For most us, buying a home is a long-term investment. Unfortunately, due to rising property prices, it’s become almost impossible for an individual to make the all-important purchase without the help of a loan. But, availing a home loan can prove to be a tricky affair, thanks to the use of jargons and confusing terms. So, before we apply for that housing loan, it would be wise to familiarise ourselves with all the terms that we are likely to come across.
Listed below are 7 important home loan jargons every buyer should know about:
- EMI
To put it simply, your equated monthly instalment (EMI) is the predetermined amount you pay to the lender each month until your loan is fully repaid. It is calculated on the basis of your home loan amount, interest rate and tenure. While evaluating your EMI amount, it important to ensure that it is affordable, and there is a steady savings provision in place to fund the same. - Pre-EMI: Some home loans will be sanctioned and disbursed in parts- this is called as partial disbursement of loan amount. When the property is still under construction, such partial loans are disbursed. Borrower has the obligation to just pay the interest on the loan amount disbursed and not the principal until full disbursement of the home loan. This period of interest payment on the partial disbursed amount is called as Pre-EMI. Pre-Emi will have to be paid until the completion of the home project. The disadvantage of this is, if your property completion gets delayed, you will end up paying more interest to the banks.
- Down Payment: When it comes to taking home loans, most banks and financial institutions will finance a certain percentage of the property value, which could be as high as 80%. The remaining percentage of property value needs to be arranged by the homebuyer as down payment on the loan. This measure is typically taken by lending companies to reduce their risk and avoid chances of default. Therefore, it is recommended that you first check what your down payment amount will be.
- Credit Appraisal: Essentially, the lender will check your ability to repay a loan. This verification process is known as a credit appraisal. As a part of the process, the lender will check several aspects like your payment history, creditworthiness, age, income, and whether you have any existing debts on hand. All these aspects will eventually determine your home loan eligibility. Based on the clear verification of these details, they will finally sanction the loan amount.
- Rate of Interest: For your home loan rate of interest, you can choose between a fixed or floating rate. In the fixed option, your interest rate will remain unchanged, and you will have to pay a fixed EMI amount throughout the loan term. While in the floating option, the interest rate changes as per the prevailing market rates. Here, the EMI amount is directly proportional to the change in lending rates.
- Security: When offering a bigger sum as loan, most banks and financial institutions will require you to raise some kind of asset as collateral or security. Usually, when you apply for home loan, the property for which the loan is taken will be used collateral against the loan. Since these loans offer financial protection to the lender, they are typically met with lower interest rates. However, in case of loan default, the lender holds the right to seize the said asset or property.
- Disbursement: This entails making the loan amount payment. After verifying all the required legal documents, and following the set protocol, the lender will agree to disburse the loan amount to you. This could be either an advance payment, partial payment or a full disbursement.
The process to apply for a home loan is relatively simple. All you need to do is follow these steps:
- Find out if you’re eligible:
There are a few basic criteria that you will need to fulfil to meet the home loan eligibility. Firstly, you’ll have to meet the age requirements. To apply, you need to be at least 23. You also need to ensure that at the time of loan maturity, you’re under the age of 70 and are not retired. Secondly, you should be a salaried employee or a self-employed professional.
- Fill out the online application:
Visit the lender’s website or visit any of their branches to fill out the application form for the loan.
- Submit the required documents:
While applying, you will need to submit all the documents required for home loan:
- Any photo ID proof, such as your Aadhaar Card, PAN Card, Voter’s ID Card, or Passport.
- Any address proof, such as your Passport, Aadhaar Card, Driving License, Landline Bill, or Sale Deed.
- Verification of your application and property:
The lender will then verify your application and property details, and possibly schedule a meeting with you.
Getting a loan to purchase a home has become relatively easy. Now that you have a better understanding on the topic, your dream home is finally within your reach.