Real Estate: 12 Must Know Facts Before Applying For Home Loan

Essentials To Consider Before Applying For Home Loan

Let’s assume you have finalized a project or location to buy.

Purchasing a property is surely a happy moment in our lives. However, we should not rush things and end up spending extra in the process. I am explaining a few extremely important points which I experienced while I applied for the home loan.

Courtesy of unsplash.com

I hope you will not have to search anywhere else after reading this article. So let's proceed with below important things to consider before applying for a home loan.

1. Home Loan Affordability/Eligibility

First of all, we need to answer what is the amount of home loan that we can afford/eligible to avail? How are we going to handle the EMI and monthly expenses? A few serious questions on which our whole journey depends. 

We can solve these questions using Home Loan Calculator, EMI Calculator, Home Loan Eligibility Calculator and PMAY Subsidy Calculator available freely on internet.

Cost of home loan insurance must be considered in the monthly EMI. Though it is not mandatory, a few banks make it a compulsion. 

Addition of female co-applicant will help in decreasing of interest rate a bit. Female applicant would have lesser interest rates.

Do note to set the correct term of years for home loan repayment. Longer the term more the interest we pay on the loan amount though it eases the monthly EMI amount.

At the initial stages, banks will collect more amount in Interest compared to the Principal amount towards the loan.

Courtesy of hdfc.com

As shown in the above screenshot, you end up paying ₹72,70,985 for the home loan amount example of ₹40,00,000 after 20 years of term at a 6.70% of interest rate.

For resale/ready-to-move property, customers have to stick to this EMI amount or they will have to save a chuck of ₹5-10 Lakh and repay to the bank in order to save on the interest amount. You also need to clarify in advance if there are any foreclosure charges(prepaying home loan before home loan term).

For under-construction property, this gets easier in most cases as you pay the amount as per payment schedule slab-wise. In this case, the amount is not that big so you don't have to go to banks to disburse it when you receive a Demand Letter from the developer. By doing this, you save interest on this amount.

Don't forget to check the PMAY Subsidy if you buying your 1st property. Terms of PMAY have been changed from March 2021 and would be available only for the customers whose annual income is below ₹6 lakh even if you are purchasing the 1st ever property.

I will recommend, HDFC for a quick return of the PMAY subsidy amount as they have a separate department for PMAY.

2. Arrangement Of Own Contribution

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We must be ready with at least a 10% amount of the total price of the flat. Own contribution amount depends on % of loan a bank/NBFC is willing to approve. Public sector banks like Union Bank, Bank of Baroda, SBI require 20% of own contribution while NBFC’s like Bajaj Finance & LIC Housing Finance provides 90-95% of the loan amount.

Public Sector Banks also perform strict verification of documents, hence they require each document in place. On the other hand, NBFC’s performs comparatively less strict verification of documents and provide more amount of loan with faster processing.

One more point to consider is when RBI decreases interest rates, Public Sector Banks apply them quicker compared to NBFC’s and Private Sector Banks.

3. Paying Stamp Duty & Registration Fee

Note that Stamp Duty & Registration amount will also have to be ready with Own Contribution. You can pay this amount using Credit Card with additional charges.

We can easily find out % of stamp duty charges in our municipal corporation. Registration charges would be 1% or 30,000 whichever is less. In some corporations development charge of 1% has to be added.

Once you have your own contribution amount ready, you can move ahead with paying stamp duty and registration online via GRAS under Inspector General of Registration.

Courtesy of gras.mahakosh.gov.in

Basic details need to be filled in the form online including project address and PAN.

We have to note down the GRN (Govt. Reference Number) which gets generated while paying the amount. We can mention it in case something goes wrong in the process.

After a successful transaction, save the receipt.

GST amount will be accumulated as per the progress of the construction(For Under Construction Projects). GST amount is 1% of agreement value if the same is under ₹45 Lakh(Affordable Housing).

4. Registration At Sub-Registrar Office

You will receive an intimation for visiting the Sub-Registrar Office near your area. Developer will already arrange a time slot to visit and notify you about the same.

Kindly carry the documents like PAN and Adhaar cards.

In the office, you and the co-applicant will provide the biometrics and photo via webcam will be captured. Also, both will sign the documents with the references(arranged by developer) present which will be provided to you in the form of an agreement copy after.

You will make an entry into a register in the office. This is a simple process overall.

5. Preparing Of Required Documents

List of documents that we need to keep ready in the process:

1. FORM 16

2. 6 Months Bank Statement(Highlight Own Contribution Entry)

3. Address Proof

4. Identity Proof

5. Employment Proof

6. Payslips

        7. Own Contribution Receipt

You may require other documents in addition to the above.

6. Selecting Bank/NBFC

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Selecting the right bank or NBFC is the most important step in the process. This is dependent on the amounts of own contribution and stamp duty & registration fees. 

If we need a higher % of loan, NBFC would be a good choice. 

Another crucial point to consider here is the interest rate at which we are offered a home loan. You can discuss these points with a salesperson in advance to have a good offer in terms of the best interest rate and processing fees.

If you have a good Credit Score(750+), you will get a good interest rate for a home loan. You can check the credit score on the CIBIL site by paying a small fee. Do not depend on any app.

Two types of interest rates:

1. Fixed Interest Rate
2. Floating Interest Rate

Do verify the branch reviews of the home loan department on Google. 

7. Filling Application Form and Processing Fee

Once we have selected the Bank/NBFC, we now have to fill the home loan application form on the site. This form will ask for basic information about the applicant and co-applicant with project details and home loan amount.

Remember once the application is completed, it will be valid only for 3 months period. You have to start the EMI’s or the disbursement to the developer in this time. 

If this fails for any reason, your file will be closed and you have to pay the file re-opening charges.

8. Sanction Letter From Bank/NBFC

Post verification of the documents attached in the application form, the bank will send you the Sanction Letter on your registered email.

If you need to correct or send an extra document you will be notified by the department. You can check the status on the portal for your file number as well.

You will have to cross-check the details like Interest Rate on the sanction letter carefully. 

9. Approval Of Project From Bank(APF)

Your builder will provide the APF(Approved Project Financial) number to the bank. Bank officials will verify the project site by visiting it in person. 

If everything is verified successfully, the bank will then approve the project. The bank charges a small fee for visiting and verifying the project site and documents.

You will have to pay the CERSAI fee with the project visit fee. The CERSAI was established to discourage and prevent the practice of taking out various loans from several banks using the same asset or property.

10. Filing NOI & Stamp Duty 

After the project is approved by the bank, another fee has to be paid to the government called NOI(Notice Of Intimation) and stamp duty on the home loan. 

On June 14, the state government(Maharashtra) has increased the fee chargeable on intimation of mortgage to 0.5% of the loan amount as against a nominal charge of Rs1,000 earlier. An upper limit of Rs15,000 has been maintained.

You are required to fill MTR Challan for this and you will receive the receipt of it.

For NOI, photographs and biometrics of Mortgagor(You & Co-applicant)are required. Once done save the receipt for both as the bank will ask for them while disbursement of loan amount.

You will have to register a NOTARY from an advocate by buying a Stamp Paper for amenities in the project. Don't forget to sign on each page of the documents.

11. ACH Mandate

You will now have to register for ACH Mandate process for auto-debit the EMI amount from your account like the SIP amount gets auto-debited for mutual funds.

Don't worry about the max deductible amount on the portal that will not get deducted immediately. However, that is the max amount you are setting up.

You will be asked to set up a date on which your monthly EMI with be deducted from your bank account.

Keep the registration number handy in case if you need it.

12. Disbursement Of Loan Amount

You can place the disbursement request(DRF) online via the bank's portal. You will have to fill in the details like your name, file number, project address, mode of transfer of funds, bank account number of builder, bank name, branch name, the date on which disbursement has to be made, current stage of construction, disbursement amount and signature.

Finally, you will receive an email from the bank to visit for the disbursement of the loan amount and be presented with the list of documents to bring in.

Carry all the documents ORIGINAL(including agreement) with you to submit to the bank. Hence have a Xerox of all these documents else if you need it in the future bank will charge a fee. You and the co-applicant will have to sign documents. 

You will be given a file mentioning the record of the home loan amount disbursed, interest rate, and monthly EMI amount. Also, it will contain do’s and dont’s of home loan service.

This is the overall process of a home loan. Now you will be having an idea of how much should you have and pay for the procedure.

> To know more about current interest rates, visit Bankbazaar

Reference: cleartax.in

NOTE: Numbering of points mentioned in the article may differ case by case and are based on my personal experience.