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Kolkata: Buying a house, or an apartment, is often a cherished dream for most of us. Therefore, it is simply one of our most significant financial decisions. Moreover, since a house or an apartment is the most expensive thing that we buy in our lifetime, it lends an extra significance to the entire matter. Also, due to the sum of money involved, most of us have to raise loans from a bank or an NBFC (non-baking financial institution) for the purpose. In fact, most of us cannot afford to buy a house, or a flat, without taking a loan.
In banking parlance, a loan to buy a house is called a home loan. It is perhaps the most fundamental retail loan that the financial system offers. A home loan is an amount of money an individual borrows from a bank or financial institution (often called a housing finance company) to buy a new house, or a pre-owned house, or construct a home. Also a loan taken to renovate/remodel/extend an existing dwelling unit is called a home loan. Like any other loan, it carries a rate of interest and is paid off within a predetermined period of time. Usually, these instalments to repay the loan are monthly and, therefore, are known as EMIs (equated monthly instalments).
In this country India, banks and financial institutions offer different types of home loans. These are: to suit the specific needs of customers.
Home loan: This is perhaps the most frequently applied for. It is taken to buy a new dwelling unit -- a flat, a standalone house, a bungalow etc -- from a real estate company. A home loan is also taken for buying a pre-owned dwelling unit.
Home construction loan: If you own a plot of land and want to build a house on it, you can apply for a house building or home construction loan. You should also have an approved plan by the relevant municipal authorities.
House renovation loan: You might already have a house of your own and it might be old or needs renovation. Or you might want to renovate it to incorporate modern design element. You can apply for a house renovation loan. You can also take such loans for jobs such as painting, flooring and roof repairs etc.
Home extension loan: If you want to extend your house, you can apply for this type of loan. You might need to build an extra floor on top of your house or add a couple of rooms on additional land, for which you will need this sort of loan.
Banks or NBFCs also sanction loans to buy a plot of land a build a house. You can also apply for a plot loan in such a case.
Banks or NBFCs (also referred to as housing finance companies) also allow loans to be transferred from one lender to another. This is typically done by a borrower to get the benefit of a lower interest rate. Suppose you have already taken a home loan and paying EMIs at an annual interest rate of 8.8%. But another bank is ready to take over the outstanding loan amount and giving you a rate that is 10 basis point lower -- or a 8.7% interest. You can apply to get your loan transferred at the new rate from your existing bank to the new bank. But before that you must satisfy yourself that on the balance it should save you a significant amount of money (since your current lender is likely to charge foreclosure amounts for closing the account before time).
Like all other loans, you are not going to get a home loan simply by applying. The lender whom you approach for the loan, will judge your application based on certain factors. These are:
What is a good credit score for a home loan: A high credit score will help you secure a loan fast and at a comparatively favourable rate of interest. If you have taken loans (not necessarily a home loan) earlier and paid all the EMIs according to schedule, you are likely to have a good credit score, which will help you in securing the home loan.
Age: The age of the applicant is of significance simply because if you are younger you would get a longer period to pay off (since you have a longer period of working life).
Income and other financial profile: It is quite obvious that an applicant with a higher pay will have a better chance of securing a loan, It will be further helped if you have a low spending profile too, In other words, if you have a significant pay and a relatively lower expenditure which will ensure you have a larger disposable income to raise your creditworthiness. If you liabilities such as credit card bills or other loans such as personal and car loans are low, and/or non-existent, your chances of securing a sizeable home loan increases.
You should also know that while taking a home loan, one usually has to keep the deed of the dwelling unit with the ;ender as a collateral. A home loan is a secured loan. The deed is given back to the borrower after the loan is completely paid off. Another point: if you are applying for a home loan, the asset must be registered in the name of the applicant (that is you). You can seek a house building loan, only if the land is in your name.
