First time homebuyers loan guide
Author : Sumit verma | Published On : 10 Jun 2021
A First Time Home Buyer’s Loan Guide
Today, applying for a home loan has become a necessity with an increase in the rates. If you are buying a house for the first time, you need to know the basics of getting a home loan.
For help and assistance read all the basic details you need to know for a first time buyers loan.
What is a home loan?
Money borrowed by one from a bank/ money lending company at a certain interest rate for buying/ constructing a house is a home loan. It is usually supposed to be paid back with EMI every month. Sometimes, money lending companies keep your house as security collateral for the home loan issued.
Basic types of home loan
There are different home loans for different purposes. The most common and basic home loans are:
· Home Purchase Loans
With a grant of a home purchase loan, one can use it for buying a new built home or a constructed property. This loan is widely used among people of India and is offered by almost every bank and money lending company at their interest rate depending on their policy.
· Land Purchase Loans
These loans are used to buy land or plot where one is planning to build/ construct a home. Major banks tend to offer land purchase loans providing not more than 85%-90% of the total land cost.
· Home Construction Loans
Home construction loans, as the name suggests, are usually available for people who want to construct/ build a house on their piece of land or plot. This too is provided by all the major banks but with criteria. One must have bought a property in the year before if he/she is planning to include the cost of the land as a part of the total.
· Home Improvement Loans
This loan is provided when one doesn’t have enough funds for redecorating or renovating the current house they reside in. The Grant of the loan amount depends on one’s financial stability and the ratio of debt to income.
Every bank and money lending company has their set of eligibility criteria for a home loan. However, there are a couple of common criteria too.
1. Age limit- 18 years to 60 years
2. One should have a steady income and should be working.
3. Income should be more than what is asked by the banks.
Having these three criteria boxes ticked, you are eligible for a loan. Apart from these, a couple of other factors which affect the application are:
1. Monthly Income- With applying for a loan, one needs to make sure that they have at least 50% of their income saved/ ready to pay the EMIs in the future.
2. Outstanding debts- Having other outstanding debts, it is likely that the loan application might get rejected. Hence, one should clear all the outstanding debts and have enough money to pay other loans or it could decrease the amount of the home loan.
3. Down payment- While applying for a home loan one should make sure that they have enough money to not only pay their EMIs for a home loan but also for the down payment they have taken.
While applying for a home loan, one has to provide a couple of documents along with the application. Most of the banks/ money lending companies follow the same documentation process before granting the loan. This is the list of documents that one needs while applying for a home loan.
1. Bank statement- previous 6 months from when applied for the loan
2. Application form- Filled and signed along with a photograph
3. Cheque- to be given for the processing fee
4. ID proof and Residence proof- One can provide a PAN card for ID proof and passport/ license for residence proof
There are a couple of other documents to be provided according to the profession you fit in.
1. Proof of education qualification
2. Proof of business existence
3. Income Tax Returns for last three years including calculation of the income (previous 3 years from when applied for the loan)
4. Balance sheet and P&L account for the last three years, audited/ certified by a CA.
1. Payslips for the previous three months along with Income Tax Returns filing or Form 16.
Factors that could affect home loan application and approval process
A couple of factors that could affect your home loan application or approval process with the bank/ money lending companies are- age, the market value of the property you are looking at, type of property and its location, and your age.
In very rare cases, on submitting the right documents, the home loan process has been affected. Hence, fill in all the details correctly and deliver the right information to the bank/ money lending company.
Few things to keep in mind before applying for a home loan
Home loans can be a big crunch on one’s financial stability. Hence, there are a few factors to be considered before applying for a home loan.
1. Credit score
A credit score showcases an individual’s creditworthiness. With a good credit score, you can get a home loan at a low interest rate. For a better credit score, one should make sure all your outstanding dues are paid off and not apply for too many credit products within a short time.
2. Borrowing Capacity
After one puts aside all the expenses that incur in a month like household expenses, travel, bills, pending loans, miscellaneous expenses, etc. the money left is what can be used by one to make the EMI payments on the home loan taken. Hence, one should make sure of having enough funds to pay the EMI before applying for a home loan.
3. T&C of the Loan
One should be very clear with the terms and conditions of the loan that he/ she is applying for. The signing of the loan application should only happen after one reading all the T&C of the loan avoiding falling into a rabbit hole.
4. Loan Period
Often home loans can go on for years, but one should analyze the tenure when offered the same and analyze and understand whether that is something that works out or not. In case you feel it wouldn’t work out, negotiate with the bank/ money lending companies and buy yourself some more time.