Home Loan - Process, Documents Required, Balance Transfer, Prepayment Charges etc.

P K Gupta Feb 18, 2020 2858 0

Home Loan: Process & Documents Required, Balance Transfer, Prepayment Charges etc.

What is Home Loan?
What is Loan against property or Mortgage Loan?
What is the difference between Home Loan & Mortgage Loan or Loan against Property?
Can we transfer the balance in Home Loan?
What type of documents are required for applying home loan?
What type of documents are acceptable as proof of identity for applying home loan?
What type of documents are acceptable as proof of address for applying home loan?
What type of documents are required as income proof for applying home loan?
What type of documents are required as proof of security for applying home loan?
What type of documents are required as proof of ownership to a business as part of income proof for applying home loan?
What are the different types of Home Loans are available from various banks & financial Institutions?
Can Home Loan be taken in joint names, do both needs to be the owner of new house?
What is Top up Home Loan?
What is the difference between Home Loan Sanctioning & Home Loan Disbursement?
Is it necessary to take disbursement of full sanctioned amount of home loan?
How the eligibility for home loan is calculated?
What are the prepayment charges for Home Loans?
Which are the major banks & financial institutions provide Home Loans?

What is Home Loan?

Home loan is a loan given by various banks & institutions to finance the purchase of a residential house / apartments / bungalows or for a purchase of a plot for construction of a residential building / house /bungalows etc. Home loan also includes a loan given to do additional construction or improvements in the existing constructed residential property.

What is Loan against property or Mortgage Loan?

Loan against property or Mortgage Loan is a loan financed in which an immovable property or some specified movable assets like gold, jewellery, FD, shares or securities are mortgaged as security in addition to the income criteria.

What is the difference between Home Loan & Mortgage Loan or Loan against Property?

Following are the differences between home loan & loan against property (Mortgage Loan): -

Home Loan is given for the purpose of purchase of new house property or construction or improvements of a house property. While Mortgage loan can be used for any purpose like business, personal, buying a property etc.
In case of home loan your new proposed house to be purchased or constructed is kept as security until your loan is repaid, but in case of loan against property, your existing owned property or specified movable assets are kept as security.
Interest rates on home loan are quite lesser than the interest rates on loan against property.
In case of Home Loan, generally money is directly disbursed directly to the seller or builder. But in case of loan against property, loan amount can be disbursed to the account of borrower.
In case of default of home loan for under construction properties, banks find difficulty in recovering the amount as it is difficult to liquidate property under construction, but in case of mortgage loan, since loan is against existing saleable properties or assets, it is easy for the bank to liquidate the assets for recovering their loan.
Can we transfer the balance in Home Loan in other bank?

Yes, if we find some other bank who is offering competitive rates than his lender bank, we can get our eligibility assessment from that new bank and if new bank approves the limit upto the current balance outstanding, we can transfer the balance of Home Loan with that new bank.

What type of documents are required for applying home loan?

For Applying home four categories of documents are required: -

Proof of Identity
Proof of Address
Income related documents & proofs
Security related documents & proofs
What type of documents are acceptable as proof of identity for applying home loan?

For applying Home Loan, as proof of identity, we need to provide the self-attested copy of our PAN card along with copy of any one of the following documents (most commonly accepted by all the banks): -

Aadhar Card
Passport
Voter ID Card
Any Govt ID card
Driving License etc.

What type of documents are acceptable as proof of address for applying home loan?

For applying Home Loan, as address proof, we need to provide the self-attested copy of any one of the following documents (most commonly accepted by all the banks): -

Aadhar Card
Passport
Voter ID Card
Municipal Tax /Property Tax receipts
Driving License etc.
Notarized latest Rent Agreement
Latest bank statement showing complete address of borrower
Sale deed of property etc.

What type of documents are required as income proof for applying home loan?

For applying Home Loan, as income proof, we need to provide the copy of following documents (most commonly accepted by all the banks): -

ITR (Income tax returns) of 3 consecutive Years including current year
In case of business the certified copies of balance sheet & profit & loss account of 3 years also along with ITRs.
In case of salaried employee salary slip of last 3 months along with form 16 of last 3 years.
Latest bank statement of 6 months.
Copy of contracts or agreement if major income is from few contracts etc.

What type of documents are required as proof of security for applying home loan?

For applying Home Loan, as proof of security, we need to provide the copy of following documents (most commonly accepted by all the banks): -

Sale Deed / Agreement to sell of property to be purchased
Complete chain of documents, maps of the property.
Builder buyer agreement & statement of payments in case of under-construction property
Allotment letter & Possession Letter as applicable

What type of documents are required as proof of ownership to a business as part of income proof for applying home loan?

In case the person applying for home loan has his major income from business, along with his ITR & Bank Statement, he also needs to give some proofs as owner to a business. Following are the tentative list of documents which are required to justify the ownership & existence of business: -

PAN Card of Business if it is separate
GST Registration Certificate
Trade Mark Registration Certificate
Audited or certified copies of balance sheet & Profit & loss account of last 2 years along with UDIN no. generated by certifying professional.
Copy of ITR of last 3 years
Professional Degree and certificate of practise in case of practising professionals
Partnership Deed in case partnership firm
Company Registration Certificate in case of a Company
Roc Compliance Certificate in case of a Company
Copy of MOA / AOA in case of a Company.

What are the different types of Home Loans are available from various banks & financial Institutions?

Following are the different categories of home loans are offered by various lenders: -

Home Loan for Construction Cost of a Residential Property: -

In this version, Home Loans are granted to meet the cost of construction for a newly house to be constructed. Here the cost of construction includes all the civil material, fixed and immovable components but does not include movable furniture & furnishings.

Home Loan for Purchase of a new house

In this version, Home Loan is granted to purchase a new house property / bungalows / apartment. The cost for financing is taken as cost as per sale deed or stamp value whichever is low.

Home Loan for Purchase of a Plot

In this version, Home Loan is granted to meet the cost of plot acquired for the purpose of construction of a house property. Here the cost for financing is taken as cost as per sale deed or cost as per stamp value whichever is low.

Home Loan for Improvements or Additional Construction

In this version, Home Loan is granted to meet the cost of any capital improvements or renovations in the existing house or additional construction like building an additional floor in same house property.

Can Home Loan be taken in joint names, do both needs to be the owner of new house?

Yes, Home Loan can be taken in the joint name, even if one of them is not the owner of new house. Generally, this happen in either blood relation or with spouse. For Example, person can be a joint applicant to Home Loan with his parents, spouse, siblings etc.

What is Top up Home Loan?

When we have cleared some outstanding of our already issued Home Loan, bank if our eligibility permits after assessment process can top up some additional amount to meet any fund requirements for the renovation, furnishings etc.

What is the difference between Home Loan Sanctioning & Home Loan Disbursement?

Home Loan Sanctioning is a process in which bank initially judge our eligibility based on our income proof and securities value. Then bank issues a sanction letter which contains eligible loan amount, rate of interest, period of loan and other terms & conditions related to loan. Sanction Letter is valid for the period mentioned in it, generally it is valid for 3 or 6 months depending on bank to bank.

Home Loan Disbursement is a process in which bank actually disburse the loan amount to the borrower. Disbursement is done after sanction when borrower applies to the bank for payment to seller along with supporting document of purchase of property. Generally, in case of home loan borrowed, the amount is directly paid to the account of seller. Bank makes disbursement of Home Loan only after technical verification of all legal documents & deeds of purchase or payments.

Is it necessary to take disbursement of full sanctioned amount of home loan?

It’s not necessary for the borrower to get the disbursement of home loan sanctioned fully. Sanctioned amount is just an eligible amount but we get actual disbursement of the amount which we are short to pay after our own contribution. But in case home loan disbursement cannot be more than the sanctioned amount.

How the eligibility for home loan is calculated?

In case of Home Loan, eligibility is calculated on the basis of monthly cash flow generated by surplus income over expenses. Following is the example of general formula to calculate the eligibility for Home Loan: -

Total Average Monthly Income for 2 Years =100000
Less:- Average monthly expenses based on last 1 year= 40000
Surplus available (A-B) =60000
50% of monthly Surplus =30000

So the borrower can afford to pay an average EMI(Equated monthly instalment) of Rs. 30000 to repay the loan.

Now bank again calculates based on no of years & prevailing interest rates that how much is the principal that can be equated with this EMI with 10 years,15 years or 20 years.

Definitely for longer periods the eligibility amount will be higher than shorter periods.

Also, age factor is also important while choosing the tenure for housing loan, as bank considers earning periods till certain age only.

What are the prepayment charges for Home Loans?

For home loans if the loan is taken on variable rate or adjustable rate / floating rate of interest, in case of individual, most of the banks or institutions do not charge any prepayment charges. They can make the prepayments as many times as they have funds. But in case it is in the name of a company, firm, sole proprietor firm or business or any of these are co-applicant along with the individual, then there are certain prepayment charges applicable which vary from bank to bank.

In case where rate of interest on home loan is fixed, there are certain prepayment charges applicable to all including individual, the rate & terms of prepayment vary from bank to bank.