PROPERTY LOAN

The most common types of home loans available from banks and financial institutions are:

Home purchase loan: This type of loan can be availed for purchasing a residential property, be it a resale home, a ready-to-move-in home or an under-construction home.

Construction Home loan: A loan available only for construction of a house and is offered to those who own a piece of land.

Renovation Home loan: Can be availed for making renovations or improvements to an existing home.

Bridge home loan: Can be availed by those who are looking to upgrade their homes to bigger or better ones. The shortage of funds that arises due to the time lag between sale of an existing home and purchase of a new one can be met by this loan.

Step up home loan: A home loan that helps you to avail a bigger amount as compared

to your eligibility under regular home loans. Good for young salaried professionals, as the EMIs are kept lower during initial years.

Balance transfer home loan: You can transfer your existing home loan from one lender to another with this facility. You can thus take advantage of better interest rates.

Here are some key factors that you must consider before applying:

Higher the score, the better it is to get a home loan.

Check if your current income can afford to pay monthly EMIs

Do extensive research on all the loan options available before finalizing an offer.

Choose a convenient repayment tenure. With a shorter tenure higher the EMI, and vice versa.

Get in depth know-how on the prepayment terms of the loan and the applicable charges.

Ask the lender for all the additional charges of the loan.

Read all the documents carefully before signing.

There are many other types of charges associated with home loans notwithstanding the interest rates.

The most common home loan fees and charges are:

Processing fee: A one-time non-refundable fee charged for processing your loan application. Some banks offer zero processing fee loan schemes. Generally, the processing fee ranges from 0.5%-1.0% of the loan amount.

Prepayment charges: A charge that you may have to pay for early repayment of your loan. On floating rate home loans, there is no prepayment penalty as per RBI guidelines. But for fixed rate loans, lenders can charge a prepayment penalty of up to 2%.

Loan conversion charges: When you switch your home loan from floating to fixed rate or vice-versa, loan conversion fee is charged. It varies from bank to bank, but most banks charge a conversion fee of 2% of the outstanding amount.

Legal and technical charges: These administrative charges are levied by the banks for getting your property and other documents verified. The fees may range from Rs 5,000 to Rs 10,000.

MODT Charges: Memorandum of Deposit of Title Deed (MODT) charge is levied for an undertaking that you are submitting your property documents with the bank at your free will. It generally ranges from 0.1% to 0.5% of the loan amount. Banks usually incur this charge initially, but later on they recover the same from the borrower.

Your Credit score is considered as an indicator of how likely you are to repay the loan. The higher the score, the lower the interest rate you pay on your loan.

Score below 600: With a score below 600 it may be a little tough to secure a loan as it generally indicates high risk. Try to improve the score before applying for a home loan.

Score between 600 and 749: Even though it is not considered a very good score, it gives you at least a chance to get the loan approved. After looking at your income, your employment/business, etc. Some lenders might approve of your loan with this score.

Score of 750 and above: With this high score 750 or above, you are most likely to get your loan approved and even most likely to secure the loan at an attractive rate of interest.

With a woman as a co-applicant for your loan while applying, you can enjoy a concessional rate of interest usually around 0.05% (5 basis points) lower than the standard rates on your loan. The woman co-applicant must be either the sole owner or a joint owner of the property to avail this rate.

The major factors that can help you improve your Credit score are:

Pay your dues on time: Try to pay your dues on time, including your credit card bills as well as other loans you may have. These on-time payments indicate your reliability when it comes to loan repayments.

Keep checking your credit report: Certain errors in your credit report can hit your score some times. Check your credit report from time to time and report to the credit bureau for correction if there are any discrepancies.

Optimize the loan tenure: Try to choose a longer tenure for your loan. Your EMIs will be low with this and ensure that you never default on repayments.

Maintain the right mix of loans: Your Credit score can also be improved by a right combination of secured and unsecured loans. Ensure to repay all the loans on time as this will help create a good credit history.

Avoid too many loans: Do not take on too many loans at the same time as this may indicate high repayment risk. Apart from that, it may seriously affect your credit score if you fail to repay any of the loans.

A home loan option that permits a borrower to pay only the interest amount on the disbursed home loan until the construction of the property is completed. If a borrower opts for pre-EMI, he/she will not have to pay the principal amount until the property is ready for possession. When the property is ready, the pre-EMI payments will stop and the EMI payments will start.

For example: If a person opts for pre-EMI in a home loan of tenure 20 years & the construction of the property completes in 5 years. He will have to pay the interest every month for 5 years and after 5 years, he can start paying regular EMIs (interest + principal) for 20 years.

The pre-EMI option is good for those who are living in a rental home and cannot afford to pay the full EMI along with the rent every month. Till the property is ready for possession borrowers need to pay “interest only”.

During the Moratorium period you don’t have to pay any EMIs on your loan. Lenders offer this facility to help you manage your finances better and ensure that you don’t have too much of a financial burden immediately after taking a loan.

For example: If there is a moratorium period of 3 months on a home loan, then he/she will not have to pay any EMI for the first three months after getting the loan. The EMIs will start after 3 months.

Pradhan Mantri Awas Yojana (PMAY) was initiated in 2015 as a Government of India initiative to provide affordable housing for certain sections of the society. By 31st March 2022, the scheme targets construction of about 20 million houses at an affordable price Key objectives of this scheme are to:

• Promote affordable housing for the weaker sections of the society.
• Build affordable houses by partnering with public and private sectors.
• Rehabilitate slums with the help of private developers.
• Provide subsidies for beneficiary-led individual house construction.