Home Loan Eligibility and Cost

Who is eligible for a home loan?

Indians with a regular source of income, which includes salaried individuals, self-employed professionals, self-employed business people, NRI individuals and xisting property owners who can pledge it as security for the loan, are all eligible for a home loan. The individual applying for the loan should be above 21 years of age, when the loan period begins and should be less than 65 years when the loan period closes.

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What are the other factors, which are relevant for home loan eligibility?

 Purpose of the loan – ( purchase of property, improvement, purchase of land )

– Age

– Income ( savings history )

– Experience & Qualification ( stability and continuity of occupation )

– Employer

– Existing loans

– Number of dependents

– Credit History (Past repayment history)

– Resident status ( The maximum loan that can be sanctioned to a resident Indian is Rs 5,000,000 )

hat are the factors included in the total loan cost?

Registration charges, transfer charges and stamp duty costs apart from the actual loan amount are included in the total cost calculation of the home loan.

How much loan can I avail ?

The amount of loan you can avail depends on factors like salary details, qualifications, employer/business, years of experience, growth prospects, alternate employment prospects and sources of other income, if any. Generally, about 40% of your monthly gross income can be availed as your loan amount.

How much loan avail

For self-employed applicants, profit is the benchmark that determines loan value. The longer the time frame for repaying the loan the lower the EMI and this also means you can opt for a larger loan amount. The loan amount you are eligible for is also dependent on other factors like the company you are employed with, the location of your residence and your credit history.

To know how much money you are eligible for, to compare banks and figure who offers you the best loan bargain,.

What are the other costs that usually accompany a home loan?

Home loans are usually accompanied by the following extra costs:

  1. Processing Charge: It is a fee paid to the lender when you apply for a loan. It could either be a fixed amount not linked to the loan or could also be a percentage of the loan amount.
  2. Pre-payment Penalty: When a loan is paid back before the end of the agreed duration, a penalty is charged by some banks/financial institutions, which could be up to 5% of the amount pre-paid.
  3. Commitment Fees: Some institutions levy a commitment fee in case the loan is not availed within a stipulated period of time after it is processed and sanctioned.
  4. Miscellaneous Costs: Some lenders may levy a documentation or consultant charge.
  5. Registration charges of the mortgage deed.

Can you detail some of the incentives offered by housing finance institutions?

  1. Some lending institutions sanction the loan without requiring you to identify a property as a prerequisite for eligibility
  2. Free accident insurance
  3. Discounts
  4. Waiving of pre-payment penalty
  5. Waiving of processing fee
  6. Free property insurance

When can I take a home loan?

You can take a home loan before or after identifying the property you want to purchase or when the property is under construction or for purchasing a plot of land for investment or to renovate an existing home.

Can I have a co-applicant for a home loan?

Yes, it is good to have a co-applicant. This can help you increase the loan amount you are eligible for as the income of the co-applicant is also taken into consideration.
Providing additional security like bonds, fixed deposits and LIC policies will also help in enhancing eligibility.

Who is eligible to be a co-applicant?

The co-owner of the property you are going to purchase should also be a co-borrower/co-applicant. The reverse however is not stressed by lending institutions. Financial institutions accept a parent or spouse as an ideal choice for a co-applicant. A fiancée can also become a co-applicant but the loan disbursal will begin only after the submission of the marriage certificate.

What is EMI? How is it calculated?

An equated monthly Installment (EMI) is the amount of money that is paid back to the lender on a monthly basis. It is essentially made up of two parts, the principal amount and the interest on the principal amount equally divided across each month in the loan
tenure. The EMI is always paid up to the bank or lender on a fixed date each month until the total amount due is paid up during the tenure.
The EMI facility helps the borrower plan his budget. The EMI is calculated taking into account the loan amount, the time frame for repaying the loan and the interest rate on the borrowed sum.

What is the difference between a fixed interest rate and floating interest rate?

A fixed interest rate remains constant throughout the loan tenure regardless of the market conditions whereas a floating interest rate can decrease or increase depending on market fluctuations. For instance, it increases when RBI hikes up short term interest rates. Banks usually quote the floating rate loans as their index rate (prime lending rate) plus or minus x%. Banks usually increase or decrease their prime lending rate when the RBI increases or decreases short term interest rates.

What are the different types of interest rates available?

Interest rates are quoted either as fixed flat rates or reducing balance rates. In the flat rate method of interest calculation, the outstanding loan amount is never reduced during the entire tenure of the loan even though you make payments monthly.
In the case of reducing balance interest rates the EMI is calculated on the basis of daily, monthly, quarterly or annual rests. A ‘rest’ indicates the time frame in which the bank will recalculate the EMI based on the amount of loan paid back and the frequency of any compounding interest rate. Suppose you have a loan with an annual ‘rest’ then, though you pay a monthly installment, your benefit kicks in only at year end, here the bank gets to benefit. A monthly ‘rest’ will recognise the reduction in the loan amount on a monthly basis, a quarterly rest does it every quarter while a daily ‘rest’ will do it each day. The more closely the rest matches the frequency of your payments, the lower the total interest paid as the total outstanding loan amount is reduced by your monthly payments more frequently.

 What is an amortization schedule?

An amortization schedule is a table giving the reduction of your loan amount by monthly installments. The amortization schedule gives the breakup of every EMI towards repayment interest and outstanding principal of your loan.

What are the factors I need to keep in mind while comparing loans from different financial institutions?

A loan applicant needs to keep a few things in mind when comparing loans. The applicant needs to determine the kind of loan and the amount he wants to apply for. He needs to keep in mind the total cost of the loan, which will be paid up by the end of his loan tenure. The second step is to understand the terms and conditions under which financial institutions are offering the loan. Finally he needs to evaluate, which loan offer is the best bet for him. to gain access to the most interactive tools in helping you compare and evaluate the best deal you can get from any bank of your choice. Other factors that you should look out for are customer service levels and the average time the bank takes to process a loan.

Can I avail a tax rebate on my home loan?

Section 80C and Section 24 grant income tax rebates to people who have taken home loans. These tax deductions are capped at 1 lakh for the principal repaid and 1.5 lakhs for the interest repaid.

What are the loan tenure options?

You have the option of selecting a loan tenure you are comfortable with, ranging up to 25 years, provided the term does not extend beyond your reaching 65 years of age or retirement age, whichever is earlier.

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