HOUSING LOAN Tips

(1) USE CLICKS FOR BRICKS

Ho hum! Is this article about another one of the traditional brick and mortar corporates, making a foray in the virtual world? Nope, it sure isn't. This is about using the myiris.com home loans site for finding your set of bricks and making a home out of it. Even if you intend living out of a suitcase, this site helps you find some place to dump your suitcase. "House hunting isn’t the easiest of jobs what to talk of getting a loan for owning it". If you have been brought up on this spiel, chances are that you are going to be ripped off as you make for easy prey to be suckered. There is this plethora of information, most of it superfluous, floating all over, which can get pretty tedious to wade through. This site here, cuts through all that hype, nonsense and humungous piles of information, to get you relevant details for making your purchase decision.

(2) LOAN MELA

It’s like a mela out there what with the number of banks and housing finance companies (HFCs) competing to give out loans. Today there are about 20 National Housing Bank-registered HFCs and over 200 unregistered HFCs in the country wanting to dole out loans. Getting a loan would seem easy given this scenario. But is it? Before the oft-repeated Hindi film scene of getting lost at the mela occurs here’s what you need to consider before going in for a loan. This way you don’t need to go through the hajhaar hassles before the invariable happy ending.

(3) WHY TAKE A HOME LOAN?

What's an average Indian's most cherished dream? A world trip with Aishwarya Rai would seem to be the answer as seen from the various episodes of Kaun Banega Crorepati (KBC)! Jokes apart, moving into their dream house would rank among the top three things on the wish list of most people. After all, there's nothing like having a roof, particularly one's own, over one's head. All that house hunting every few years, grumpy landlords, killing rents would be a thing of the past. Hey, you even get to use nails to hang your favorite paintings and pictures. Taking a home loan nowadays has many advantages. Added to this, the RBI has been regularly slashing interest rates, with the result that housing finance loans that came at an interest rate of 16.5% to 18% four years ago are now available at 11.5% to 13% or lower. Each year the Finance Minister's largesse during the Budget seems to be solely concentrated for the housing sector and construction sector. The Budget 2000's allowed interest payment upto Rs 1 lakh and principal payment of Rs 20,000 to be exempted from income tax. To top it all, the Housing Finance Companies (HFCs) are aggressively wooing customers. When EVERYTHING seems to be on a roll, make the best of the situation.

(4) WHAT ALL CAN I TAKE A LOAN FOR?

There are different types of home loans tailored to meet your needs. Here’s a dekko of some of them: Home Purchase Loans: This is the basic home loan for the purchase of a new home. Home Improvement Loans: These loans are given for implementing repair works and renovations in a home that has already been purchased by you. Home Construction Loan: This loan is available for the construction of a new home. Home Extension Loan: This is given for expanding or extending an existing home. For eg: addition of an extra room etc. Home Conversion Loan: This is available for those who have financed the present home with a home loan and wish to purchase and move to another home for which some extra funds are required. Through home conversion loan, the existing loan is transferred to the new home including the extra amount required, eliminating the need of pre-payment of the previous loan. Land Purchase Loans: This loan is available for purchase of land for both construction or investment purposes. Bridge Loans: Bridge loans are designed for people who wish to sell the existing home and purchase another one. The bridge loans help finance the new home, until a buyer is found for the home.

(5) HOW MUCH WILL THE BANK/ HFC LEND?

The corollary to this question is - How Much Can I Afford? This is presuming that questions like what sort of loan I require what sort of time frame am I looking to get a house/flat, its ranking on my priority list etc have been thought out and you are gung ho about the idea of a house. The amount of loan, the bank/HFC gives you depends on three more or less similar questions they ask themselves about you: Will we get our money back? - This roughly translates to finding out whether you make enough money to pay back the loan. Can this guy repay us? - This translates to finding out your credit worthiness and the risk profile Are we safe? - This translates to taking a check on the collateral - if you have a co-guarantor or something of value - should you be unable to repay the loan Once the bank/ HFC is satisfied that these questions are answered comfortably, issues concerning various interlinked parameters of a housing loan — tenure, amount interest rate and miscellaneous charges — also have an impact on your ability to afford the loan. Amount This largely depends on a number of factors like your age, profession, salary, the city you reside in among other such factors. It varies between Rs. 25,000 to Rs. 1 crore depending on the lender. As a rule of thumb, depending upon the HFC, you will have to cough up 15%-20% of the loan amount as a down payment. For smaller amounts, this may not be much. But for figures running into lakhs, this could make loads of difference. For eg. An apartment costing Rs 10 lakh may get 85 per cent financing. So, you will have to arrange for the remaining Rs 1.5 lakh. If you take this into account, the additional thousands will definitely put a strain on your finances. Tenure Generally, the maximum tenure of home loans is 15 years, with a few lenders offering tenure of 20 years or more (ICICI has recently launched a 30 year loan). The longer the tenure, more you pay in total interest, but your monthly payments will be less. So depending on your earning potential and bank balance, you can choose an appropriate tenure. An important requirement of most banks/HFCs is that you pay up the entire loan before you retire. You can always prepay your entire loan amount before it is due. There is a trend to do away with the pre-payment penalty being imposed by some lenders so its best you check on this as well. Interest Rate Without doubt the most important parameter to factor into your calculations. The interest rates may vary from institutions to institutions and generally range from about 12.5% to around 16%. Repayment is in the form of EMI's (equated monthly installments). The longer the tenure, the more you pay in interest, but your monthly payment will be less. Refinance This is a concept that is yet to catch on in the home loan market but is bound to be a major service in the months to come. Under this facility, you can take a new loan from another bank/HFC to pay back an old loan before its natural tenure. It gives you the opportunity of prepaying your high cost debt and gets a lower cost one. In today's falling interest rate scenario you should use this vehicle to lower your debt payments as much as possible. The lender facilitates the shift by paying the outstanding and transferring the asset to their portfolio. Miscellaneous charges A heading that should be ignored at one’s peril! The interest rates and EMIs are not the only cost factor. Never underestimate how much the processing and administration fees amount to. A 1% administration fee and a 1% processing fee on, say, a Rs 5,00,000 loan, would amount to Rs 10,000. Other times, it could be just one fee (either administration or processing) but could yet work out to be much more if it is considerably higher at, say, 2.5 per cent or 3 per cent. The various other fees, which you are required to pay along with the margin amount, are: a) Interest Tax This is the tax payable on the interest paid on a home loan and not the principal. This tax is some times included in the interest rate of the loan, or may be charged separately as interest tax. b) Processing Charge It's a fee payable to the lender on applying for a loan. It is either a fixed amount not linked to the loan or may also be a percentage of the loan amount. The loan amount received by you can be less than the processing fee. c) Prepayment Penalties When a loan is paid back before the end of the agreed duration a penalty is charged by some banks/companies, which is usually between 1% and 2% of the amount being pre paid. d) Commitment Fees Some institutions levy a commitment fee in case the loan is not availed of within a stipulated period of time after it is processed and sanctioned. e) Others It is quite possible that some lenders may levy a documentation or consultant charge.

(6) WHAT ALL IS REQUIRED TO GET A LOAN

Having homed in on the bank and the type of loan you require, comes the toughest part of how to get a loan. Getting a loan isn’t like taking a walk in the park. The bank requires a plethora of documents for ascertaining your credentials and details of the plot/house/flat. Here’s a sample of what you need to produce to get your loan: Common (for salaried as well as self-employed borrowers) Proof of Age Proof of Residence Photograph Bank Statements for the past six months For salaried borrowers Latest salary slip or statement Form 16 For self-employed borrowers I-T returns for the last 3 years Balance sheet for the last 3 years P&L accounts for the last 3 years Tax challan for the last 3 years Flat and house Sales affidavit/ letter of allotment in case of society or association of persons Original vendor's sale deed Original sale agreement I-T clearance as the case may be Encumbrance certificate

(7) DO I NEED TO GET INSURANCE FOR MY HOUSE

Many lenders may insist on getting your home insured to safeguard their interest. After all, if say your house, which you hadn’t insured gets destroyed in a fire, the loan lender will be left high and dry without any collateral. There are various kinds of insurance covers available for a homeowner. The various options may be insurance against fire, against other disasters, etc. Apart from getting the mandatory ones you should try to get insurance as per your circumstances.(for further details check the Sure Insure section).

(8). HOW MUCH TIME DOES IT TAKE TO GET THE LOAN SANCTIONED

Finally, once all the nitty-gritty but essential work of selecting the land/ home, completing all the legal documentation's etc is completed, you can think about getting your loan. It takes around fifteen days for processing of one's application if the documents are in order. It takes another week for the company to check out the property papers and make the disbursement. In case of property under construction, the disbursement is made in installments according to the stage of construction.