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When can a home loan be applied for?

An individual can apply for a home loan even before the property has been selected. The loan amount is sanctioned based on the ability to repay. This helps in planning a budget while purchasing the house.

Who can apply for a home loan?

Any Indian resident, non-resident Indian or person of Indian origin can apply for a home loan if they are 21 years of age at the commencement of the loan and 65 years or below at loan maturity. Housing Finance Companies (HFCs) usually give home loans for properties located in India to those who are employed or self-employed, with a regular source of income.

How does the lender calculate eligibility?

Loan eligibility is calculated based on the ability to repay. Factors such as income, age, qualifications, number of dependents, spouse's income, assets, liabilities, stability and continuity of occupation and savings history are taken into consideration.

How do I repay the loan?

You can repay the loan in Equated Monthly Instalments (EMIs) comprising of principal amount and interest. Repayment by EMIs commences from the month following the month in which you take full disbursement. Till then, you only need to pay the interest on the amount disbursed.

What is pre-EMI interest?

Before final disbursement, you may have to pay interest on the portion of the loan disbursed. This is called pre-EMI interest. Pre-EMI interest is payable every month from the date of each disbursement up to the date of commencement of the EMI.

Is there a fixed interest rate for the duration of the loan?

Most HFCs offer fixed rate as well as variable rate options to customers.

What is a fixed rate loan?

A rate of interest that is constant throughout the duration of the loan is known as a fixed rate loan.

What is a floating rate loan?

A floating rate is when the interest rate on the loan changes according to the rates in the market during the period of the loan.

It is better to opt for a fixed or a floating interest rate?

If interest rates are falling, a floating rate loan is a better option. But when interest rates are rising, opt for a fixed rate loan, because then, you will be able to ascertain what your EMIs will be.

Is there a difference between monthly rest and annual rest?

On the basis of the principal amount at the start of every month, the interest is calculated in monthly rest. For annual rest, this is done at the beginning of every year.

How is the interest calculated on my loan?

Most HFCs follow the yearly reducing balance method, which accounts for your principal repayments only at the end of their financial year. Thus you pay interest on the principal that you have already returned to the HFC during the year. The effective interest rate is thus higher than the quoted interest rate by around 0.7 per cent. Banks and some HFCs, in contrast, follow the daily or monthly reducing balance method, which results in a lower interest burden.

How do I select my HFC?

Various parameters would help you zero down on the HFC most suitable for your loan requirements. Analyse the following points before taking your decision: • Loan amount: The minimum and maximum loan amounts vary between HFCs. Find out if the amount you require falls within this limit. • Duration: There is no lower and upper limit to the tenure of the loan. Find out if your desired time limit can be accommodated. This varies between HFCs. Normally HFCs offer loans ranging from 5-20 years, with some others going up to 30 years. For NRIs the maximum tenure could be 10 years in some cases. Depending on your requirements, this would have a bearing on the loan you choose/pick. •Interest rate: This varies between HFCs. Fix a duration that you want the loan for and assess their EMIs. Compare and identify the lowest EMI. • Pre-payment: Check if the HFC charges for repaying the loan before its due date. • Flexibility: Find out whether you can change your interest scheme from fixed to variable, if you so desire or if there are restrictions to that. • Guarantor: Some HFCs require a guarantor, while others don't. • Documents: These may vary between HFCs although there are a few standard documents like proof of income, proof of age and residence and a salary slip. • Co-owner: If there is a co-owner or co-applicant for the loan, the HFC has to be aggreeable to the relationship between the two applicants. • Other fees: Each HFC has different fees for administration and processing among others

Can a loan be switched over if I have obtained it at a high rate of interest, but another HFC is offering a better interest rate?

You could do this. After discussing the reasons with the current HFC, they may even reconsider the interest rate.

What is the maximum amount of housing loan available?

The maximum amount is 85 per cent of the cost of the property, including the cost of land, capped at a maximum amount of Rs 1 crore.

What is the amount I can borrow and what are the criteria?

Generally, the amount is up to 2.5 times your gross annual income. But your equated monthly instalments usually should not exceed 35 per cent of your gross monthly income. Besides this, HFCs will assess your eligibility based on your ability to repay.

What is the period in which I will have to repay the loan?

Usually in a period between 5 to 15 years, but definitely before you retire. A few HFCs also offer a 20-year repayment period, usually at a higher interest rate.