Many urban Indians aspire to buy a house or an apartment by opting in for a home loan to purchase their dream properties. However not everyone is acquainted with the process for procuring a home loan. Often, many buyers find themselves in a tough situation when their application gets rejected or after securing a loan the buyer is unable to pay off his debt.
Every buyer should be well versed with banks criteria for providing home loans. Its also important that buyers know their monetary responsibilities to the bank so they could avoid conflict in the future.
So here’s a walkthrough regarding the process for obtaining a home loan
Step 1: Applying for a home loan
The process for obtaining a home loan begins with a formal application to the bank. You are also required to provide your personal details to assess and evaluate your eligibility for home loan. Most bank will require you the following documents:
- Identity proof
- Address Proof
- Age proof
- Proof of educational/ professional qualifications
- Employment details
- Bank statements
- Proof of income
- Pan Card
- Property details (in case it is finalized).
Step 2: Payment of loan process
Your bank will charge you a non-refundable processing fee. Most banks will charge between 0.5 percent amount as processing fees. Banks use this amount to start and maintain the home loan process. Lately some banks offer “no processing fees” policy to attract borrowers. However not all banks waive off processing fees.
Step 3: Applicant’s verification
After submitting your application and processing fees, the bank will evaluate and decide the amount you’re eligible for. You will be required to meet the bank officials generally within two or three working days from submitting the application, so they can evaluate your repayment capability.
After the personal interaction, the bank will verify all the facts and credentials that you’ve provided in your loan application. Bank representatives will have to visit your workplace and residence to verify the information that you’ve provided in your application.
Step 4 : Evaluation of repayment capacity
Verification of the borrower’s repayment capacity is the most crucial part of home loan process. The bank may sanction or deny your home loan request depending on how satisfied it is with your ability to repay the principal with interest on time.
In case the bank issues a conditional sanction, all the stipulated conditions will have to be satisfied before the loan is disbursed.
Step 5: Home Loan Offer Letter
At this stage the bank proceeds to draft an offer letter with the following details:
- Sanctioned amount
- Rate of interest applicable
- Fixed or floating rate of interest
- Loan tenure
- Mode of repayment
- Special scheme (if applicable)
- Terms and conditions associated with the loan
You need to submit a signed acceptance copy to the bank if the content of the offer letter are acceptable to you. An acceptance copy is actually a duplicate to the offer letter which the bank keeps for its records. Administrative fees (if any) levied by the bank need to be paid at this stage.
Step 6: Property verification
Before disbursing the loan, the bank will verify the property in question. You will be required the original copies of the title deed, no objection certificate and other documents bank might ask for. A legal check to ascertain whether the property is clear and there is no dispute.
Technical valuation will also be conducted by the bank. In case of under construction property, the bank will scrutinize the location of the project, the stage, quality and progress of construction etc and evaluate the property on basis of established parameters.
Note that your home loan is a secured loan and your property itself is the collateral. Therefore, your documents will only be returned to you once the entire loan amount has been paid.
Step 7: Home Loan Disbursal
Once the above-mentioned formalities have been completed, the registration process for the home loan commences. The legal documents need to be prepared in a format approved by the bank’s lawyers on the stamp papers of required denominations.
Post this you will be required to submit post dated cheques for the agreed term and sign the home loan agreement. The home loan disbursal will begin once you sign the loan agreement. Depending on the type of disbursal (whether lump sum or in stages) your bank will dispense with the loan amount.
How is your loan borrowing capacity determined?
Banks factor in the following parameters to determine your borrowing capacity
Cash flow and expenses
Equated monthly installment (EMI) can be calculated using the following formula
P= Principal amount
r= Rate of interest calculated on a monthly basis (Rate of annual interest/12/100)
n= Loan Tenure (number of months)
As a home buyer you should carefully understand the home loan process and subsequent payment liabilities prior to applying for a home loan. It is a good idea to check with a few banks to know the one providing the lowest rate of interest. Make an wise choice. Lok out for special schemes and waivers that are launched by banks from time to time to attract borrowers. It is a good idea to foreclose your loan if the interest your paying is higher than that being earned from your investments.