Home Loan: Types and Process

One of the biggest financial decisions one takes in his lifetime is regarding owning a house. For the first time buyers, availing a home loan is the only way by which they can buy a home of their dreams. Due to the mounting real-estate prices, buying homes is becoming a herculean task if the entire savings are not to be burnt out. If a home loan has to be availed, it is imperative to understand all about it, since it is a commitment for years till the entire loan is repaid. Banks and other housing finance companies offer different types of loans. The banks have come up with many loan schemes to cater to the different sections of the society. These include for example, specially designed home loans exclusively for women, teachers, doctors, agriculturists, etc.

There are different types of home loans available like, loans for purchase of land, loans for home purchase, loans for construction of house, home conversion loans, loans for home improvement, house expansion or extension loans, balance transfer home loans, NRI home loans, bridged loans and stamp duty loans. Besides these some mortgage loans like, conventional mortgages, jumbo mortgages, government insured mortgages, fixed rate mortgages and adjustable rate mortgages are also available.

A home loan is taken for the property and a mortgage loan is taken against a property.

Before applying for a loan, it is necessary to know which type of loan to avail for from the above- mentioned types. This will help in reduced paperwork which in turn will simplify the loan approval process and allow one to avail a loan at reduced interest rates.

The Process of availing a home loan begins with the filling of the application form by the borrower. The application form is a very basic document in which personal information like name, address, phone number, educational qualification and the details regarding monthly and annual salary. The financial institutions normally advance a loan amounting to 85% of the property’s market value, the interest rate for which can be fixed or floating or a combination of both. Once the lender is satisfied with the initial documentation, the loan formally gets approved also called unconditional approval and a loan contract has to be signed.

Generally home loan is taken to buy a 2 bhk flats in Nagpur or a plot for construction of a house or for renovation, extension or repairs in the already existing house. Before starting a home loan process, the eligibility has to be determined which in turn depends on the repaying capacity. The tenure and interest rate also determines the loan amount. Normally an upper age limit is fixed by the bank for the applicants.

Normally 10 to 20% of the total property value should be borne by the applicant also called seed capital and rest of the 85 to 90% loan amount will be advanced by the bank which includes registration, transfer and stamp duty charges. It is mandatory to have a co applicant for applying  ;a home loan. A list of documents have to be submitted to the bank for loan approval. They include, photographs, identity and residence proofs, self attested latest salary slip, Form 16 or income tax return and last 6 months bank statement. Once the bank is satisfied with the documentation, it issues a sanction letter stating the loan amount, tenure and interest rate. 

After conducting technical and legal valuation, the actual loan amount is disbursed or handed over in the form of a cheque. At the disbursement stage, the allotment letter, agreement to sell and the encumbrance certificate, photocopies of the  title deed are to be submitted. The interest rate on the date of disbursement will apply and not that which is given in the sanction letter. A new sanction letter will be prepared for the same.

Repayment of loans can be made by EMIs which include both the principal as well as interest amount and starts from the month following the month of disbursement.