HOME LOAN: Eligibility, Interest Rate & Costs, Documentation and Cashback
Buying a home can be stressful for first time home buyers, more so if you have to take a home loan. Depending upon the type of house you are planning to purchase, you may require a home loan for one of the following purposes:
1. Buying an under-construction, finished or re-sale house (flat, row house, bungalow);
2. Purchase of plot and construction thereof;
3. Construction of flat on an already purchased plot;
4. Home extension, improvement or renovation; and
5. Balance transfer with some top-up for repairs or home improvement
Before starting the process of taking a loan, the most important thing to do is to determine your eligibility, which depends on a few primary factors — Income, repayment capacity and maximum eligible tenure. Income and age of co-applicants and co-owners of the proposed property can be taken into account to increase the eligibility.
HOW MUCH HOME LOAN ARE YOU ELIGIBLE FOR?
Repayment capacity, simply put, is the maximum monthly surplus or disposable income available for loan repayment. The other things to take into account are maximum eligible tenure, which is typically minimum of (a.) 30 years and (b.) the number of years left for retirement or reaching the age of 65.
For example, if you are 25 years or age and looking for a home loan, the maximum eligible tenure for you will be 30 years. Similarly, if you are 40 years of age and about to retire in 25 years, the maximum eligible tenure for you will be 25 years.
Your eligibility for a Home Loan is arrived at, using the following model:
For Self Employed and Salaried individuals, Minimum of:
1. Up to 72 times of your monthly income for salaried personnel and 6 times the annual income for self-employed, and
2. Eligibility as per EMI considering 40–50% of your total surplus or disposable income is available for loan repayment.
For example, if you are 29 years of age and presently earning Rs. 1.20 Lakh per month (Or self employed with annual income of Rs. 14,40,000.00) and have taken a car loan and a personal loan with a combined EMI of Rs. 20,000.00.
As per the first criteria, you are eligible for (1,20,000)*72 (Or 14,40,000 * 6 for self-employed) = Rs. 86,40,000.00 (Rupees Eighty Six Lakh Forty Thousand Only) Home Loan — (i)
However, as per the second criteria, you have only (1,20,000.00–20,000)*0.5 = Rs. 50,000.00 available for loan repayment of the proposed Home Loan. Considering your age, you are eligible for loan repayment tenure of 30 years. Taking into account an industry average 8.75% rate of interest, your eligibility is restricted to Rs. 63,55,700.00 (Rupees Sixty Three Lakh Fifty Five Thousand Seven Hundred Only) — (ii)
Hence, your maximum eligibility for Home Loan is minimum of (i) and (ii), which is Rs. 63,55,700.00 with a monthly EMI of Rs. 50,000.00 for 30 years @8.75%
As mentioned earlier, to increase your eligibility, you may include your spouse as a co-applicant and/or co-owner of the property, which will allow the bank to take their income into consideration for assessing your eligibility.
If you have not yet finalized your property, you can get a pre-sanction and start the search for your dream home within your budget.
You can check EMIs at https://emicalculator.net/
WHAT IS THE MAXIMUM AMOUNT OF HOME LOAN THAT YOU CAN GET?
Now that you are aware of your maximum eligibility, also take into consideration what is the maximum loan amount that you can get of the property.
Typically, Banks and NBFCs require 10–20% of the home’s purchase price as your margin money or ‘own contribution’ or down payment from you, and the remaining 80–90% is financed by Banks / NBFCs, subject to your eligibility. Banks and NBFCs will always consider the lower of the two as the maximum home loan amount.
Continuing with the same example where your eligibility is Rs. 63,55,700.00, suppose you are interested in buying a house whose cost as per your registered agreement will be Rs. 1,00,00,000.00 (Rupees One Crore).
As per the maximum loan against this property, you are eligible for, say 80% of the purchase price, i.e., Rs. 80,00,000.00 (Rupees Eighty Lakh Only). However, as your eligibility is only Rs. 63,55,700.00, you can only get a home loan of Rs. 63,55,700.00, i.e., your own contribution or down payment will have to be Rs. 1,00,00,000.00 — Rs. 63,55,700.00 = Rs. 36,44,300.00
Under these circumstances, it is advisable to have your spouse or brother or sister with a fixed monthly income as a co-applicant or co-owner of the property, to increase your eligibility.
Continuing with the same example of eligibility of Rs. 63,55,700.00, suppose you are interested in buying a house whose cost as per your registered agreement will be Rs. 70,00,000.00 (Rupees Seventy Lakh only).
As per the maximum loan against this property, you are eligible for a home loan of, say 80% of the purchase cost, i.e., Rs. 56,00,000.00 (Rupees Fifty Six Lakh). In such a case, the maximum loan amount that you can get will be Rs. 56,00,000.00
HOW DOES DISBURSEMENT OF A HOME LOAN HAPPEN?
Disbursement of home loan can be done in parts or full, directly to the builder or home owner (in case of re-sale property) or owner of residential plot. In case of home construction on an already owned plot, disbursement will be done to the contractor in parts, maintaining your margin money or ‘own contribution’ percentage.
OTHER IMPORTANT THINGS TO REMEMBER IF YOU ARE CONSIDERING A HOME LOAN:
1. All the co-owners of the property will be co-applicant in the loan. However, you can add your spouse as a co-applicant without them being a co-owner of the property.
2. Minimum age for co-applicant — 18 years
3. Rate of Interest: Fixed or Floating — Starting from 8.35% up to 8.95% (without subsidies under PMAY Scheme), depending upon a number of factors
4. Fees and charges: Processing Fees and Applicable fees for Mortgage, Stamp Duty, Property & Life Insurance, Other Statutory and External Opinion Charges
THINGS TO REMEMBER WHILE SELECTING BETWEEN FIXED AND FLOATING INTEREST RATE:
In case the loan is based on floating Marginal Cost of Lending Rate (MCLR), the interest can be reset quarterly, half-yearly or yearly. In a MCLR — 1 year, the interest will be reset annually.
In a falling interest rate scenario, quarterly or half-yearly reset option is beneficial, however, the borrower will be at a disadvantage when the interest rates go on an upward trend. Considering the currency of loan is very high (up to 30 years), MCLR — 1 year is advisable.
Some Banks and NBFCs offer fixed rate of interest, which could considerably be higher than floating MCLR.
Documents Required for Processing Home Loan:
For all the co-owners and co-applicants: Self Attested Copies of — PAN Card, Aadhar Card, Bank Account Statements (SB, SB and CA/OD for self-employed) of last 12 months, Income Tax Returns with Form 16 (for salaried) or CA Certified Computation of Income (for self-employed) for the latest 3 years, Latest 6 Salary Slips and Employer ID Card or employment confirmation document (for salaried), Any other documents as may be required by the Financial Institution during processing of the loan.
Related to the Properties: Copies of — Chain of title deeds (for re-sale properties), Draft Agreement Copy or Buyer’s Agreement (for both new and re-sale properties), Allotment Letter (for new properties), Share Certificate (wherever applicable), Receipt/s of payment/s made to the seller / developer, Approved Plan; Land transfer deed, proof of no encumberances on land, construction estimate by an architect or civil engineer and other necessary required permissions and approvals (for construction of house); Any other documents as may be required by the Financial Institution during processing of the loan.
WHEN SHOULD YOU CONSIDER BALANCE TRANSFER OF YOUR HOME LOAN?
If your existing Bank or NBFC has not revised your EMI or reduced your Interest rate in line with the industry average, you may consider Balance Transfer or takeover or switchover to any other Bank of NBFC which offers better rates, EMI and tenure.
ARE THERE ANY PRE-CLOSURE CHARGES?
As per the guidelines of RBI, you cannot be charged a pre-closure fees for repaying your home loan in entirety before maturity. You may also make lump-sum repayment over and above the EMI from time to time and ask your lender to reset your EMI or tenure accordingly.
ARE THERE ANY CASHBACK BENEFITS AVAILABLE ON HOME LOAN?
AsaanHomeLoan.com offers up to 0.20% of the loan amount as cashback for loans processed through the platform from any partner Bank or NBFC. The loans are processed hassle-free and quickly, at the most competitive rates, through segment leading Banks and NBFCs. Visit http://asaanhomeloan.com/ for more details.
