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Home Loan

For most people today paying the entire cost of the house at one go is impossible. Therein comes the home loan, a loan product that has helped millions realise their dreams of owning their own home at an early age. You apply to a bank or housing finance company (HFC) for a loan. The lender pays the developer the cost of the house according to the payment plan. You in turn pay the bank/HFC equated monthly instalments (EMIs) spread over the tenure of the loan.

Characteristics of a home loan

Home loans fall in the category of secured term loans. The house is the collateral for the loan. The tenure of the loan lasts for a fixed period that could range from 5-30 years.

Home loans come with two types of interest rates: fixed and floating. The fixed rate loan charges a fixed rate of interest over the entire tenure of the loan (banks can sometimes change the rate under special circumstances). This type of loan is less popular in the market. In case of a floating rate, which is more common, the interest rate on the loan moves up or down in tandem with the base rate of the lending institution (which in turn moves depending on the direction of interest rates in the economy).

All lenders maintain a margin on the home loan, which means that they don’t lend you the entire cost of the house. The margin could range from 10-25% of the cost of the property. This is the portion of the cost that you have to arrange yourself.

You may apply for a loan individually or with a co-applicant, who should ideally be a close relation.

Applicants have to pay an administrative fee and a processing fee at the time of applying for the loan.

If you decide to pre-pay your home loan, no pre-payment penalty is levied on floating rate loans.

Credit score and home loan

Your CIBIL score is a three-digit number which reflects your credit history. The credit score ranges from 300 to 900. A score below 600 is deemed average or poor and will require improvement. If your credit score is low, you may either not get the loan, or you may get it at a higher interest rate. If the loan amount is high, even a one percentage point difference in interest rate can make a six-figure difference to your total interest outgo over the tenure of the loan. Therefore, having a high credit score is imperative.

How Credit Sudhaar can help you?

Credit Sudhaar can do a lot of things to help you manage your credit and get a home loan at an attractive interest rate. There could, for instance, be errors in the record books of a lender which is causing you to have a poor credit score. We can help rectify those errors.

You may be steeped in debt. Credit Sudhaar offers debt counselling and also helps with debt settlement.

Your credit mix may not be healthy. You may, for instance, have taken more unsecured loans vis-à-vis secured loans in the past. By using our in-house algorithm, we can decide the best credit mix for your profile. Even those who do not have a track record of credit tend to have a poor credit score. We can help you develop a healthy track record, which will help you improve your credit score.

We can help you modify poor behaviour—shopping endlessly for loans, using credit limit to the hilt, etc.—all of which will help you improve your credit score.

We can also help you select the best loan option in the market. If you are currently in a higher-interest rate loan and your credit score has improved, we can help you shift to a lower-cost home loan.

Eligibility criteria

Income: Banks think you can save and pay an EMI on 35-50% of your take-home salary. Any other EMI (on another loan) is deducted from this amount. What is left is considered the EMI you can pay. Based on the existing interest rate and loan tenure, the bank will calculate how much it can lend to you. Most banks have loan eligibility calculators on their web sites that you can use.

Other factors:

Lender also take into account several other factors while calculating loan eligibility. Salaried income, for instance, is considered more stable, hence banks prefer employees over self-employed people.

Some banks deduct components like LTA, HRA and medical allowance while calculating your take-home salary.

Your credit report and credit score have a big impact. If the score is poor, lenders may turn down your loan or approve only a small amount or charge a higher rate of interest.

Your age also counts. Banks like your loan to end before you retire, so older people don’t qualify for longer-tenure loans.

Your profession also matters. Banks lend more to those deemed to be in stable jobs and less to those in risky professions where the possibility of job loss is high.

Some banks give preference to those who have had an account with them for the past several years.

Your employer also matters. Those with bigger and more stable companies get a better rate of interest than those belonging to smaller companies.

Documents required for a home loan

Salaried employees

Proof of identity and residence: Passport, voter ID card, driving licence, or Aadhaar card.

Proof of income for salaried: Last 3/6 months bank statements, last three months’ salary slips. Form 16 and income tax returns.

Other documents: Application form with photograph duly signed; employment contract/appointment letter in case employment is less than 1 year old. Processing fee cheque.

Property-related documents: Copy of allotment letter/buyer agreement; receipt of payments made to developer.


Self-employed

Proof of identity and residence: Passport, voter ID card, driving licence or Aadhaar card.

Proof of income: PAN, TAN Card: Income Tax Returns along with computation of income for the last 3 assessment years; last 3 years’ balance sheet and profit and loss account statements (last two documents should be of both the individual and the business entity and attested by a CA); last 6 months' current account statements of the business entity and savings account statements of the individual.

Other documents: Business profile; latest Form 26 AS; list of directors and shareholders with their individual shareholding certified by a CA/CS in case of the business entity being a company; memorandum and articles of association of the company; partnership deed in case of the business entity being a partnership firm; details of ongoing loans of the individual and the business entity including the outstanding amount, instalments, security, purpose, balance loan term, etc; passport size photograph of all the applicants / co-applicants to be affixed on the application form and signed across; cheque for processing fee.

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