Once you think of buying yourself a house and go
looking for that perfect dream house, only to find out that you are unable to
finance your new house at the moment.And you realize that you really want that new house.You might at this point
consider the option of taking a bridge loan. A bridge loan is the scenario
wherein if you have enough equity in your present home, the bridge loan will
allow you to avail of a loan so that you can make a down payment and buy your
new house. The only catch here is that the interest rates on the bridge loan
are much higher than those on the home loans. Another thing to consider is that
it is short-term loan, and there are also costs and fees involved.Therefore
you might do better for yourself, if you consider applying for a home loan.The
procedure is simple and of course you have to meet a certain eligibility
criteria. Once you have identified the
house that you want to purchase, you can go ahead and approach any financial
institution dealing or disbursing home loans.
Though applying for a home loan may seem like a
very difficult task, it definitely need not be that way. Given below is some
Home Loan Basic that you need to know before you go about applying.The first step to getting a home loan involves filling up the application form of chosen financial institution along
with the required documents.Do remember that you will need to pay a one time
processing fee at this stage.You will
also require some important documents to get through with the loan processing
stage. In case your are an employed individual, you will require verification
of your employment form, your latest salary slip/salary certificate which
outlines all deductions for at least the last 6 months.Form 16 from your employer for the last 3 years. In case you are a self employed individual, you
will need a Balance Sheet and profit and loss account of the
business/profession along with copies of individual income tax returns for the
past 3 years as certified by a CA.
You will also need a note, which gives the
information on the nature of the business, year of establishment, present
bankers, form of organization, clients, suppliers etc. And of course you will
need a statement proving your net worth as an applicant.Once you are past this
stage you will need to submit the property documents.After getting the approval from the financial institution where you plan to borrow, the loan will
be disbursed to you.
Benefits of
Home Loans:
You can easily avail
home loan from various companies which offer home improvement loans to finance
the cost of tiling, plumbing, electrical work, grills, woodwork, painting,
compound walls and almost all improvements for your house.In fact it must be a good idea to avail of
these home loans, because they offer a number of added advantages as well. One of the most important benefits of taking
a home loan is the interest rate that is allowed on the home loan.Fixed and variable interest rate options are
also available for home loans.
Many financiers also offer home improvement loans at the same interest rate as they offer the home loans.Most of the prevailing interest rates fall in
the range of 7.75% to 8.75%.There is usually processing fee of 1.00% to 2.00%
also that is involved. The other benefit of taking a home loan is the security
that is to be currently being constructed as the security for the home
loans. Of course, most banks and finance
companies do not finance more than 85% of the cost of the property
mortgaged. Perhaps the benefit that is
most used is that of the tax benefit.The interest that is paid on home loans
are deductible from the annual value resulting in a lower taxable income.For self occupied property, interest to the
extent of Rs.30,000/- is deductible from
taxable income.The maximum amount of
fund that can be received through the home loans varies between 50%-100% of the
total cost.
Of
course the loan amount is also subject to the repayment capacity of the
borrower.The usual rule states that the sum of all the monthly installments a
borrower has to pay should not exceed 40%-50% of his gross monthly income. Apart
from the income and margin criteria, the applicant needs to be a salaried or
self-employed individual. And it is important that the loan is repaid before
the retirement stage or before the person turns 65 years in case he/she is
self-employed.On an average the
repayment term of the home loans can be extended up to 15 years.
Home Loan Agreement:
With the ongoing flurry of activity and festivity
prevalent in the home loan segment of India recently, a large number of people,
in the euphoria to acquire that dream house, tend to overlook some of the most
important clauses in the home loan agreement.However, what they don’t realize
is that these clauses have a significant bearing on wide number of areas
ranging from interest rates to repayment schedules.
Some of the simple clauses of the home loan agreement regarding to simple matters, such as how often the housing finance
company resets interest rates in a year can make a considerable impact on the
floating rate home loans. The norms in
the industry practices suggest that interest rates for home loan consumers are
reset only when the bank’s prime lending rate is changed. Therefore it is the frequency of these resets
that is really important. Some of the finance companies offer home loan
agreements wherein the interest rates are reset in each quarter. Alternatively,
there are other companies who do the revision only once a year. Sadly not many
home loan consumers are aware of the clause related to the fixed rate home
loans, which the financial companies some times insert in their home loan
agreement.
This ignorance can cause the customers unintended
losses in case of revision of the fixed rate home loan rates.Most of the
customers are not aware that this particular fixed rate clause in the home loan
agreement permits the financial institutions to change the loan’s repayment
schedule and terms and conditions.
The financial institutions
in a rising interest rate environment might exercise this option in order to
safe guard themselves and in the interest of their own company. This move is
usually not in the best interests of the customer or the home loan seeker as
the modification of the repayment schedule, terms and conditions might affect
the overall repayment of the consumer. The long list of terms and conditions of
the home loan agreement, usually contain clauses which might possibly have a
number of significant implications for the consumer and therefore it is important
that the consumer is aware and makes an informed choice accordingly.
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