Home is a basic and primary necessity, aquiring a home is dream for many people. It is always difficult for an average earning individual to buy a home on own . Therefore the concept of home loan has come in trend. There are number of housing finance companies and banks that offer home loans these days. The process of selecting one company and a suitable offer for home loan among the thousands available options have become a very complicated task owing to the burgeoning housing finance market in the country. Apart from this, there are intricate business jargons and technicalities that make this task more difficult. Explore here the basics of home loan technicalities, so that when you apply for the home loan next time, you can understand the basics and help yourself remain away from the duping elements in the market.
Maximum Loan Amount
Housing finance institutions generally finance upto 75%-85% of the asset value. Depending on the institution, the maximum loan amount may vary from Rs.1 lakh to Rs.5 crore.
Repayment Period Options
Repayment period options generally range from 1 to 20years. A few Housing Finance Companies offer a 30-year repayment period.
Payable Fees And Charges
Home loans are usually accompanied by the following additional costs:
1. Processing fee: It's a fee payable to the lender on applying for a loan. It is either a fixed amount not linked to the loan or may also be a percentage of the loan amount.
2. Commitment Fees: Some institutions levy a commitment fee in case the loan is not availed of within a stipulated period of time after it is processed and sanctioned.
3. Miscellaneous costs: It is quite possible that some lenders may levy a documentation or consultant charges.
4. Mortgage Charges: This are the charges applicable as mortgage charges paid to State Government in the form of non judicial stamps or franking of document. It varies state to state as per the Stamp Act of respective state.
Security For The Loan
In most cases, the property to be purchased itself becomes the security and is mortgaged to the lending institution till the entire loan is repaid. Some companies may also require additional security like the assignment of life insurance policies, pledge of shares, NSCs, units of mutual funds, bank deposits or other investments.
One can avail of tax sops both on the principal as well as interest paid on home loans. With effect from 1st April 2005 (i.e. assessment year 2005-07) under section 80C of the Income Tax Act 1965: Principal amount of repayment of loan along with other savings such as PF, PPF, Life Insurance premium etc up to a maximum of Rs 1,00,000/- will be eligible for deduction from gross income.
Insurance Of Property
Many Housing Finance Companies insist on insurance of the purchased property against fire and other allied perils. Even in the absence of a mandatory clause, it is advisable to insure the property against potential contingencies.
Insurance of Loan
Most of the Banks and Housing Finance Companies offer an allied insurance cover to the principal borrower which covers the principal outstanding on loan. In the event of mis happening with principal borrower Housing Finance Company will close the loan and transfer the property to legal heirs of the deceased.
It is also advisable to individual to go for such insurance as the loan itself is a liability to a customer which should not be further transferred to the family members.
Time Required For Loan Disbursement
The average time required for loan disbursement is 3-15 days subject to satisfactory and complete documentation and completion of all relevant procedures.
1. Do I get a tax benefit on Home Loan ?
Ans- Yes, you are eligible for tax benefits on the principal and interest components of the loan under the Income Tax Act, 1961. However ,as the benefits could vary each year, do check out the current benefits available.
2. I am self employed, income revealed in my ITR is quite less in comparison to my actual earnings, is this going to affect my loan eligibility?
Ans- Loan eligibility is decided on the basis of declared income, however financial institutions have started considering bank balances and turnover also to determine the eligibility.
3. What are the bases of interest rate calculation?
Ans- The interest on Home Loans is usually calculated on Monthly Reducing. On Monthly Reducing Balance, the principal on which you pay interest reduces every month as you pay your EMI.
4. Is it mandatory to take insurance on loan as well as property?
Ans- No, it is not mandatory but we would advise to do so keeping in view uncertainties of the future.
5. Are my property documents safe with the lending institution?
Ans- Yes the financial institution are custodian of property documents and they handle it very professionally and carefully.
6. How many days after closing the loan can I get back my property documents ?
Ans- It takes around 15-20 days.
7. Can I take a Home Loan for construction in one city while working in another city ?
Ans- Yes, you can take a loan for construction in one city while working in another. The banks usually service this loan after getting details of the plot legally verified.
8. Can I Simultaneously take loan on two different properties?
Ans- Yes, you can do so provided you fulfill the income criteria of the lending institution.
9. How long does it take to get my application processed and the loan sanctioned?
Ans- It takes around two weeks for processing of one's application if all the necessary documents are in order and takes another week for the bank to inspect the property papers and make the disbursement.
10. What are the basic documents required for disbursal ?
Ans- Basic documents required for disbursal are allotment letters,photocopies of title deeds,encumbrance certificate,agreement to sell,approved plans and clearance certificates (for self construction).
11. Can I transfer my housing loan from one financial institution to another?
Ans- Yes, you can always transfer your loan from one financial institution to another. In this case you can get an additional amount over the outstanding of previous lender ,which you can use for any purpose.