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1. What is the basic procedure of taking a home loan & what are the eligibility criteria?

The basic procedure for taking a loan for a home starts with you filling the application form which is the most basic document that starts your home loan process wherein you provide your details like your name, address, occupation and income. Additional documents required for your home loan may include details about the property you wish to purchase, estimated cost, and the down payment you can pay. These documents need to be verified before your loan application form can further. Home loans being a long-term borrowing instrument, their tenure can range from anywhere between 5 years to 30 years. Banks look into your credit history, essentially they assess your credit score before they grant you the loan. They assess your income in comparison to the cost of the house and determine if you will be able to pay off the house.

Pre-qualified is usually the first step- it tells how large of a loan you can qualify for, and pre-approved is the second step where they conditionally grant you the loan for the house.

The extra costs in applying for a home loan may include application charges, administrative charges, legal fees, franking fees, notary fees, indemnity costs, CERSAI charges, and documentation fees.

2. What do banks consider when granting a home loan?

If you are looking to buy a house, then there are certain financial factors you need to check as banks assess them before granting you a house loan. They look at your income and expenses for the last couple of years, your credit card statements, and if you have a lot of unnecessary spending it’s time that you adjust your expenses, as banks do scrutinize spending habits. They also check whether you have any liabilities in the form of debts which may be student loans or personal loans or tax liabilities. They also put a good amount of importance on your credit score so that your credit score is within the 700 range for a good deal on your home loan.

3. What are the key charges associated with a home loan process?

When applying for a house loan, the buyer needs to be aware of the financial cost of the home loan process. The first charge related to a home loan is the application fee which is charged on the verification process of all the documents the borrower has provided. This is followed up by a processing fee which is levied on the cost of credit appraisal and it depends on the borrower’s loan type, amount, etc. In addition to these major fees are the supplementary charges- which the technical valuation charges, CERSAI charges, a nominal documentation fee, an indemnity fee, a legal fee charged for the legal scrutiny of the concerned documents, and lastly an administrative fee for the processing of your loan which varies from bank to bank.

4. What is the Difference Between Pre-Approved & Pre-Qualified Home Loans?

Home loan documents and the home loan process can be slightly different for pre-qualified and pre-approved home loans.

  1. Usually, the pre-qualification process precedes the pre-approval of the home loan.
  2. The pre-qualification process is usually when the applicant offers the lender a comprehensive account of their credit statement and financial history, income, company details, etc.
  3. Pre-approval is the step where the lender verifies the details and documents required for a home loan that is provided by the applicant. They also do a thorough credit check and verification of the lender’s financial background.
  4. Pre-qualification is quite an elementary process as it is mostly verbal, on the other hand, the pre-approval process requires a comprehensive set of financial documents like income tax returns, balance sheets, etc.
  5. A pre-qualification letter does not cost the applicant anything, however, a pre-approved letter may cost the applicant an amount after the loan closure.
  6. A pre-qualified letter need not specify the interest rate on the home loan, however, the pre-approved letter will specify the rate of interest that can be locked in a specific rate
  7. The pre-qualification process can take up to 30-45 days, however, the pre-approved phase can take around 4-5 days for the loan to close.

5. Do I get tax benefits on home loan?

Buying a dream home is a big deal so when you achieve this lifetime goal in the city of your dreams, it is time to celebrate. But before you take the big leap and venture out in search of the exact home loan procedure, let’s understand whether you can claim any tax benefits on the home loan you borrow.

The Indian Government encourages citizens to invest in real estate and purchasing houses. Therefore, a home loan is eligible for tax deduction under Section 80C. There are various tax benefits that you can claim in different scenarios of investing in a house.

  • Deduction for interest paid on housing loan: If you are paying EMI for the housing loan, it has two components: interest payment & principal repayment.

  • Deduction on principal repayment: The principal portion of the EMI paid for the year is allowed as a deduction under section 80C. The maximum amount that can be claimed is Rs. 1.5 lakh.

  • Deduction for stamp duty & registration charges: Besides claiming the benefit on principal repayment, a deduction for stamp duty and registration charges can also be claimed under section 80C but within the overall limit of Rs. 1.5 lakh.

  • Deduction for a joint home loan: If the loan is taken jointly, each loan holder can claim a deduction for home loan interest up to Rs. 2 lakhs each and under section 80C up to Rs. 1.5 lakh each in their tax returns.

There are plenty of other benefits that the Government offers to those looking for tax deductions on home loans. It is always suggested to do your research before taking the home loan.

6. When do I have to start repaying my home loan?

While ensuring you have all the property documents required for home loan, it is also necessary to understand the procedure for repayment of the home loan.

The creation of the disbursement cheque is the point of time when home loan EMI starts. You generally begin paying EMIs from the month after the month in which the funds are disbursed. As a rule of thumb, you must pay your EMIs on a fixed date, every month. So, if you choose to pay your home loan EMI on the 5th of every month, and the disbursement cheque was delivered on 25th of the month, your first EMI will be for the period spanning the 25th to the 5th.

You can use an EMI calculator to know the EMI as per the loan amount, tenor and home loan interest rate offered. You begin repaying the loan in EMIs comprising both, principal, and interest.

7. Does tenure affect the home loan cost?

To understand this, it is important to understand that there are two components of a home loan EMI payment: the outstanding principal repayment and the repayment of the interest. For the first few years all your repayment goes into the payment of the interest component of your loan.

However, a higher home loan tenure = higher costs.

Let’s understand this better. By increasing the tenure of your loan, you are also increasing the amount of interest payable too and in that process increasing the cost of ownership of the house too. Therefore, when you reduce the loan tenure, you cut your interest costs and overall cost of purchase too.

8. What is pre-EMI?

Pre-EMI is the payment of interest applicable on the loan only. This amount is paid in the period during which the house/building is being constructed. It ends once the construction is completed. Pre-EMI amount is lesser than full EMI amount since only the interest portion is paid out and the principal loan amount remains intact. The pre-EMI period is not part of the loan tenure.

It is ideal for:

  • Property investors who wish to sell the property once construction is completed.

  • Those who are waiting for a change in their income capacity or are not able to pay full EMI at the moment, they will find pre-EMI to be a great option.

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