In most instances, securing a home loan is an integral part of property buying. Once a financial institution lends you the necessary cash, you need to repay the borrowed sum in smaller instalments each month, better known as EMIs, over a stipulated time frame. There are several phases in the home loan process and it can be difficult to get through them, particularly for first-time buyers. A broader comprehension of these details provides insight into each stage of the procedure, allowing you to manage your obligation efficiently.
A Comprehensive Guide to the Home Loan Process
Prior to applying for a house loan, individuals must chalk out a realistic credit plan, keeping in mind essentials such as the monthly EMI outgo, repayment tenor, down payment sum, additional costs, etc. Having a thorough understanding of loan alternatives, interest rates and documentation will enable you to make informed selections.
Here is the step-by-step guide to availing a housing loan:
Step 1 – Establish Home Loan Eligibility
Eligibility assessment is crucial to the housing loan process. This entails checking your credit score, current debts, age, income and other relevant factors. Next, determine the loan amount you need and your own borrowing capacity.
Step 2 – Select a Suitable Lender
There are several housing finance providers and each one may offer different terms and conditions, interest rates and processing times. Therefore, compare and weigh your options based on your requirements and financial standing.
Step 3 – Submit Home Loan Application
You can fill and submit the loan application form online through the lender’s website or their branch office; providing details of your age, income, employment history, education and property specifics. You will also need to attach certain documents to complete your application:
- Identity proof – Aadhar card, PAN card, passport or driver’s license
- Proof of residence – Aadhar card, passport, driver’s license or utility bills like electricity bill and property tax receipt
- Age proof – Birth certificate or std. 10th certificate
- Educational qualification – Mark sheets and education certificates
- Income proof – Salary slips, income tax returns and bank statements
- Business Records (for self-employed persons): Balance sheet, profit and loss statement, business license, etc.
- Property specifics – Approved building plan, consent letter from the society/builder and cost estimate for under-construction property
Step 4 – Payment of Processing Fees
Your lender may request a non-refundable processing fee, ranging between 0.25% to 2% of the loan amount, to initiate the application procedure.
Step 5 – Document Verification
At this stage, lenders will evaluate the documentation and information supplied in the application form. They may speak to you personally to understand your exact credit requirement and capacity to repay the loan. They usually factor in the following when processing loan requests:
- Income and work experience
- Credit rating
- Assets and obligations
- Property value
Step 6 – Loan Approval and Sanction Letter
If your application is accepted, lenders will issue a home loan sanction letter, mentioning the approved loan amount, applicable interest rate and other associated terms and conditions. Go through this document carefully before signing it.
Step 7 – Technical and Legal Evaluation
Once you accept the loan offer, lenders will conduct extensive technical and legal checks of the property to assess its current market price based on construction quality, maintenance, locality and other established parameters.
Step 8 – Disbursal of Loan Amount
Soon after, lenders will ask for original property papers, necessary permits, NOCs and post-dated cheques. Upon signing and stamping the loan agreement, the sanctioned sum will be disbursed as per specified terms. In the case of an under-construction project, the payment may be released in instalments, depending on the stage of building construction; whereas lenders may disburse the full loan amount for a completed ready-possession property.
Long-term monetary commitments such as home loans need careful consideration, so take the time to run through all relevant details before zeroing in on the most ideal option. Aspiring borrowers must note that they can enjoy a variety of income tax deductions each year. Thus, they can greatly reduce their debt liability if they recognise how to save taxes on home loans. For instance, under Section 80 C of the Income Tax Act, they may claim housing loan tax benefits up to Rs. 1.5 lakh on the principal portion of their paid EMIs. In the same vein, Section 24 (b) accords home loan tax benefits on the loan interest to the tune of Rs. 2 lakh. They are entitled to further relief under Sections 80 EE and 80 EEA on the interest component. Together, these translate into considerable tax savings on home loans.