Everyone wishes to buy a home and live there with their family. Home is a very sensitive place and many dreams are made and broken based on home. Home is way more than just a shelter. It not only holds on to emotions but it is strategically a very good investment. It is considered to be a long term asset for many. Home represents the past, present and future all in together. So to make this process of buying your own home much easier, the term Home Loan came into consideration.
WHAT ARE HOME LOANS?
A home loan is a secured loan that can be obtained to purchase a property by offering it as a collateral to various financial institutions. This could be a newly constructed property, a resale property or under construction property. Here the collateral or the mortgage is the house which will be kept to the financial institutions, from where the loan will be taken. Once the loan amount is repaid with interest, you will get the deeds to the home back making you the rightful owner of the house. In case you fail to repay the loan, the lender reserves the right to repossess the property and can sell it to another person. Usually the loan amount with interest is paid through EMIs and there is a tenure that’s fixed for the same.
Types of Home Loans:
- Home purchase loan
- Home improvement loan
- Home construction loan
- Land purchase loan
- Home extension loan
- Joint home loan
- Home loan balance transfer
- Top-up home loan
HOME LOAN: RULES AND REGULATIONS
There are rules and regulations set for home loans too like any other loans. This whole process of obtaining a home loan is heavily regulated by the Reserve Bank Of India(RBI) and National Housing Board(NHB). Some of the key rules and regulations to follow are :-
- Determining the valuation of a loan is important before getting the loan. It is based mainly on the Loan to Value Ratio, LTV which is determined based on the lender’s eligibility and the valuation of the property into consideration. It is fixed by the RBI. The loan amount is calculated based on the property value. It does not include stamp duty, registration charges and other expenses.
- Earlier there was a prepayment penalty that was levied on the borrower. But now RBI has made home loan rules and regulations in India more flexible. In case of home loans with a floating interest rate component taken for non-business purposes, this penalty is totally waived off.
- Documentation is very crucial. The lender should check all the documents submitted by the borrower which are required. Any discrepancies would lead to a failure of loan approvals.
- There is an eligibility criteria already set. The borrower should pass all of them like, having a stable income, sufficient repayment ability, a good credit score and a CIBIL score of 700 and above. All these should be met and checked before moving any further.
- There is a flexibility to switch your loan from one financial institution to another in case you find cheaper interest rates in the other institution. In that case, you can foreclose a loan without penalty and then switch to another one with a lesser interest rate. You can use this rule only in the case of floating interest rate loans taken for non-business purposes.
- Always strive for a large down payment to make repayment on a lower principal and get better home loan rates.
- Try to maintain a good relationship with your lender. This will help you to get your loans sanctioned easily.
It is not a gruesome thing – this home loan process, if done with honesty and expertise. If you have a dream to buy your own home, go for it. In our next blog we will discuss the step by step process to get a home loan. Till then, let us know if you think taking a loan for buying a home is a good idea or not as per your opinion.