Home Loans » Home Loan Guide

Home Loan Guide

You must have seen a whole lot of bank advertisements that talk about the home loans on offer from that particular bank. What comes across from such ads is that home loans are very easy to get and involve very little documentation and the approval process is also quick. Well, there is noting simple about a home loan and you must understand the various aspects of the home loan before you actually go ahead and apply for one. Also it's important that you understand the various features that go into the making of a Home Loan.
This page is configured to offer all kinds of guidance regarding Home Loans and also seeks to simplify the various aspects of Home Loans.

Evaluation and Verification of Applicant

The successful application of the Home Loan and the submission of the processing fees is just the start of your home loan process. The evaluation process on the part of the banks starts after the submission of documents. The bank checks your documents and judges your repayment capability. It then takes a decision, in principal, about your home loan. This is followed by an in-person meeting with bank officials. The decision to meet personally with the prospective borrower can be taken by the bank in as less as 2-3 days post submission of the complete application. Personal interaction gives the bank a clearer picture about the repayment capacity of the borrower, as well as, his financial capability.

After the Personal Interaction

After the bank has satisfied itself with regards to the application and personal interaction, the verification process is initiated by the bank. The bank will verify all the facts that have been mentioned in the application that has been submitted to you. Everything that you have mentioned in the application form is investigated to confirm and validate all the information. The bank sends well-qualified representatives to your office and your place of residence to ascertain the various facts on offer. A cross-checking of all the references mentioned in the application also takes place, and they are verified.

How Do Banks Verify the Repayment Capacity?

After the field investigations are conducted by the bank, it begins a verification process for purposes of estimating/judging your capacity of repayment of the loan. This, as can be imagined is one of the most important parts of any home loan process. If the bank, in the course of its findings, comes to the conclusion that you might not be able to pay their money back along with the interest due, they will deny the home loan. On the other hand, if the bank is convinced by your repayment capacity, then the home loan is sanctioned. The bank either issues a conditional sanction or an unconditional sanction of the loan. The type of sanction is completely dependant on the impression the bank gets from your financial condition.

The Offer Letter for the Home Loan

Once the bank decides the home loan amount and sanctions it, an offer letter is sent to you. The following details are present in the offer letter:
» The amount of home loan that has been sanctioned
» Applicable interest rate
» Type of interest rate - floating or fixed
» Tenure of Home Loan
» Method of Repayment of the Home Loan
» Detail of special schemes, if any, that apply to the home loan
» Associated Terms and Conditions.
If you are agreeable to the offer letter, then you must send in your acceptance copy to the bank. This acceptance copy is usually the duplicate of the offer letter, which is hereby signed by you. The bank will keep this as a record. Any administrative fee charged by the bank is usually to be submitted by the borrower at this stage.

Property Verification

It might come as a surprise to you, but even after the sanction of the loan, the bank does not give you the home loan amount. The bank will start its property verification process. This is because the property will be used as a security/collateral by the bank and therefore the original documents of the property must be submitted to the bank. You will have to submit all the pertinent original documents like title deeds, no-objection certificates, and any other documents with the bank. They will remain with the bank until you repay the entire home loan amount.
This is the reason why the bank undertakes a thorough check of the property to know whether the 'Title' of the property is clear and the property is not disputed in any way or form. Experts are sent to the location of the property and asked to take a technical valuation of the property. For under-construction properties, the verification process is undertaken for the different stage of construction, quality and progress of the construction and the locality of the property, amongst various other aspects. The banks have a number of parameters on which the evaluation of the property is done.
There are also cases wherein, the property is either ready or is being resold. In such cases the ownership of the property is verified by the bank and so is the overall maintenance, age, quality of construction, legal clearance, and locality of the property. The valuation of the property is done by qualified valuators who not only asses the value of the property but also decide on the loan amount. The whole process is centered on the fact that there are occasions wherein the property might not have a clear title and is not technically sound. Thus, it makes no sense for the bank to sanction the loan amount.

Loan Disbursement

After all the formalities are done with, and the bank declares its satisfaction for the technical, financial, and the legal valuation of the property, you will go through the registration process of the home loan. Legal documents will need to be prepared on stamp papers that are of the requisite denominations, in the format that has been approved by the legal representative of the bank. As a borrower, you are then required to sign a home loan agreement and are also required to submit post-dated checks in favor of the bank, for the loan tenure that has been agreed upon by you and the bank.
Once the home loan agreement is signed by you and the bank, the loan disbursement process begins. The disbursal on the home loan amount is dependant on the purpose of the home and the type of disbursal agreed upon, whether; in a lump sum or in stages.

Some Specific Housing Finance Terminology

There are a few terms that you will come across time and again when it comes to home loans or any other type of housing finance. Herein, we try to give you a fair idea of the kind of terms and their meaning:
EMI: These are the Equated Monthly Installments that one must pay till the whole loan amount inclusive of the interest is not paid back. The EMI amount includes a portion of both the principal amount and the capital amount.
Fixed Rate of Interest: Herein, the rate of interest will remain fixed for the duration of the loan.
Floating Rate of Interest: The market lending rate will determine the interest rate. Lending rates might go up or down, and the borrower can be at an advantage or a disadvantage at different periods of time.
Monthly Reducing Balance: The interest rate will reduce on a monthly basis when the repayment amount is repaid.
Annual Reducing Balance: The principal is reduced on a yearly basis and in such an option, a borrower will end up paying an interest on even that portion of the principal loan amount that has been paid back.
Processing Fees: A loan application has a processing fee attached to it
Prepayment Penalty: If a borrower repays the whole loan amount before it is actually due and before the loan tenure ends, most banks and institutions charge a penalty for the same.