Six factors that come into play in the home loan process

Owning a house is huge financial commitment for many. It is a major investment decision for prospective home buyers. Banks offer 85 to 90 percent of the cost of a property as home loan. The borrower has to make arrangements for the remaining 10 to 15 percent of the money. Hence, a home loan makes the process of buying a house a much closer reality.

Should you apply for loan?

If you have a steady and stable income and no history of default, you can consider a home loan for procuring your dream house. An applicant already burdened with other high interest debts like a personal loan or vehicle loan, may find it difficult to make repayments. Debt management becomes critical as defaulting could negatively impact your credit rating.

Tax benefits

Home loan borrowers enjoy tax benefits which are a big allurement for the salaried class to invest in a property. Under Section 80C of the Income Tax Act, principal repayment up to Rs. 1 lakh on a home loan for purchase (or construction) of a house will be allowed as a deduction from the gross total income.
A deduction up to Rs 1.5 lakhs towards the total interest payable on a home loan towards purchase (or construction) of a house can be claimed while computing the 'income from house property' as per Section 24(b) of the Income Tax Act. This is in case of a self-occupied property.

Choosing lender

Choosing the best lender for your home loan is a critical decision especially for the first-time borrower. Begin by shopping around and gathering information from as many lenders as possible. A home loan is one the most expensive decisions and a hasty move could not only affect your credit rating but also cost your more money. Find out who offers the best deal in the market. Do not overlook penalties and fees that may be levied by the lender. Feedback from your friends can prove vital.

How much should you borrow?

Most financial experts advise you to borrow as little as possible. See if you can pool your other resources and investments whose returns aren't very attractive. Overindulgence can lead you into a debt trap. Build a safety net and ensure that you have a comfortable contingency fund to meet any emergency expenses.

Home loan process

Roll the home loan process by filling in the formal loan application form. The applicant is required to provide personal information, residential address, income, employment and some personal details. Details of the property and estimated are also be needed. You will be required to support this information with proof. Banks verify the details provided by you and also investigate into your credit history.

Some lenders charge a processing fee that is generally 0.25 to 0.50 percent of the loan amount. The bank evaluates your application and could arrange for a personal interaction. It assesses your repayment capacity too. After necessary verification and legal processes, a detailed offer letter of home loan amount sanctioned is sent to the applicant. After signing the required documents and submitting postdated cheques the actual disbursement takes place.

Documents required

Age proof (can be a copy of your school leaving certificate, driving license, passport, ration card or PAN card), identification proof, address proof, employment details, proof of income, six months' bank statements, last three months' salary slips and copies of income tax returns are usually sought by the lenders. Your employment details are verified and the lender tries to ensure you have a sound financial health.