What is a home loan? A home loan is a financial instrument that consists of
money loaned
by a financial institute to an individual or a set of individuals to buy a
house. The purchased
house is mortgaged with the institute as a security until the loan amount with
the interest
and other applicable charges is paid in full. This is a simple understanding of
a home loan.
Factors to be considered
Some of the primary factors to be considered for a home loan are:
Entity or person (seller) :
In the case of an entity, there are several factors to be considered such as
their
market presence, their brand reputation, track record, timeliness of completion,
quality of construction and raw materials used, and many more. This will
determine
the overall quality of the house, which will then lead to the price and value of
the
house – does it warrant the application of a home loan?
Property location (apartment complex or as applicable) :
- Where is the property located?.
- Is it a government approved project?
- Does it have the necessary clearances?
- Have all the taxes and dues been paid?
- Is the paperwork in order?
- Are there any title issues?
- Is there any litigation or lien on the property?
- Is this property part of any family dispute?
These are some of the questions that need to be asked as part of the property
verification. Although these and more are addressed by the financial who will
process the property documents as part of the home loan application, this is
good to know information for the buyer.
Type of financial institution (lender).
- Who is the lender?
- Is it a bank?
- Is it an NBFC?
- Is it a private lender?
- Who is the governing body?
These are some of the questions that need a definite answer. The type of
lender’s entity will determine the type of loan offering they provide.
Type of home loan
There are several variations of home loans offered by various financial
entities. Banks offer combo packages that also include savings accounts, credit
cards and other instruments.
In terms of the interest rates and tenure, entities offer loans with fixed
interest for the tenure of the loan, there could be part fixed interest and part
variable interest tenure, there could be an initial zero interest tenure
followed by variable interest tenure. The actual variant needs to be carefully
studied and understood.
Amount of home loan
Generally, the amount of the loan is calculated as a percentage of the cost of
the house. It can range from 75% to 120% of the house value. The additional
amount is considered for house moving, interior designing and other expenses.
The percentage of the amount varies as per bank and offer amongst other factors.
Current financial health
Your current financial health is also an important factor in determining your
loan eligibility. Banks generally consider your overall financial standing and
your current income to determine your ability to repay the home loan.
Conversely, you need to have sufficient financial backup to take care of
exigencies during the tenure of the loan.
SYNOPSIS
A home loan is a facility to buy a house. However, there is a tendency to get
trapped in this if not appropriately managed. This could result in losing the
house. Care should be taken to understand the entire home loan cycle, its pros
and cons, payment terms and cycles. Once this is effectively managed, your dream
house is yours to keep. Feel free to contact us for a better understanding of
the working of home loans.
