Home Loan:

Many factors such as your income, age, number of dependents, qualifications, assets, and liabilities, income stability/continuity of your employment/business, etc. are considered when assessing your repayment capacity. Points to note: You must be at least 21 years of age for the loan to be sanctioned. The loan must terminate before or when you turn 70 years of age. You must be employed or self-employed/professional with a regular source of income.

However, there are ways by which you can enhance your eligibility: If your spouse/husband is earning, add him/her as a co-applicant. The additional income shall be included to enhance your loan amount. Incidentally, if there are any co-owners they must necessarily be co-applicants. Did you know that your fiancée's income could also be considered for sanctioning the loan on your combined income? The disbursement of the loan, however, is done only after you submit proof of your marriage. Providing additional security like bonds, fixed deposits, and LIC policies may also help to enhance eligibility. Rental Income can also consider increasing eligibility. While there is no need for a guarantor, having one might enhance your credibility. If so, our loan officer would provide you with the necessary details. However, the final amount to be sanctioned will depend on your repayment capacity. Registration charges, transfer charges, and stamp duty costs will be included in the total cost.

Do remember that banks are not very willing to finance properties that are considerably old and/or in poor condition.

Sanctioning

This section gives you an overview of the documents required across the process of applying, being approved and receiving disbursements of a home loan.

General Documents:

  • Proof of Income: a) Salaried Applicant minimum of 4 months’ salary slip along with 2 years form 16. b) Self Employed, Professionals 3 years ITR with Profit and Loss, Balance Sheet and all the Annexures(if any)

 

  • Business profile with details on the nature of the business, list of clients, suppliers, staff strength, geographical spread, etc.

 

  • Age proof: PAN card, Voters ID, Passport, or License

 

  • Copy of ration card or company ID card

 

  • Updated bank passbook or a copy of the statement of accounts for the last 6 months for salaried and 1 Year for Self Employed/Professionals.

 

  • Copy of educational qualifications certificate/s and proof of business existence like Shop Act Registration copy, GST/TAN registration

 

  • A cheque for processing fees, Certificate in original from an employer for any other allowances which are not reflected in the salary slip

 

  • Passport size photographs of applicant and co-applicant

 

  • You may be asked to submit further legal documents if required by the bank, or its approved lawyers. Retain photocopies of all the documents being submitted by you.

Disbursement

Your loan will be disbursed after you identify and select the property that you are purchasing and submit the requisite legal documents. Each and every single document asked for will be verified and checked for your safety. This may take some time but we want to ensure a clear title by completing all the legal and technical verification so that you have full rights to your home. The 230 A Clearance of the seller and / or 37I clearance from the appropriate income tax authorities (if applicable) is also needed. On satisfactory completion of the above, registration of the conveyance deed and investment of your own contribution, the loan amount (as warranted by the stage of construction) will be disbursed by Bank. The disbursement will be in favor of the builder/seller.

List of documents for disbursement

loan

Agreements

DISBURSEMENT

REQUESTS

POST-DATED

CHEQUES

pERSONAL

GUARANTORS'

DOCUMENTS

01.What is my Home Loan Eligibility?

  • A lender needs ‘proof’ to believe that you can make repayments on your loan. For this, he/she/they will take a thorough look, not just at your income statements, but also your assets and liabilities, your credit history to see how you handle repayments on credit cards and other existing loans, your education and work experience to see how qualified you are to meet your professional and financial goals, and whether you can really afford a large debt burden like a home loan.

    The standard method banks use to assess your home loan eligibility is the application of FOIR (Fixed Obligation to Income Ratio) of a borrower. This is an important calculation for the bank for this is the way to understand what your other obligations are as a borrower. To calculate the FOIR the lender takes into consideration all the other monthly installments a borrower is paying, including the home loan that he has applied for. The statutory deductions from your salary like provident fund, insurance premium payments are not taken into consideration in this calculation.

Consider an example:

  • Income of a prospective borrower is Rs 50,000 per month and he pays a car loan EMI of Rs 8000 per month

  • He has just bought a gadget and pays an EMI of Rs 2000 per month for the same, his proposed housing loan instalment is Rs 15000 per month

  • When all his loan installments are divided by his monthly income, the FOIR is 50%, or Rs 25,000/-

  • Few Housing finance ltd considers FOIR up to 70% of monthly income (Eg.LICHFL)

  • Most lenders restrict the FOIR limit to a maximum of 50% of one’s monthly income. In other words, it means that if one needs around 50% of his income to meet his personal expenses, the other half is committed towards fulfilling his fixed obligations including the home loan.

Pros and Cons of Floating rate Home Loan
 

The benefits of opting for a floating rate of interest:

  • The one clear benefit that a floating interest on a home loan has been that it is cheaper than a fixed rate by at least 2 to 2.5%. Even if there were to be a case where a floating rate exceeds a fixed rate of interest it will only be for some period of your entire loan tenure as interest rates a cyclical in nature. Needless to say, floating interest rates bring in a lot of savings for the borrower when the interest rates soften in the market. Interest rates would reduce in future automatically if Bank reduces the ROI on loans in future.


The drawbacks of opting for a floating rate of interest:

  • The drawback of such rates is the impact they have on your monthly outgo as EMI. Given the uneven nature of floating rates, either your EMI may shoot up one fine month throwing your monthly budget out of gear or you may end up repaying substantially higher due to an increase in your loan tenure (EMI remains same). However, if you think that this aspect does not bother you, going in for a floating interest rate does indeed make sense.

Pros and Cons of Fixed rate Home Loan

Benefits of opting for a fixed interest rate:

  • Your EMI remains the same irrespective of the conditions prevailing in the market. It is a great option for those who are good at budgeting and do not want their monthly outgo to go haywire because of market conditions.

  • Gives the borrower a sense of security and peace of mind. Drawbacks of opting for a fixed interest rate: The major disadvantage of a fixed rate of interest is that it is at least 1-2.5% higher than a floating rate of interest. The other disadvantage of such a loan is that if the interest rates decrease significantly, a borrower who has opted for a fixed rate of interest does not get any advantage. As a borrower, you must also cross check with your bank whether you are allowed to fix your interest rate for the entire loan tenure or only for a few years. If you perceive that the interest rate cycle will be on the rise for the next few years, it’s a good idea to be locked under the regime of a fixed interest rate on your home loan.make sense.

02.What is an EMI? How does it work?

  • The standard method banks use to assess your home loan eligibility is the application of FOIR (Fixed Obligation to Income Ratio) of a borrower. This is an important calculation for the bank for this is the way to understand what your other obligations are as a borrower. To calculate the FOIR the lender takes into consideration all the other monthly installments a borrower is paying, including the home loan that he has applied for. The statutory deductions from your salary like provident fund, insurance premium payments are not taken into consideration in this calculation.

The loan amount – Principal The rate of interest The tenure of loan

  • The most popular method of computation is that of ‘monthly reducing loans’. In the monthly reducing cycle, the principal is reduced with every EMI and the interest is calculated on the balance outstanding. The majority of the retails such as Home loans, auto loans and personal loans are computed on a monthly reducing basis.

  • Effectively, therefore, in the initial years of the loan, a major component of the EMI is the interest that is payable by you. As the loan tenure reduces, the interest component reduces too, as the principal gets paid. Note that an increase in the tenure of the loan, will lead to an increase in interest rates and therefore, the interest component of your loan. As a borrower, you should try and pay as much of EMI as possible, and shorten the tenure of the loan.

03.What is a Floating Rate of Interest?

  • As the name implies a floating rate of interest is one that varies according to the prevailing conditions in the market. Home loans that are disbursed on the floating rate of interest, are done so in relation to the base rate of a lender. Therefore, if there is a change in the base rate, there will be an impact on your floating rate of interest as well.

The benefits of opting for a floating rate of interest:

  • The one clear benefit that a floating interest on a home loan has been that it is cheaper than a fixed rate by at least 2 to 2.5%. Even if there were to be a case where a floating rate exceeds a fixed rate of interest it will only be for some period of your entire loan tenure as interest rates a cyclical in nature. Needless to say, floating interest rates bring in a lot of savings for the borrower when the interest rates soften in the market.

The drawbacks of opting for a floating rate of interest

  • The drawback of such rates is the impact they have on your monthly outgo as EMI. Given the uneven nature of floating rates, either your EMI may shoot up one fine month throwing your monthly budget out of gear or you may end up repaying substantially higher due to an increase in your loan tenure (EMI remains same). However, if you think that this aspect does not bother you, going in for a floating interest rate does indeed make sense.

Understanding my Cibil Score

A CIBIL credit score represents an individual's financial stability, and helps lenders assess his or her financial credibility. CIBIL is India’s first credit information bureau, a repository of information of your repayment track record on your loans and credit cards.

Omkar Shah is a 30-year-old, mid-level executive who lives with his parents in Lucknow. Unlike his father Mukul Sharma, who hates the idea of living on credit, and has spent his life savings to build a retirement home, Omkar like most others of generation uses credit cards, has taken a car loan and is now preparing to take a home loan before he gets married in 2015.

Easy access to credit and the ability to repay debt in small amount through EMIs has made life a lot simpler for the likes of Omkar.

But there is another side of the coin. If you are irresponsible with your debt, you will end up having a poor CIBIL credit score, which will in turn thwart your chances of getting a loan when you need one.

04.Why is it hard to get a home loan if my CIBIL Score is bad? How do I improve it?

 

Top banks in India have become stringent in their credit appraisal processes and one of their most important norms is a CIBIL score of 750 and above.

35-year-old Krishnan Menon had at all going for him last year. He had just got a promotion and a substantial jump in his salary and thought it was time for him to make the big move of buying his own house. He had already set his eyes on a small apartment close to his parent’s place in Thane. But little did Krishnan know there was a shock awaiting him, when reputed Bank ABC rejected his home application.

When Krishnan asked his loan officer what was wrong with his application he was told that he was denied a loan because his CIBIL score was only 650 (out of 900). Krishnan tried making another home application with Bank DWE, but this bank was offering a loan at a rate that was at least 3% higher than what Bank ABC had offered. Krishnan then thought the better of it, and is now working on improving his CIBIL score. He plans to re-apply to Bank ABC for a home loan in 2015.

01. Scrutinize your CIBIL report

The reason why you have a poor CIBIL score is because your CIBIL credit report is poor. So, the first thing you do is pull out your credit report and see what is wrong with it. If you do not understand it yourself, go to your loan officer and ask him to explain to you what your delinquencies are. The other thing to do is to check out if there are any discrepancies in your report. Sometimes there may be disparities in your report like a loan that you may have closed may not have been updated on CIBIL by your previous bank. If you find such a discrepancy, raise a dispute via the Dispute Resolution Process of CIBIL. Ideally, you should have done this before applying for a home loan.

02.Make planned payments

If there are no discrepancies in your report, and you have not been approved a loan because of unpaid debt, then you need to start paying off your debts. Choose your most recent and cheapest debt and start making repayments. If there are smaller debts to be repaid, choose them over that big one. Not only will it be easier for you, it will look better on your credit report too.

03. On time payments

Now that you know the importance of timely repayments, start making them diligently. The same goes for your credit cards too. Do not make the mistake of surrendering your credit cards if you find your credit score is not too flattering. Continue using them and try to pay your balances in full. If this seems difficult, keep utilization below 30% (i.e. do not keep more than 30% amount of your credit limit on a revolving cycle) Also make sure you make payments on credit card bills before the due date.

04. Do not make fresh inquiries or applications for new debt

If you have been refused a home loan because of poor credit score, it would be advisable not to apply for a car or a personal loan to compensate for it. It is suggested to not inquire even about the same as everything is recorded by CIBIL. It may take six months to a year to improve your CIBIL score. Clear out your past dues, and concentrate on improving your CIBIL score.
 

Is it important to check my CIBIL Score before applying for a Home Loan?

Angelina Xess is a young, successful corporate executive. After six years of service in a multi-national company in Bangalore, she received a promotion a month back and finally thought of materializing her plans to buy an apartment and bring her parents to live with her in Bangalore from their rented apartment in Kochi. She had no doubts about her getting a loan, because her salary was good, her papers were in order and Bank ABC seemed only too happy to give her a loan.

But just about a week later after she had submitted her application, she received a call from Bank ABC saying that her loan application had been rejected because her credit score was poor. Being a financially disciplined individual, Angelina was completely distraught and ran to her loan advisor who advised her to purchase her CIBIL report and score online to find out what was wrong.

On receiving her report, Angelina found that there had been a case of mistaken identity wherein the credit history of one Angelina Gnomes who had a major credit card default was showing under her records. All she had to do then was to raise a dispute with CIBIL. CIBIL resolved the dispute and updated her report within a thirty days of her raising the dispute. Angelina’s report is now clean and she is all set to re-apply for her home loan now.

The mistake Angelina made was not to have looked at her credit report before applying for a home loan. Ideally, she should have checked out her CIBIL report a year before applying for her loan which would have saved her a lot of trouble. If you want to apply for a mortgage, there is no way that you should neglect your CIBIL report and score. Make sure that you have made timely repayments on all your loan accounts and credit cards and all your other details are in order. All banks insist on a score of 750 plus on a total of 900 to even consider you for a mortgage.

Here are some tips that will help you maintain a good CIBIL score:

Do not be desperate for credit-
Applying for too many credit cards or loans in a short period of time will have a negative bearing on your credit report.

Spend within your limits-
Credit utilization is an important part of your credit handling assessment. Being perilously close to your card limits does not indicate well for you when you want to apply for a loan.


A good mix of credit-
Improve your credit profile by having a mix of both secured and unsecured debts. Secured loans will include debt like home loans, loans against security, car loan, etc. Whereas, unsecured debt will include credit card outstanding, personal loan, etc. A healthy credit profile has a balanced mix of both secured and unsecured loans

 

Timely repayments-
This is the most important parameter influencing your credit score. Ensure that you always pay your bills, EMIs and insurance payments on time. Keep enough provisions well ahead of time and make the best use of alerts.

 

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