Securing a Home loan

Before applying for a home loan, you must do a few things.

  1. Check your credit rating and ensure its in good standing so your loan will get approved. You should have already started working on this process a couple years before applying for a loan.
  2. Check the going interest rate for home loans. You can just call up any bank and get a rough idea.
  3. Be clear on how much loan you want, along with the tenure. So the best way to work this out, is to take the purchase value plus stamp duty plus cost of interiors/furniture, etc, plus add any lawyer/agent’s fee. This is your total cost of property. Then subtract the amount you can put down as “down payment”. The balance amount is what you will take a loan for. Now, let’s say you need to take a loan for Rs. 30,00,000. To figure out the tenure, see what is the maximum EMI you will be comfortable with. Let’s say that is Rs. 30,000/month. Then use an EMI calculator online, to work backwards and see for the given interest rate, what the tenure will be (in years).
  4. Call a few banks and ask them what is the best rate they can give you, based on your background and specifics above.
  5. Decide if you want a fixed or floating interest rate. Fixed rate stays constant through your loan tenure and a floating interest rate can change quarterly depending on market interest rates.
  6. If you have any plans of prepaying the loan partly or fully before the loan term is over, you should check about prepayment and pre-closure/foreclosure terms with the bank. A prepayment is when you make an additional part payment towards your loan (in addition to the required EMI) and pre closure or foreclosure is when you want to pay off the entire balance and close the loan sooner. Some banks attached a penalty to these.
  7. In the home buying process, the home loan application comes after the Agreement to Sell is signed and before the property is registered. So before you apply, ensure your agreement to Sell process is complete.

Once you are clear on the above, it's time to file a formal application at the bank.

● You will need to fill the required forms, submit several documents, and pay a loan-processing fee, which is usually non-refundable. This fee usually ranges between 0.5 to 1% of the total loan amount, and once you pay this, the process of home loan commencement begins.

● The bank will then verify all your documents and scrutinize your application. You might also have to meet with the bank officials and representatives from the bank might visit you at your home to verify details. The bank will verify the property and you will have to submit various property documents. The bank will also perform a technical valuation of your property to evaluate its worth.

● If they accept your application, they will send you a Loan Sanction Letter for the same. The letter contains details such as amount, rate of interest, loan period, repayment mode and schemes and terms apply. Once you get the sanction/offer letter, you will need to sign an acceptance copy and pay any administrative fees applicable.

So, once you have loan papers all done, you need to start working with your lawyer to prepare the Sale deed, which will be signed at the Registrar’s office. This process is called Registration. In fact, even the bank officials will come to your property registration at the Register's office with the cheque, which they will give to the seller. They will also take the original property documents from the seller and keep it with the bank. They will return these to you once the loan is fully paid. They keep the originals, so you are not in any position to sell the property to anyone else while it is still mortgaged.

Before the bank officials take the documents, they will have you sign a MOTD (Memorandum of Title documents), which lists the documents in their possession, and confirms that you have willingly handed over these documents in lieu of the home loan.

Hope this clarifies all your doubts about home loan application.

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