FAQs on Home loans

Normally a home loan is applied for buying a house, apartment, plot of land for construction of a house, extension, renovation or repairs to your existing house. Here are a few FAQs that pop up while getting into the process:

1. What can be the maximum amount borrowed?

Ideally one should apply for lesser amount of home loan so that the interest cost is minimum and arrange for maximum down payment. In most cases 10 to 20% of home price is expected as a down payment and the balance is financed by the financial institution. This also includes other property costs like registration, transfer fees and stamp duty charges.

2. Is a co-applicant mandatory?

Yes, it is compulsory most of the times to have a co-applicant while borrowing a loan. The co-owner of the property can be a co-applicant or any member of your close family can be your co-applicant in case you are the sole-owner of the property.

3. What documents are needed for loan approval?

There is a checklist of documents that needs to be attached along with the loan application form and a photograph. More to the legal documents related to the purchase of the house, the financial institution will require identity and residence proofs, latest salary slip (authenticated by the employer and self-attested by you) and Form 16 or income-tax return (for businessmen/self-employed) and the last 6 months bank statements/balance sheet, as applicable. Some may also require bank deposits, life insurance policies, mutual fund units, certificates of shares, national savings certificates or other investments.

4. What is sanction letter?

Based on the documents submission, the financial institution will decide whether to sanction the loan to you or not. Once the amount is sanctioned you shall be given a sanction letter that would have the following details like the loan sanctioned amount, tenure of the loan and its interest rate, apart from other terms and conditions of the home loan. The stated terms and conditions will be valid till the date that is mentioned in this letter.

5. What is disbursement of loan?

When the loan is given to you, it amounts to disbursement of a home loan you had applied for after conducting technical, legal and valuation procedures. You may opt for a lesser loan amount during the disbursement stage against what is stated in the sanction letter. At the disbursal stage, the allotment letter, photocopies of title deed and the agreement to sell documents have to be submitted. The interest rate as per the date of disbursement shall be applicable which may be different to the one stated in the sanction letter. Accordingly new sanction letter may be given too.

6. How will the disbursement happen?

The loan can be disbursed in installments or in full. The disbursement is in installments based on the progress of construction for an under-construction property, as assessed by the financial institution. and not as per the agreement. You must have a agreement with the developer where the payments are directly linked to the construction phases and not defined before hand on a time based plan. The disbursement is made in full in case of a fully-constructed property.

7. Is the interest rate fixed?

Home loan can be either at a fixed rate or a flexible rate. It varies from different institutions to tenure of the loan taken and such other factors.

8. Is there any cost involved in taking a home loan?

There could be a cost of processing fee of about 0.5-1% of the loan amount. When you apply for a home loan, you don't just have to pay the EMI on the loan. There could be several other charges depending on case to case. It is necessary to check all the costs involved while getting the loan approved.

The right way to get through the best offer is to check with a Home loan consultant who can walk you through all the options available from different financial institutions and can explain you the tax benefits and repayment of the loan as well.