Month: April 2019

Golden Tips to Consider Before Taking a Home Loan

An ideal world would be the one where everyone has enough capital to fulfill all their needs. In reality, most of us have to rely on borrowing system to meet our goals. This gap between expectation and reality is bridged well by banks and NBFCs. These financial institutions bombard the prospective customers with alluring loan offers through various modes of marketing, such as emails, SMS, and personal calls. Some commit to provide the lowest interest rate, while others promise quick disbursals. The truth is, taking a home loan is easier said than done. Getting a loan sanctioned can be a tedious task with overwhelming paper work and endless document verifications. There are other financial aspects that also need consideration, before applying for a home loanBefore getting into the financial spectrum, here are some of the technical terms you must get acquaint with to avail home loan for your dream abode

Principal Amount

The loan amount stipulated by the applicant for home loan.

Down Payment

Down payment amount is 15 to 25 percent of the purchase price. It varies from lender to lender and also financial credibility factors, like borrower’s capital credit history, current income, etc.

Types of Interest Rates

Fixed Interest Rate & Floating Interest rate are the two types of interest rates that exist. Fixed Rate implies that the rate on home loan remains the same for entire tenure, unaffected by market happenings. While, Floating Rate suggests that the rate varies periodically.After gaining an understanding on the terminologies important to the home loan arrangement, let us now discuss the golden tips that need to be considered before taking a home loan

Borrow smart

The first tip for borrowers would be to borrow smart. This means opt for a principal amount that is easy for you to repay. Banks provide different alluring options to you, but you must stay mindful of your specific requirement and ensure that the loan-to-income ratio is within acceptable limits.

Rigorous Research

Self-research must be well incorporated. Make an effort to indulge in extensive research before applying for a home loan. You should make an effort to choose whether to indulge in floating rate loans, or fixed rate loans. Often, borrowers choose a combination of the two for a limited time period.

Affordable EMI amount

Don’t be baffled by the availability of plenty home loan options, affordability is one factor that needs to be assessed by the applicant. You must be comfortable with the monthly EMI amount that you will have to bear for impeding time. Before deciding an EMI amount, consider all the expected expenses along with the unforeseen ones in addition to emergency expenses, and only then make the choice of EMI amount.

Decide Tenure

Repayment Tenure and the EMIs go hand-in-hand. A longer tenure is inversely proportional to the EMI amount & directly proportional to interest rate. It is advised to opt for short repayment tenure with higher EMIs, only if your budget allows.

Credit score assessment

CIBIL score consideration is imperative. Credit score or CIBIL score must be more than 750 for you to be liable to procure better rate of interests on home loan. A decent credit score provides considerably higher chance of quick loan processing.

Insurance Cover

You must consider purchasing an insurance cover that will cover the loan amount. This is advised so that, in case of an unforeseen mishap, your family is not saddled by the debt in your absence. As the lender holds the authority to take over your home if your dependants fail to pay the EMI.

Be mindful of additional charges

Banks may levy on the borrower some additional charges. These must be discussed well with the lender. Gain a perspective over, whether the charges are monthly or one-time. If the charges are monthly, then you have an added expense to cater other than EMI, and you must plan your budget accordingly.

Before you zero in your choice for the preferred loan company you must ensure that you are thorough with all the Loan documents. Since there may exist some important clause, terms & conditions that you might miss out on. With all the aforementioned tips, the hefty task of seeking home loan is simplified.

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Your Mini Guide To Loan Against Property

What is Loan against Property?

In the real estate market today, the property is an asset. Your property can be utilized as a home or to earn rent. The same property can also help you obtain large capital with the help of ‘loan against Property’. The term that is a regular in the housing finance sector is Loan against Property. It is a secured loan that you avail by keeping the commercial or residential property as collateral. The main requirement of Loan against Property arrangement is that the owner must have full authority over the property.

Why Loan against Property?

  • The chance of getting an approval on Loan is higher in case of Loan against Property. This is because banks have collateral as security in case the borrower fails to pay back the loan.
  • Today there are various reasons that aid in the consumer’s decision of resorting to loan against property. It could be a big fat wedding that needs capital, the heavy expense of child education, a much awaited foreign trip, or simply and expansion to the business.
  • New property purchase or renovating an existing one may also sometimes pose as the reason for opting Loan against Property.
  • The other requirements that lead to Loan against property are loan consolidation, business funding or working capital requirements.

What are the types of Property against which Loan against Property can be availed?

Like every loan has some pre requisites that require attention, Loan against property also has some key pointers. The types of properties against which loan can be procured are

  • Self-owned residential property
  • Self-owned and self-occupied residential property
  • Self-owned but rented residential property
  • Self-owned piece of land
  • Self-owned commercial property
  • Self-owned but rented commercial property

Eligibility for Loan against Property

The bank requirements are liberal to be eligible for loan against property, since the risk is covered by the collateral that is kept by the bank. To calculate the eligibility, the lender will assess the market value of the property and repaying capacity of the borrower by subtracting the income with other equated monthly installments. After the assessment, a certain percentage (50-65%) of the market value of the property is confirmed as the loan amount. A minimum amount of 2 lakh which varies across financial institutions can be procured as the loan amount. Each bank has its own criteria, but the basic requirement is the same for all, these include

  • The applicant must hold Indian citizenship.
  • At the time of application submission, the applicant must be at least 21 years old. The age limit to apply for the loan exists as 60 years for salaried individuals and 70 years for the self-employed.
  • The bank specifies a fixed number of years of work experience that the applicant must hold as an employee of the organization. In case the applicant is self-employed then the specified years of experience must be fulfilled for the same.
  • A Lender decides a minimum income requirement that must be satisfied by the applicant.
  • An Applicant with a good credit history definitely holds an advantage over the others.

Interest rate and tenure of Loan against Property

It is cheaper than a personal loan, since the property is mortgaged with the lender. The interest rates on personal loans fall under the range of 12.5%-21% per annum. The interest rate for loan against property having assessed all the parameters, such as, loan applicant’s salary, the company applicant is employed with, etc. comes down to 12-15%per annum. The tenure can shoot up to 10-15 years, wherein you can opt for overdraft facility or lump sum. The interest rates vary depending on the financial institution you choose. Depending on the tenure of the loan an individual may opt for a fixed interest rate or floating interest rate. Fixed rate lies between 12-15% per annum and remains fixed throughout the loan tenure and is ideal for a long term loan. The Floating rate is ideal for short term loans and the interest rate varies according to market conditions.

Documents Required for Loan against property

Here are the documents that are required

For salaried individuals

  • Residence and identity proof.
  • Form-16.
  • Cheque for loan processing fees.
  • Past 3 months’ salary slip & 6 months’ bank statement of salary account.

For Self-Employed Individuals

  • Residence and Identity proof
  • Educational qualification proof.
  • IT returns for the past 3 years’ & 6 months’ bank statements.

For Working Professionals

  • Residence & Identity proof.
  • Educational qualification proof.
  • License & registration certificate.
  • Proof of business existence.
  • Business profile.
  • Past 3 years’ IT returns, profit & loss sheet along with balance sheets. Also 6 months’ bank statements.

Before opting for loan, one must compare various lending options, don’t be hung up on the interest rates being offered, instead, explore different verticals as well. A lender that offers a low rate of interest on loan may not always be the most suitable choice. Pay a closer look on to aspects like processing fee, pre-payment, foreclosure charges, penalty charges, and the loan to value ratio. This sums up the brief Informative guide on Loan against Property.