will benefit from capital appreciation and realize the value of the house which was, by and large notional in nature till you sold it.

It helps to create a source of retirement fund through reverse mortgage products
Though reverse mortgaged as a product was launched a few years back, it is yet to get popular. The increased value of house can be unlocked through reverse mortgage in your golden years. This way, the money that you will receive through reverse mortgage loan will further augment your retirement kitty. While the traditional reverse mortgage product only provides for money coming to you for a specified period, of late annuity in reverse mortgage ensures that you receive the money till you breathe your last. Even if you choose for a traditional mortgage product, after a specified period when the money would flow to you ends, you will not be required to vacate the house. You can continue to stay in the house. However, the money coming to you will stop. Only after you permanently move out of the house, will the lending institution take possession of the house and allow your legal heirs to settle the loan. If they settle the loan, they retain the house. If they do not clear the loan, the bank will take possession of the house, clear off the loan, and if any money is left after that, it will give it to the legal heirs.

Thanks to reverse mortgage loan, you can now maintain your lifestyle. You can get cash against property to lead a safe and secure life.

• Min age at entry - 60 years
• Max loan period - 15 years
• Options of receiving payments - Periodically or in a lumpsum
• No EMIs
• Remain Home Owners throughout your life

[Finklea]

When you're buying a home, lenders look at your debt to income ratio. This measure of your debt load has an impact on how much house you can buy.