How Home Loans Work In India

With the strong stand all over the world of being a developing country, India is moving and balancing a stable economic growth. While trying to be stable the country also has to face a lot of changes that brings fluctuations in the prices of different commodities being used by the consumers. The property or the real estate sector is one of them where consumers face lot of challenges while buying and selling their properties.

This is how home loans come into the picture where almost every prospective home buyer applies for a home loan to buy a residential property. It is an important decision for the life and requires a huge financial investment it. In order to go through the complete process easily, you should have a clear understanding of the lending industry in India. All the Private Banks, Public Sector Units (PSUs), Non-Banking Financial Companies (NBFCs) and Foreign banks offer home loans and other financial products. The norms governing home loans are different from lender to lender, but the basic criteria for lending loans are almost the same for everyone.

The experts from Mudra Home has taken a step forward to tell you how home loans work in India.

• Every Bank/ NBFCs and other financial institutions provide an average rate of interest as per the industry for various home loan products on their official website. The borrower is free to visit as many websites to compare the available features and benefits and drawbacks of home loan and other financial products. You can select the one that fits with your need to the best.

• If you sure of borrowing a home loan of the 100 per cent value of your dream home, then you may not be aware of how home loans work in our country. Banks generally fund up to 80 per cent of the market value of the property. Whatever your credit worthiness may be but you have to arrange the left 20 per cent or more of the cost of your dream home.

• Most of the developing projects are approved by government/ private Banks and NBFC’s. So, before you finalize the property/ flat of that particular project, just make sure that to do a pre-check of the listed Banks/ NBFCs who all have approved this particular project. This will make the home loan sanctioning process less time consuming. The process may exclude the technical or legal verifications of the property. But for the other home loan products and schemes such as Loan Against Property (LAP), Resale, Balance Transfer and Top-up loans etc., legal and technical verifications are mandatory to assess the loan amount.

• The home loan process starts with an assessment of the loan application form, KYC documents and property related papers. So, before you approach the lender make sure that you have all the originals and photocopies of the required documents ready. You can also visit the shortlisted lender’s website and learn what all relevant documents are required for the kind of home loan product you need. If there is any kind of doubts, then be ready with the supporting documents ready.

• Borrowers get substantial tax benefits for borrowing a Home Loan under Section 80C, Section 24 and Section 80EE. The Borrower should be aware to apply for the same to avail tax deductions while borrowing a home loan.

• The eligibility is calculated depending on the profession of the Borrower. For example, if the borrower is from a salaried class, the selection criteria will be the net salary for calculating home loan amount eligibility whereas for the businessman professionals (self-employed professional/ non professional) the eligibility is based on the past three years’ income tax returns. Bank can consider up to 50-70% of the net income to calculate the eligible home loan amount.

• The home loan insurance is also asked depending on the down payment you make (margin money from the borrower’s side) and the type of home loan you opt for. Keeping in mind that, however, insurance on the home loan is not mandatory you must understand the benefits of the same. The borrower should apply for the home loan insurance only if you feel that it will help to avoid the future risk.  Of course, your insurance on your Home loan will increases the cost of your credit.

Last but not the least, if you think that to avail the home loan you only have to bear the cost of rate of interest then you are mistaken. You need to learn and research about the additional cost of the loan while comparing the interest rate and the total cost of your loan among all the lenders. The other charges being charged towards your home loan are Processing fee, CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest) charges, conversion and administration fee, late payment and pre-payment charges etc. It need sense to take a financial decision considering all the overheads related to your home loan.