DELHI: Home loan is the driving force behind the Indian residential real estate market. Without home loan, a large portion of the Indian population would be forced to live in rental houses.
Because of this facility, one can be a proud home owner without having enormous amount of ready cash. Since, this plays a vital role in sustaining the real estate market not only do home buyers depend on home loans, but developers as well.
To clear a common misconception – home loans are available not only for the purchase of a house but it can be availed for financing to buy land and constructing on it and also to renovate an existing property. Of course, there are lending norms attached to the granting of home loans.
A bank usually lends between 75-80 per cent of the agreement value and the borrower has to provide the rest from personal resources. To clarify – while the RBI stipulates a ceiling of 75 per cent, some banks are willing to include the stamp duty and registration charges within the purview of the loan, which technically makes the loan amount 80 per cent of the agreement value.
The lending rate attached to the home loan changes from time to time, depending on how the economy is faring and how much liquidity exists on the market.
A borrower qualifies for home finance if he or she meets certain baseline requirements. The parameters on which a potential borrower’s eligibility for a home loan is determined include employment status, duration of current employment, personal income and credit status.
The credit history of an intending borrower is particularly important to banks, as they need to verify whether there is any record of default with another financial institution. The existence of other loans, the type and age of property and the overall transparency of the proposed purchase are also taken into account.
Most banks also require the borrower to take an insurance policy to protect the home loan. This is to ensure that they get their money back if the borrower dies or is for some other reason incapable of servicing his or her loan. After all, such an agreement between borrower and lender is extended over a period of time. A home loan is generally repaid over several years, unless the borrower finds the financial means to prepay it in part or in totality.
While all this may sound complicated to first-time borrowers, getting home finance is actually not very difficult. As long as the borrower is eligible for it, such a loan is usually easily available. Banks depend on the interest generated by the home loans and are thus, willing to extend home loans in most cases.
The challenge for the borrower is in getting the best possible repayment terms for the loan. These may vary from bank to bank and it is wise to look around for the most suitable home loan before settling on the final option.
A lot of information on home loans and the current lending norms of various banks are floating around. However, those who are unfamiliar with the banking processes are advised to consult an expert. Figures on the Internet may often be outdated or misleading and there are also various legal aspects to consider. Opting for home finance without a proper understanding of all related aspects could therefore be a cause for regret later on.