For average Indians, it is not feasible to buy a home without assistance from lenders. This is particularly true for people living in cities where properties are highly expensive. However, before knocking on the doors of financial organizations, we must understand a few things about the process. Here are answers to some of the frequently asked questions about a housing loan:

#1 What are the main stages involved in availing a home loan?

There are primarily three stages involved:

Application – Whereby the applicant needs to submit a filled-in application with necessary documents.

Sanction – Whereby the applicant gets approval for a loan amount based on the value of their property and their repayment capabilities.

Disbursement – Whereby the housing loan amount is successfully disbursed.

#2 What are the housing loan tenor options available to an applicant?

An applicant has the option of selecting a term they are most comfortable with, ranging from 5 years to up to 20 years, provided the term does not extend beyond the applicant reaching 65 years of age or their retirement age, whichever will be earlier.

#3 How will a lender decide the home loan eligibility?

Your lender will assess your repayment capacity while judging your home loan eligibility. Repayment capacity is typically based on a borrower’s monthly disposable/surplus income. The latter is based on parameters like monthly income, surplus-less monthly expenditure and other factors, such as the spouse’s income, stability of income, assets, and liabilities. A lender typically assumes that about 55-60% of the monthly disposable/surplus income is available for housing loan repayment. However, some financial institutions calculate the income available for EMI based on a borrower’s gross income instead of their disposable income.

#4 How is the home loan interest calculated or charged?

Home loans have the following schemes:

• Fixed Rate Housing Loans
• Floating Rate Housing Loans 

If you opt for a floating rate housing loan, the interest rate is linked to the lender’s base rate. Under fixed rate home loans, the rates applicable on the date of disbursement remain fixed for the entire period.

#5 What is the collateral for a housing loan?

The existing property is considered as collateral by the lender and kept as a security against a possible default by the applicant. 

#6 Can I prepay my home loan?

Yes, you can make prepayment either in part or fully. Most financial institutions do not charge if the borrower is making a part prepayment. The borrower has to refer to the schedule of charges of the lender for further information.

#7 When can I apply for a loan?

The moment you decide to buy a new house, you can start with the application process for availing of a housing loan. A borrower can even apply for a home loan even before they have chosen the property. The loan amount will be approved and/or sanctioned once the lender has judged your repayment capability.

#8 How will an applicant be intimated if their loan has got rejected or sanctioned?

The decision is conveyed to the applicant in writing, usually within one month from the date of receipt of the home loan application. The housing loan application is considered complete after the required set of documents and details have been furnished to the financial institution.

#9 What if a housing loan EMI bounces?

In the case of a delayed or bounced EMI payment, outstanding dues and charges will be charged per the existing company policy.

#10 Can I avail myself of a top-up facility on my existing housing loan?

A top-up loan can be availed of for your requirement based on the value of the property. It offers the customer additional funds against the security of the same property. To avail of a top-up housing loan, a vintage of at least a year is needed concerning the housing loan availed. The eligibility for a top-up housing loan is the track record of loan repayment.

An end-use letter is important. It needs to specify the purpose of taking the top-up loan. The end use of top-up loans can include the following:

• Furnishing of home
• Consumer durables
• Child’s education
• Daughter’s marriage
• Family vacation
• Purchasing vehicle

The borrower’s requirements cannot be illegal or speculative.

#11 What is the best way to calculate home loan EMI?

The use of a home loan EMI calculator is always recommended as it helps make informed decisions. A home loan interest rate calculator helps calculate EMIs for a housing loan in an easy, accurate, and effective manner. A borrower needs to enter the values for the amount they wish to borrow, the tenor that they are comfortable with, and the rate of interest available to get results for the EMI. In this process, the applicant will also be able to check the home loan at the lowest interest rate available to them.  

#12 Who can be the co-applicants for the housing loan?

The borrower can include their spouse as a co-applicant for the housing loan. This will help the lender to include the spouse’s income to enhance the housing loan amount. In cases where there are other co-owners of the property, they will have to be the co-applicants. To know who else besides the spouse, you will have to consult your housing loan counselor.

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