What documentation you need before apply Home Loan : Pre-requisites of Home Loan
The realty prices have gone up so much over the years, that everyone cannot afford to buy his or her `dream home`, without a home loan. With home loans available on EMI basis, more and more people from all income groups are applying for it, for purchasing their house. So would you also like to go for it?
One can save much of one`s time and expedite the entire process of obtaining the home loan, if one knows the pre-requisites of being eligible and applying for the loan. Let`s take the case of one Mr. Sunil Kumar, who also applies for a home loan. Mr Kumar, is a software engineer, employed with a leading software company and dreams of buying a house for himself. He is 30 years old and recently married. He books a house for himself and decides to apply for a home loan of Rs 40 lakhs.
What should Mr. Kumar know before applying for the home loan?
Financial Institution:
Mr. Kumar will first need to choose a financial institution, which best caters to his needs, and offers loan on terms and conditions affordable to him. He chooses XYZ Bank offering 10.75% fixed interest rate for a loan amount ranging between Rs 30 to 50 lakhs.
Property Details: 
After Mr. Kumar chooses the bank or financial institution, he will be required to furnish details of the house he has booked – cost of the property, area, location, etc.
Evidence of Income:
The lending institution would require documents or proof of income, for sanctioning the loan. Hence Mr. Kumar will need to furnish all documents testifying his income from various sources. The bank of the lending institution will sanction the loan based on monthly income from various sources. It will also verify Income Tax returns for the last 3 years.
Margin Money:
Though majority of the amount for buying the property will be from the bank loan, the remaining amount (usually 15-20%) will have to be arranged by the borrower (in this case Mr. Kumar) known as margin money.
Floating or fixed rate of interest:
The rate of interest is of two types- Fixed and Floating. The former permits payment of fixed monthly instalments over the entire loan period, while in case of the latter, the interest rate keeps varying based on market conditions, associated to a base rate, with a floating element attached to it. So there is always a risk of EMI rising during the loan tenure. However, floating interest rate is mostly less than fixed interest rate to begin with. Based on the market scenario, one should use ones foresight and judgment, and consider one`s risk appetite, for taking a decision.
Mr. Kumar goes for fixed rate of interest of 10.75%, offered by XYZ Bank, for loan amount ranging between Rs 30 to 50 lakhs.
Tenure:
The tenure of the loan will be based on your age. The younger your age, the greater will be your loan period and vice versa. Mr. Kumar decides to go for a 20 year loan period for his loan.
Fees & charges:
There are numerous fees and charges, that are incurred while taking a home loan, namely Processing Fee (for processing loan application); Administrative Fee; Legal charges; Technical charges; Stamp Duty and registration charges, etc.
EMI Computation:
It is advisable to get an idea, as to how much you need to pay as EMI, during the tenure of the loan, before going for it, which may be calculated with the formula discussed below. The monthly instalment that Mr. Kumar will be required to pay for 20 years, with principal amount being Rs 40 lakh, and fixed interest rate of 10.75%, may be computed with the formula below :-
EMI = (p*r) (1+r)^n
___________
(1+r)^n – 1
Where p= principal amount of loan, r= interest per instalment period (Interest rate/12), n=number of instalments, ^ stands for whole to the power. Based on the formula, EMI works out to be Rs 40,609. So Mr. Kumar is now aware that if he applies for the above loan, with tenure of 20 years, at fixed rate of interest of 10.75%, he will have to pay an EMI of Rs. 40,609.
So once you have booked your house, and are ready to apply for a home loan, keep the above guidelines in mind, which will certainly save your time and help you get the loan with much ease.
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