To be able to own a home is a matter of great pride, hence owning a home ranks high among the aspirations for a majority of Indians. When you come to think of a home, it is the most expensive asset you own. Therefore, fulfilling the decision to buy might not be possible without the aid of a home loan.
A home loan is a big ticket and long-term commitment. And to add to it, the terms associated with a home loan are baffling. To make things simpler for you, we have put together a guide which will help you navigate the process of obtaining a home loan with ease.
What Are The Purposes Covered Under a Home Loan?
The more popular versions of a home loan are for ready-to-move-in or under-construction properties. However, home loans are also allowed for buying a plot of land, construction of a home on a piece of pre-owned land, or for the purpose of improvement/renovation of existing home.
What Decides The Eligibility of Home Loan?
An individual in the age group of 18-60 is eligible for applying for a home loan. The other factors that determine the eligibility of a person are his/her income and take-home figures in relation to the loan being applied for, the down payment capacity, the employment status, the income of the co-applicant (if any), and the most important being your credit score.
Additional Reading: How do I calculate Home Loan eligibility?
What is The Maximum Loan Amount That an Individual is Eligible for?
All loans require an individual to put forth some amount as down-payment, which also shows their commitment towards buying the particular asset. Same is the case with home loans too. Banks/Financial institutions look for a down payment in the range of 15-30% of the cost of the project. This figure is based on the credit score, repaying ability, the value of the project, etc. It is not mandatory to borrow the entire sanctioned amount; one can choose to borrow a lesser sum too. The project cost here includes registration, transfer, and stamp duty.
Who Can Be The Loan Applicants?
Financial institutions insist on having co-applicants for home loans as it reduces their risk. All co-owners of the property have to be the co-applicants. They allow certain relations to apply as co-applicants. While husband-wife is the ideal combination that the financial institutions look for, other combinations like father-son/daughter, mother-son/daughter, and brother-brother are allowed. However, relationship combinations like a brother-sister or sister-sister are not allowed due to inheritance issues that may come up in future. Adding co-applicants brings in benefits in terms of increasing the size of the loan, complementing minimum income criteria, sharing the burden of repayment, and not to forget the added income tax benefits.
Additional Reading: How does a Joint Home Loan work to your advantage?
How Are Interest Rates Calculated?
Home loan interest rates determine the amount one pays as EMI. Currently, home loan interest rates are based on the Marginal Cost of Funds Lending Rate (MCLR). This rate takes into consideration the cost of raising funds for a bank. A small spread is added to this rate making it, the final interest charged to the customer. Another important factor that decides the interest rate charged on the loan is the credit score. A person with a good score is more likely to get better rates.
How Is Repayment Done?
Any loan is repaid in Equated Monthly Installment. An EMI is a combination of principal repayment and interest. During the initial tenures of the loan, a bigger chunk of the EMI goes towards interest repayment. Repayment of the loan is an important responsibility on your part. Never miss one! You can also prepay your loan during the term of the loan.
What Are The Tax Benefits Available?
Principal repayments made during a financial year can form the deduction under Section 80C subject to a maximum amount of Rs 1.5 Lakhs. In addition, interest paid on home loans up to Rs 2 Lakhs is also allowed as a deduction under Section 24. This benefit is applicable to all the co-applicants of the loan, provided they are involved in the repayment of the loan.
What Do You Do If You Have A Grievance?
Should you have a grievance against the bank from where you have borrowed, you could make a record in writing of the same at the Complaint Register maintained in the branches of the bank, through a call to their call centers or file a complaint online on their respective websites. If you are not satisfied with the response, you could take the matter to the banking ombudsman. You could further approach the Appellate Authority at RBI if the ombudsman also fails to resolve your concern.