Buying home is probably one of the biggest decisions which everyone takes in his/ her life. Gone are the days, when people used to wait till retirement to buy a house. Now a days, this decision is taken very early in one’s life. Thanks to the provision of Home loans. A loan which is taken from a bank or a financial institution, usually called as Housing Finance Company (HFC) to build or buy a property to live in or to rent out. This is probably the biggest loan most people take in their life, not only in terms of amount but also in terms of duration. However, this is one of the loans, which is cheapest among all the loans. This is also called as “good loan” as it helps you in buying an asset which appreciates over the time. In this loan, the HFC provides the amount to the developer, as per the agreed payment plan and the borrower, pays back the amount with interest to the HFC in Equated Monthly Instalments (EMIs), for the period agreed upon. The house acts as collateral for the loan and the registry papers are secured with the HFC till the time, the loan is not paid back. The loan tenure varies from 5-30 years, depending upon the HFC.
The interest rate also varies with the type of the loan taken and the HFC. Although, the interest rate is decided by the market conditions, it is usually MCLR (base rate) plus a rate which is decided by the HFC. There are two types interest on home loan available, one is fixed and other is floating rate. Floating rate is the type of rate where the interest rate is flexible and varies with the MCLR of the HFC and the financial policies of the government. This is the type which is most popular among the borrowers. Another type of loan, where the interest rate is fixed, for a particular period, say 5 years, is called fixed rate type. This is usually popular with those who take loan for a short period. After the fixed period, the rate is revised and may again be fixed, for another period.
While getting home loan, margin money, usually in the range of 10-20% of the cost of the property is to be borne by the borrower. The home loan can be applied individually or jointly.
Eligibility: To be eligible for the home loan, one need to submit identity proof (Aadhar, passport, driving license, voter id card etc), income proof (salary slip, bank statement, form 16 and/ or ITR form, if employed and proof of income, income computation for the last three years, balance sheet and profit/ loss account statement in case of self-employed), application form, photographs, processing fee and the papers related to the property, approvals of the construction etc. The amount of loan depends upon the salary and the current expenses. Usually the loan amount is calculated based upon 60% of the take home salary minus other instalments. In exceptional cases, this amount may be extended buy the HFC.