Securing a home loan is often the first step toward owning property in India, a goal that many aspire to. With rising property prices and a wide range of loan options available, it’s essential to understand the steps involved in the home loan process to make informed financial decisions—particularly for first-time homebuyers. In this article, we’ll cover key factors to consider before applying for a home loan, including assessing your financial profile, understanding various loan types, comparing lenders, and preparing the necessary documentation.
Before applying for a housing loan, it's essential to assess your financial profile and overall financial health. Below are the steps to evaluate your financial status:
● CIBIL Score: Your CIBIL score plays a major role in determining loan approval and interest rates. A higher score (preferably 700+) increases your chances of securing a loan with favourable terms.
● Income Stability: Lenders prefer borrowers with stable and reliable income. A steady job with a reputed company reassures lenders of the borrower's ability to repay the loan.
● Debt-to-Income (DTI) Ratio: This metric is used by lenders to assess how much of the borrower’s monthly income is already committed to debt payments. Lenders often reject applicants with high DTI, whereas those with low DTI are often offered the best loan terms such as lower interest rates and higher loan amounts.
● Down Payment: Generally, lenders expect the home loan applicants to cover 10-20% of the property value as a down payment. A larger down payment can reduce the loan amount and might result in more favourable loan terms.
Home loan borrowers have access to various loan types, each tailored to specific needs:
● Home Purchase Loans: Financing solutions that enable individuals to buy residential properties, whether new, under construction or previously owned.
● Home Construction Loans: Specialized loans that provide funding for the construction of a new home on land owned by the borrower.
● Home Improvement/Extension Loans: These loans allow for renovations or expansions of an existing property.
● Home Loan Balance Transfer: This facility allows you to transfer your existing home loan from one lender to another in order to secure better terms, typically a lower interest rate. This can reduce your monthly EMI or overall loan burden.
Depending on lender policies, interest rates can be fixed (consistent EMI throughout the tenure) or floating (EMI fluctuates based on market rates). Additionally, government schemes like PMAY offer subsidies for first-time buyers and economically weaker sections, helping reduce loan burdens.
Before you apply for a home loan, understanding your eligibility and the loan amount you qualify for is crucial for a successful application process. Lenders determine the loan amount and terms such as interest rates based on several factors such as:
● Age
● Credit score
● Existing liabilities/debts
● Income and employment history
● The market value of the property
● Ability to pay up to 10-20% down payment
● Market conditions
● Risk policy of the lender
● Your location
The eligibility criteria for each parameter differ from lender to lender. You can check a free online home loan eligibility calculator provided by well-known financial institutions such as SMFG Grihashakti to estimate the maximum loan amount you may be able to borrow.
Utilizing a house loan eligibility calculator can offer a swift evaluation, helping you ascertain your qualification status before proceeding with the home loan application.
When applying for a home loan, comparing different lenders and loan products can help you secure the best terms available. Here are a few key factors to consider in your comparison:
● Interest Rates: Compare interest rates across lenders. Even small differences in rates can significantly affect the total repayment amount over the loan term.
● Fees and Charges: Be aware of any processing fees, prepayment penalties, and other administrative charges that may add to the overall cost of the loan.
● Loan Tenure: Choose a tenure that balances affordable EMIs with the total interest paid. While longer tenures result in lower monthly payments, they can also increase the total interest cost over time. Opting for a shorter loan tenure typically leads to higher monthly EMIs, but it significantly reduces the total interest paid over the life of the loan.
● Lender Reputation: Ensure the lender is registered with the Reserve Bank of India (RBI) as a recognised lending institution. Also, check the lender’s reputation for responsive communication and smooth loan processing to be assured of a hassle-free borrowing experience.
You’ll need to submit some essential documents during the home loan application process to verify your identity and eligibility. Below is a list of common documents required for salaried applicants:
● Identity proof such as a PAN card, Driving License, Employee Card or Voter’s ID.
● Residence proof such as an Aadhaar card or utility bills.
● Income proof such as salary slips for the past 2-3 months and bank statements for the past 6 months.
● Documents related to the property to be purchased.
The application process generally involves submitting these documents either online or in person, along with a duly filled application form. Once submitted, your application will undergo a verification process. Lender representatives will typically reach out for further guidance and next steps.
After your home loan is approved and you have signed the loan agreement, the disbursement process begins. For ready-to-move-in properties, the loan amount is typically disbursed in one lump sum. For properties under construction, disbursements are made in stages based on construction milestones, such as foundation completion or roof installation. Each stage disbursement can be subject to approval based on the progress of the construction. Please note here that the terms vary among lenders, and loan applicants must ensure that they are aware of a lender’s policy before applying.
Your EMI repayment usually starts after the full or initial disbursement, depending on the loan terms. Repayments are generally on a monthly basis and can follow a fixed or floating interest rate, depending on your agreement.
Most home loans allow for prepayment (full or partial), enabling you to repay your loan earlier than the initially agreed upon tenure. Prepaying reduces the principal, which can lower your overall interest cost over time. Check your lender’s policies on prepayment to understand any applicable prepayment penalties or provisions for partial payments. You can also check a prepayment calculator from reputed lenders like SMFG Grihashakti to understand how prepaying your loan can help you save on overall interest cost.
Applying for a home loan may seem complex, but with thorough preparation, it can be a manageable and rewarding process. By assessing your financial health, understanding loan options, and comparing lenders, you can increase your chances of securing the best financing for your home purchase. Verifying your eligibility and organising all necessary documents beforehand can also speed up the approval process. Remember to account for additional fees and charges that may impact the total loan cost. Always choose reputable lending institutions like SMFG Grihashakti, which prioritise transparent processing with no hidden fees or charges.
*T&C apply. Please note that final approval, loan terms, and disbursement process may vary based on lender policies and borrower’s eligibility.
Disclaimer: This content is part of a marketing initiative. No TNIE Group journalists were involved in the creation of this content.